Institute for War and Peace Reporting | Giving Voice, Driving Change

Thriving Black Market Keeps Economy Afloat

Money-changers are among the few people doing well out of Zimbabwe’s crumbling economy.
By IWPR
Hotels in Harare’s central business district used to be the preserve of the well-heeled businessmen and tourists who flocked to Zimbabwe, particularly from the West.



As high-powered business deals were concluded inside the hotels, the prostitutes would wait outside to ply their trade. As soon as you stepped out of the hotel lobby during the evening, scantily-dressed women would try to attract your attention from behind parked cars. Just in case you missed the furtive signals, they would pop up beside your car and tap discreetly on the window.



But no more - the ladies of the night have grudgingly yielded to a new and rapidly growing breed of entrepreneurs, the black-market money-changers.



Unlike prostitutes, Zimbabwe’s moneychangers do not operate at night. They hang around on the approaches to luxury hotels like the five star Meikles Hotel or the equally prestigious Holiday Inn, occasionally moving up and down the street to avoid detection by the police.



As soon as you park your vehicle, they are all over you, asking what currency you want to buy. They have all sorts of foreign currency in every possible denomination, even though the Reserve Bank of Zimbabwe’s coffers are empty. American dollars are the most popular, then the South African rand and the British pound, followed by other currencies.



The traders come in all shapes and sizes, united only by their determination to drive a hard bargain.



At one end of the spectrum is the well-dressed gentleman leaning against his slick Mercedes Benz and tinkering with the latest-model cell phone. At the other is the school-leaver or the woman who looks as though she would be more at home working at a market stall.



Some are there to change money sent home by their relatives in the diaspora. Others are agents working for big businesses, desperate to acquire foreign currency to stay afloat.



Reserve Bank governor Gideon Gono has described the thriving black market trade in foreign currency as Zimbabwe’s own “World Bank”. Some argue that the parallel currency trade keeps the economy going when it should long since have imploded, and that its existence has therefore averted widespread popular unrest.



The black market took off after the Zimbabwean economy began contracting by an average of four per cent annually in 1997, and especially since President Robert Mugabe’s land seizures from 2000 onwards precipitated a steep economic decline.



The formal banking system still uses an official exchange rate pegged at 250 Zimbabwe dollars, ZWD, to the US dollar. On the illegal parallel market the American dollar is worth up to 100,000 or 150,000 ZWD, an astonishing difference which makes precise comparisons redundant.



In addition – and of course closely linked to the ZWD’s devaluation on the street – the country is suffering alarming inflation rate. In May, prices showed a 4,500 per cent increase on the same month in 2006. Economists are even more worried by the rate of increase – prices at the end of May 2007 were 100 per cent higher than they had been four weeks earlier.



Wages have been increasing in nominal terms, too, but nowhere near enough to keep pace with inflation. The average monthly wage of a factory worker is 800,000 ZWD – a respectable 3,200 US dollars at the official exchange rate but just eight dollars on the black market.



Rather than try to use the two widely diverging exchange rates as a measure of comparison, it is more useful to set these wages against the minimum cost of living level, which the Consumer Council of Zimbabwe said was 5.5 million ZWD for an average family of six in May. Even though teachers and nurses now earn around four million ZWD a month, their incomes clearly fall well below the minimum they need to get by.



One of the factors driving inflation is that imported goods are bought using foreign currency acquired on the black market, so the retail price expressed in ZWD is accordingly high.



Tonderai, a young man from Eastlea who has never been in formal employment since leaving high school two years ago, explained how the system works in practice. He trades in the money his sister sends back from the UK in British pounds.



“If I change 100 pounds in the bank they will give me 4,500 ZWD,” he said. “A single loaf of bread costs 23,000 ZWD. Work out for yourself whether it makes sense. On the black market I can easily make 25 or 30 million ZWD from what my sister sends me a month. How many Zimbabweans who go to work every morning earn that kind of money?”



Transactions take place right on the street, or out of sight in cars and even in lifts. Once the deal is done, the traders move further out of town into the Avenues district, a red-light area which is the haunt of the big-time currency dealers. Here, foreign currency sells at a premium to businesses that need to make foreign purchases.



Some of the buyers are private enterprises, both legitimate importers and also the firms which illicitly bring in fuel from South Africa. Then there are the government officials who want to buy luxury goods or pay their children’s school fees abroad.



Even government agencies are said to buy currency in this way to fund essential imports of items like grain and electrical power, as there are not enough dollars and rands in the country’s Reserve Bank.



At only 36, Maxie has made a small fortune importing cars, and regards black-market currency purchases as essential to his business.



“It’s the only way I can preserve the value of my money,” he explained. “Every car sold means more foreign currency for me; then I am able to import more.”



Maxie drives around in a Mercedes, but plans to get a Bentley soon – meaning another trip to the “World Bank”.



Demand for foreign currency looks likely to grow stronger as inflation rises and confidence in the ZWD declines. That will keep even small-time traders like Tonderai in business for the foreseeable future, despite the risk of arrest in what is, after all, an illegal sector.



“Without doing any formal job, I am still far better off than my friends who get up at five, scramble for transport and return home weary at the end of the day. It’s me who buys them beer every day,” said Tonderai.



“They [police] can arrest us, but my brother, nobody teaches you common sense except common sense itself.”



Norman Chitapi is the pseudonym of a journalist in Zimbabwe.