25 years on, the main actors reflect on Zim’s Black Friday

…Can history repeat itself?

IT is Friday 14 November 1997. On a typical Friday, George Guvamatanga, then a senior foreign currency dealer at the now defunct local unit of Barclays Plc, would be preparing for Friday drinks with colleagues in the industry.

BERNARD MPOFU

Not today. Panic stricken, he sits in the dealing room.

The Zimbabwe dollar has just lost nearly 75% of its value in a single day and alarm bells are ringing on a day famously remembered as “Black Friday.”

“For the first time in five years, our CEO Isaac Takawira came to the dealing room and he could not believe what he had seen on the Reuters terminal which tracked currency trading across the globe,” Guvamatanga reminisces in an interview with The NewsHawks.

Then a fast-rising young executive in his mid-20s, Guvamatanga vividly recalls how his back office co-workers and peers from other financial institutions panicked when the country experienced a power outage after the dramatic crash of the domestic currency.

“When power switched off, we thought authorities were trying to manage the situation. As per tradition, we would go out with fellow traders for drinks on Fridays. But not on this day, we were frantically making efforts to take positions and, the following day, bank CEOs were directed by the central bank to restore the exchange rate which obtained before the collapse.”

It was too late to close the stable. The horse had bolted.

It has been 25 years since “Black Friday,” a day that will remain forever etched in Zimbabwe`s economic history as the cataclysmic point that underlined the country’s economic freefall. 

Under mounting political pressure, the government in 1997 announced a new compensation and pension plan for war veterans of the 1970s independence struggle, a move that many people say precipitated the collapse of the Zimbabwe dollar. 

The payouts applied to approximately 60 000 war veterans, each of whom were to receive an immediate compensatory payment of ZW$50 000 (equivalent to US$3 000 at the time), alongside a monthly pension equivalent to US$ 125.

While November 14 1997 marked a new chapter on Zimbabwe’s currency developments, years of policy missteps and bad governance were to spark new episodes of economic implosions.

Guvamatanga, now the country’s Treasury secretary, witnessed another economic meltdown just over a decade after Black Friday.

During his time at Barclays Bank, where he later took over as CEO, Zimbabwe ditched its local currency for a basket of multiple foreign currencies when inflation officially hit 231 million percent.

The epitaph of the Zimdollar had been written, with both economists and non-economists concurring that the situation had turned catastrophic. The central bank desperately printed historic trillion dollar notes and even re-based the Zimbabwe dollar in an effort to stop the meltdown. It was all in vain.

Since then, the southern African nation has announced a handful of blueprints to stabilise the wobbling economy. But the war seems far from over, and the tables have turned for Guvamatanga.

Now in charge of the country’s fiscal policy, Guvamatanga appears to be at ease — for now — as the domestic currency stabilises after months of turmoil.

Desperate to tame inflation, which had become one of the highest in the world, Zimbabwe’s fiscal and monetary authorities announced a cocktail of measures such as suspending payments to government contractors and raising interest rates to 200% to discourage speculative borrowing and parallel market foreign currency trades.

“I have seen the foreign exchange and Zimbabwe dollar crises. I actually know what comes with it and how it is supposed to be managed. I spent 12 years as foreign currency dealer at Barclays and 10 years at the helm of the same bank,” Guvamatanga says.

While the authorities continue expressing optimism on the hopes that the economy may be on the mend, market watchers, business leaders and critics remain cautious.

They say as the summer cropping season commences and the 2023 general elections beckon, money supply growth may spike and the current trend may be reversed.

Gift Mugano, an adjunct professor of economics at Durban University of Technology in South Africa, says the re-dollarisation of the economy reflects failure by the authorities to defend the value of the domestic currency.

“Since March 2020, we are stuck with the US dollar and its use is now more deepened than our ZWL if payment of salaries, payment of service providers by the government, payment of levies and taxes and pricing in USD is anything to go by,” Mugano says.

“The world is moving and is not waiting for us. We have a choice to move with it or risk losing another 25 years as a result of bad governance… Did we learn something over the years? It looks like we are becoming perfectionists in doing wrong things. Zimbabwe can’t be built through hate, propaganda, violence, corruption, command economics as evidenced by the last 25 years.”

The Confederation of Zimbabwe Industries, a grouping of the country’s formal manufacturing sector, has already sounded the alarm bells, warning that the current measures to tame inflation and restore the value of the local currency will crowd out private sector funding and stifle economic growth.

“The Zimbabwean dollar has been scarce in the market, which has resulted in its appreciation on the parallel market,” says the CZI in its latest monthly economic research note.

“The economy is becoming more and more dollarised. Foreign currency accounts (FCA) as a percentage of transferable deposits increased from 47% in January 2022 to 63% in July 2022. This clearly shows that the USD is becoming more dominant and Zimbabwe is moving closer and closer to full dollarisation. Deliberate policies by the authorities to reverse this trend are long overdue, as a dollarised economy is seldom competitive against neighbouring countries with weaker currencies.”

John Mangudya, the Reserve Bank of Zimbabwe governor, told The NewsHawks this week that policy coherence between fiscal and monetary authorities would set the economy on a growth trajectory.

“We have learnt our lessons as a country from what happened in the past and the time is now to correct the issues and missteps we took over the years,” Mangudya said.

“We need a consistent well-coordinated approach to stabilise the economy and so far we are very happy with where we are and our prayer is that we need to remain where we are today so that at the end of the day we can tame inflation and the economy is stable. Stability is our Christmas present this year.”

Official figures show that the year-on-year inflation rate for October 2022 decreased to 268.8% from 280.4% in September 2022 shedding 11.6 percentage points.

As war veterans, key strategists for President Emmerson Mnangagwa’s power consolidation plan, demand more financial and non-financial rewards from the government to cushion themselves from a floundering economy, only time will tell whether or not this trend can be sustained.

But for the ordinary Zimbabwean, the country’s highest denomination, the ZW$100 bill, can only buy less than a handful of candies.