Zimbabwe's inflation is sustainable, or What the thugs are thinking

A lot of people are still wondering about Zimbabwe's hyperinflation, estimated at about 9,000,000% as of mid-June. Cowen, among many others, is still thinking through the lens of seignorage, i.e. printing money is a tax on holders of money, but costs through the cost of bank notes and damage that inflation causes to the economy.

Hyperinflation is attributed to incompetence, a Government shooting itself in the foot, those stupid African communists.

But it's not as stupid as it looks; the problem is that commentators still think of Zimbabwe as a state with a Government. In the last five years Zimbabwe has ceased to have a Government: it has been replaced with a small group of thugs operating the machinery of a state.

9,000,000% inflation makes no sense from the perspective of a Government. Hyperinflation destroys a state because (i) its citizens turn to other currencies or escape to other countries, (ii) economic activity grinds to a halt, and (iii) the Government finally runs out of people who will pay for its paper. This usually happens well before 9,000,000%. It does not happen in Zimbabwe because (i) security forces in Zimbabwe will arrest you if you try to buy or sell anything with foreign currency, (ii) the economy has mostly been killed but there are enough remittances from family members to keep the thugs in business, and (iii) security forces and mobs in South Africa are doing everything they can to stop Zimbabweans from fleeing and keep them trapped in Zimbabwe.

Zimbabwe a state no longer; it is a prison for its citizens, and hyperinflation is just one cog in the machinery of punishment. 9,000,000% inflation makes a lot of sense from the perspective of a small group of thugs operating a state. By forcing people through threat of violence to continue to transact in Zim dollars, you can sell them worthless paper for the foreign currency they get from their relatives outside. They would leave, but with the assistance of your state neighbors like South Africa, you force them to stay. Their relatives keep sending them money because they will starve without it. They keep using that money to buy Zim dollars because they will be thrown into prison if they don't.

The citizens of Zimbabwe are held hostage, and the thugs known as ZANU-PF are collecting ransom after ransom from their relatives. People are waiting for the country to self-destruct, but I'm afraid this money pump is more sustainable than commentators have suggested.

It's a remarkable little operation, and it seems like few outside of Zimbabwe have understood it.

Some references:
Zimbabwe's people kept alive by remittance market
Letter from Harare

Ugly food price effects

This is a strange pair of articles in today's morning news:

Across globe, empty bellies bring anger. Food prices are spiraling out of reach, sowing volatile discontent and putting pressure on volatile Governments.

Ottawa to pay struggling pork producers $50 million to kill 150,000 pigs by fall. ...Most of the meat is to be used for pet food or otherwise disposed.

Wasteful rich and hungry poor are hardly news, but I find it striking that rising grain prices should affect us so differently. There is less to eat for the poor, and more must be thrown away by the rich.

Canada is great

Nothing to do with development, but beautiful:

Plans for Canada anti-terror unit found in garbage. No, this is not from the Onion. I'm happy to see that in spite of all the talk, we aren't really that worried about terrorists.

It's hard to be good

The ever busy Chris Blattman complains about Development Tourists, people who go on short trips to developing countries to do things like build houses with Habitat for Humanity, or run inane research projects or work in NGOs for less than a year at a time. Who are these fools, and who do they think they are helping?

It's a classic complaint among development workers, but I really don't get it. We complain that rich country Governments don't pay enough attention to International Development, that they don't meet their international commitments, that most Americans couldn't find Kenya or Darfur on a map. But it's when a person gets themselves organized enough to find out about Habitat for Humanity and go on a home building trip, that's when all the cranky and experienced development types really get their knives out.

Why are we development workers so quick to attack people who are trying to do the same thing as us, if perhaps a little bit less informed and less cynical about it? My suspicion is that it is an expression of deep anxiety about our own ability to make a difference. By attacking the Development Tourists, we can feel better about ourselves, because we're the real thing, not like those boneheads over there.

Blattman's blog is generally focused on positive undercurrents in development. If he is going to turn on the criticism, I can think of a lot of things worse than Development Tourists. How about the jaded development types who have spent years in Africa and know exactly how to abuse the system to reap huge consulting fees for work they know is useless? How about the preachers and con men selling false cures for AIDS? The promoters of abstinence-only HIV education? Or the majority of Americans who can't tear themselves away from their reality television shows for long enough to go on a short term Habitat trip and see something outside their own country?

Why would you attack the one group of people who are trying to learn more about how they can make a difference?

Seeking a new colonial master

I'm struck by the language used in the Economist's article about the lifting of the European travel ban on Robert Mugabe, the man largely responsible for the ongoing destruction of Zimbabwe. The story goes thus: faced with an increasing Chinese and Indian influence on the African continent, Europe can no longer afford to moralize to Africa's tinpot dictators, or it will lose out on the spoils. Hence the decision to allow Mugabe to visit Portugal to attend an Africa-EU summit, with one conscientious abstainer, the prime minister of the UK.

What strikes me is that all the sound bites, from African and European leaders alike, indicate a story that is not about partnership, but about sale.

Nigeria's minister of finance:

"Nigeria is becoming a beautiful bride. What is happening is the Chinese, the Koreans, everyone is coming around, and if European companies do not wake up, they will see that most of the best businesses are taken."

Apparently the goal is to have all of Nigeria's businesses taken by foreigners. Interesting.

Another unnamed "African official":

"Europe is jealous. They say we have gotten a new colonial master, but our old one wasn't so good."

(I naively thought the best idea would be to have no colonial master at all.)

The [Europeans'] main concession is to be less critical of regimes that are a bit light-fingered, or disdainful of human-rights.

It is interesting that at the end of the colonial period, most of the African colonies were loss-making enterprises for the colonial Governments. Now that Africa's resources are again perceived to be valuable, I guess we can drop the talk about democracy and human rights, and get back down to business.

Where have we heard this before?

I would guess that journalists must be most willing to take liberties with the truth when they are discussing subjects or places they can count their readers knowing very little about.

So I gather from this cover story that Business Week readers can be assumed to know very little about Africa. I assume that's why the author chooses to join a couple of entrepreneurs with a factory in rural Mozambique, and incorrectly generalize this experience to a continent. He describes Africa thus:

Airports open and close arbitrarily. Roads are often unpaved and clogged. Gasoline and diesel are scarce, and rolling blackouts common. The medical precautions are even more forbidding: Traveling to mosquito-infested interiors requires a round of injections and weeks of antimalarial pills that often induce hallucinations.

Was our correspondent really taking mefloquine? Only if his physician is seriously out of touch or old-fashioned - Doxy and Malarone and far more commonly prescribed, especially for short trips like our correspondent's. And even mefloquine produces hallucinations very rarely, not "often". But hallucinogenic anti-malarials sound like a great story, so why not take some liberties. (And the round of vaccinations is not that different from what you need to travel to South America or Asia.)

As for scarce gasoline and airports that close down, that's a bit dramatic. 25% of Africa's GDP comes from South Africa, where neither of those things are true, and another good chunk comes from North Africa or various capital cities with pretty robust refueling infrastructure at least. It's not really fair to pretend that this is a normal part of the business environment.

But I am nitpicking - the rest of the article isn't that bad. The title "Can Greed Save Africa" does make one think of another time in history that greed drove all kinds of investors into Africa, harvesting resources and cutting off hands and the like...

At least one thing hasn't changed - it's the land that matters. The world is experiencing an unprecedented commodities boom. Africa is one of the planet's last untapped resources. (Though the BusWeek article talks mostly about microcredit and agriculture, the biggest business in Africa is still natural resources, and the commodities boom is driving the credit boom.) So do you think these resource extraction projects are sustainable?

The most telling comment for me is by the Dutch South Africa manager of a project in Mozambique: "I'd be the last person in history to go down as a philanthropist, but you cannot run a business when your workers are out with malaria or sick from dirty water."

This then, is the trade being offered. Anti-malarials and clean water, for the land.

Stupid headline of the day

Thanks to that pillar of quality journalism, the New York Times, for bringing this barbaric practice to the front page. Just when we thought those Africans were becoming modern, embracing internet cafes and mobile phones, now they think children are witches. I guess some things never change...