Zimbabwe Flirts with Yuan

Robert Mugabe was in China last week. He attended the World Expo’s Zimbabwe Day on Thursday, met Hu Jintao and Xi Jinping in Beijing on Friday and spent the weekend shopping with his wife, Grace, in Hong Kong, where he owns a home and his daughter, Bona, attends university.

The visit coincided with a meeting about economic ties between China and Zimbabwe in Shanghai. The Zimbabwe Commerce Meeting received no attention from Western media, but according to a report in Chinese newspaper First Finance Daily (第一财经日报), Zimbabwe chose the occasion to announce that it is considering using Chinese yuan as legal tender.

The article – translated in full below – highlights just how different Chinese and Western views of events in Africa can be. According to First Finance Daily, Zimbabwe “was once called the breadbasket of Africa and the Zimbabwe dollar had a one-to-one exchange rate with the US dollar. But since 2000, when Zimbabwe implemented its ‘fast lane’ land reform policy, sanctions imposed by Western countries have caused economic collapse.” The contrast between this and an AFP report on Mugabe’s visit, which doesn’t mention the Zimbabwe Commerce Meeting, couldn’t be more stark. As AFP has it, “once a breadbasket of southern Africa, Zimbabwe’s food shortages have been brought on by drought and Mugabe’s crippling land-reform programme.”

Hopes of Yuan becoming Legal Tender in Zimbabwe
12 August

During the Zimbabwe Commerce Meeting held in Shanghai this week, Zimbabwe’s tourist department head Hon. Walter Mzembi said he had recently discussed currency issues with Chinese officials. Mzembi stated that changes to Zimbabwe’s currency system are going to be made, including allowing the yuan to circulate and become one of the country’s official currencies .  ”I hope that in the future, people in Zimbabwe will be able to use Chinese bank cards and the yuan to make purchases, even take out RMB loans,” he said.

Agreement must still be reached

Zimbabwe is currently working to dispel investors’ apprehensions and make investing in Zimbabwe easier. However, a First Finance Daily interview with Zimbabwe Industry and Commerce Department head Welshman Ncube revealed that although Zimbabwe’s interior has received a proposal to make the RMB legal tender in Zimbabwe, the department has still not reached an agreement.

“The next thing we need to do is reach a decision.  If we decide to the let the RMB become legal tender, we’ll start up another round of talks with the Chinese government,” said Ncube.

In early 2009, after years of hyperinflation, Zimbabwe officially stopped the use of the Zimbabwean dollar and replaced it with a basket of currencies. Zimbabwe is currently using the US dollar, the British pound, the South African rand, and the Botswana pula, although the US dollar and South African rand are most common.

During the 80s, Zimbabwe was one of Africa’s richest countries. It was once called the breadbasket of Africa and the Zimbabwe dollar had a one-to-one exchange rate with the US dollar. But since 2000, when Zimbabwe implemented its “fast lane” land reform policy, sanctions imposed by Western countries have caused economic collapse.  During the past few years in particular, political struggle has led to a crisis and complete economic meltdown.  Inflation rose astronomically, the currency rapidly devalued, and the central bank was forced to issue large denomination bills.  At one point, the Zimbabwe Central Bank was issuing one hundred trillion dollar bank notes, setting a new record for the face value of currency.

In February 2009, after Zimbabwe’s unity government was established, their most important task was to improve the economy’s developmental strength.  Due to the adoption of multiple currencies and a series of other measures, Zimbabwe’s inflation rate has effectively been controlled.

“In 2009 our year-end inflation rate was 7.6%; in April this year, our inflation rate was 4.8%,” said Ncube.  Zimbabwe officials have predicted an inflation rate of about 5.1% for 2010.

These and other measures resulted in GDP growth of 4.7% last year, the first time Zimbabwe’s economy has grown in the last ten years.  Its mainstay industries of mining, agriculture, manufacturing, and tourism, which have all contracted since 2000, rose by 2%, 10%, 8% and 6.5% respectively.  At the beginning of the year, the World Bank published its 2010 Global Economic Outlook predicting that Zimbabwe has hopes of achieving an economic growth rate of 7% this year, which will make it Southern Africa’s most quickly developing country.

Investors have a safety guarantee

Ncube also stated that the biggest challenge facing Zimbabwe’s economic development is a shortage of capital.  China, as one of Zimbabwe’s long term partners, is a natural place for the country to seek investors.  Hu Ming, China’s Zimbabwe Economic and Business Attaché, has revealed that over the past few years China has been one of Zimbabwe’s top three investors, second only to South Africa. Ncube said that due to the present multiple currency system, as well as the stability provided by the new unity government, inflation and exchange rate volatility are no longer a problem.  ”Zimbabwe has already entered a new era, our country is now recuperating.” During the meeting, Ncube emphasised to Chinese industrialists that all investments are safe, “Zimbabwe has already made preparations to actively develop its economy.”

Translated by Eric Couillard. Thanks to Matt Colvin for pointing the First Finance Daily article out.