Why Jacob Zuma will be a good president of South Africa

Posted on June 25th, 2008 by Richard Catto 1,305 views

One reason so far: Zuma is not following in the troubled footsteps of Thabo Mbeki in respect of Zimbabwe.

Zuma refuses to unconditionally support Mugabe’s failed regime, and is instead calling for urgent intervention in an "out of control" Zimbabwe.

So, that’s good, right?

I think people need to keep an open mind towards Zuma. I instinctively feel he won’t disappoint us, if we trust him to lead us.

Jacob Zuma is not another Thabo Mbeki and that is a very good thing.

Tags: Jacob Zuma, Robert Mugabe, Thabo Mbeki, Zimbabwe
Filed under South African politics | 3 Comments »

Mugabe is out!

Posted on April 27th, 2008 by Richard Catto 1,419 views

According to this BBC news report, Zanu-PF has lost the recent elections held in Zimbabwe.

I read many blogs whose authors expressed the rather pessimistic and paranoid opinion that the election recounts were being used to rig the election, but it seems that those fears have turned out to be without substance.

Zanu-PF has lost control of Zimbabwe’s parliament.

This is arguably the most exciting of times for Zimbabwe. The results of the presidential polls are expected by Monday.

What is going to happen next will be very interesting to see.

Tags: MDC, Morgan Tsvangirai, Robert Mugabe, Zanu-PF, Zimbabwe
Filed under Africa, Politics | 51 Comments »

A worldwide crisis – income disparity – a letter from a Zimbabwean

Posted on December 11th, 2007 by Richard Catto 1,232 views

I love getting emails from my readers and a couple of days ago I received a rather lengthy one from Crosby, a Zimbabwean staying in London, who expressed his enjoyment of my blog articles. Here is a quote from his email:

Most white and black people still live parallel lives more than a decade after the end of Apartheid. Considering that the majority of black people live in poverty while their white counterparts enjoy relative prosperity. That is wrong and the importance of interaction between black and white people cannot be over-emphasised. A hungry man is an angry man and this interaction will hopefully help prevent a surprise scenario where one day the level of anger and resentment felt by the majority of blacks one day spills to the surface.

I agree with those sentiments. Income disparity is something which is on my mind often. I believe the chief reason why the gulf opens between the wealthy and the poor has much to do with ENTRY BARRIERS to the economy. For instance, trading in the property market is an excellent way to become wealthy. Buying, selling, improving and renting out property makes many people very rich. The problem is that to enter the property market is extremely difficult for most people, the world over, because property is so expensive, and few affordable opportunities exist. So for a person without the capital stake to begin with, they have to be able to qualify for a mortgage, and that is out of the reach of most people. Most people cannot afford to own property. The people who really benefit are those that can buy property for cash, improve it and sell it within 5 years for massive profit. Some of them then purchase land and build shopping malls and make absolute fortunes. But those who cannot afford to own even the smallest property are kept locked out and in poverty. This is a problem in every country and I believe it is the cause of enormous frustration.

When the farm seizures started happening in Zimbabwe I was completely shocked by the level of anger felt by my disenfranchised fellow citizens, and I’m black. Imagine how much more of a shock this was for the white Zimbabweans.

I wasn’t shocked. Rich white people are hated in Africa. They love their wealth so much. They love it more than life itself.

In addition I think that to further encourage this interaction, everyone (black, white, Zulu, Xhosa – everyone) should learn at least one vernacular language (that means an additional local language for the black people other than their own). Speaking another person’s language tears down social and racial boundaries like you would not believe. It says "I am one of you". You can ask any white farmer/supervisor/manager who works with black employees for proof of this.

I agree, yet in South Africa it remains compulsory to learn Afrikaans at school to graduate. I don’t know why we haven’t changed that to allow people to choose English and any one of the other 11 official languages to study.

I have a lot of respect for the way you see racism in South Africa and I think you are a brilliant impartial social observer. I therefore think that I speak for many of your readers if I suggest that you run for Member of Parliament or Mayor of Cape Town – whatever takes your fancy.

Haha. Politics is not for me. I’ll stick to writing. Thank you for writing in, Crosby. I appreciate the time you took.

Tags: Afrikaans, barriers to entry, Income Disparity, property, Racism, reader's letters, wealth, Zimbabwe
Filed under Income Disparity, Reader's feedback, Zimbabwe | 4 Comments »

Zimbabwe FAQ – why the hyperinflation? how do they fix it?

Posted on September 22nd, 2007 by Richard Catto 12,285 views

Why is Zimbabwe currently experiencing hyperinflation?

Zimbabwe is currently experiencing an inflation rate of over 7600% per annum. The crisis started in 2000 when the Zimbabwean government effectively destroyed their agricultural industry by displacing farmers from their lands.

Zimbabwe’s economy immediately went into recession and inflation began to rise.

So what did the Zimbabwean government do to try and correct this problem?

They printed more currency.

Why did they do that?

They had salaries to pay, projects to finance, things to buy. Just like everyone else they were suddenly faced with the crisis of having to pay much more for things, and they didn’t have enough, so they printed more money to cover it.

Is printing money a problem? Don’t governments do that all the time?

The reserve bank of a country prints currency. Current economic theory holds that an independent reserve bank is superior to a state owned bank. Independence means that they set monetary policy (without political interference) and they decide how much currency to print.

A prudent reserve bank will take care not to grow the money supply (physical currency) at a rate above the CPI inflation rate.

Zimbabwe’s Reserve Bank is state owned and the Governor, Dr Gideon Gono, has been ordered by Mugabe (on an ongoing basis over the years since 2000) to print amounts of currency that grow the money supply at a rate well over Zimbabwe’s inflation rate. Mugabe has in fact stated recently (in July 2007) that Zimbabwe will continue this practice of printing more currency as and when required.

This practice has led to hyperinflation.

How does printing more money cause hyperinflation?

Whenever money supply is increased (without a corresponding increase in the overall economy), the currency is debased. In other words, it loses value. So the cost of goods rise to counter this loss of value. If the supply of money increases above the inflation rate, the rate of inflation increases too.

Zimbabwe has been printing trillions of additional Zim dollars at a time when their economy has actually been contracting (quite rapidly). The punitive regulatory measures that Mugabe has imposed on traders (ordering that they fix their prices) has served only to increase the rate at which Zimbabwe’s economy contracts. So you have an ever increasing amount of currency chasing an ever shrinking amount of goods.

Why don’t they simply stop printing money?

If they do that, they won’t be able to pay government workers’ salaries which were recently hiked by 300% (which was an insufficient increase). They’ll default on all the things they have to pay for and they don’t want to deal with that scenario. They prefer to inflate their way out of their crisis.

Zimbabwe will immediately enter a deep depression if currency growth halts. Arguably, they are in one already, but they can still buy things with Zim dollars. If money supply growth is frozen, people simply won’t have enough currency to buy anything anymore.

If people cannot afford to buy anything, won’t prices come down?

Yes, but there are other problems. Mugabe has regulated the economy by barring businesses from raising their prices and in fact ordered them (in July 2007) to reduce prices by 50%, in an attempt to rein in inflation.

It is a losing proposition to businesses, so their alternatives have been to either defy Mugabe or to cease trading. Those who choose to defy him, are arrested. So damage is being done to whole business sectors and their supply chains. Whole industries will be wiped out if they are not free to set prices rationally.

That is the greater danger, that when the time comes that rational economic policies are applied, there will be no businesses left to respond. Confidence would have been completely lost and it will be difficult to lure the major chains back. Frankly, I don’t see a ZANU-PF government ever enjoying confidence again. Unless the people of Zimbabwe elect a new party to govern, Zimbabwe will not recover. They will remain a crippled country.

So what is the best strategy forward for Zimbabwe?

That’s the trillion dollar question. However, we do have Bolivia as an example. In 1985, they eliminated hyperinflation within a few months by enacting the following measures:

• they linked their currency to a stable foreign currency (in their case, the United States dollar)
• they froze government spending
• they stopped printing currency
• they lifted all price controls
• they deregulated their economy

Zimbabwe will most likely have to do all that and more. They could link their currency to the South African Rand like Namibia has done. The Namibian dollar is linked 1:1 to the Rand.

Zimbabwe also has to rebuild their agricultural sector.

Sources:
Bolivia
TIMELINE: Chronology of Zimbabwe’s economic crisis
A non-currency country
The World’s Greatest Unreported Hyperinflation

Tags: gono, Hyperinflation, mugabe, Zimbabwe
Filed under Hyperinflation | 15 Comments »