Dollarisation of Zimbabwe

Topics: Monetary policy, Currency, Inflation Pages: 3 (823 words) Published: June 3, 2013
THE adoption of the multiple-currency system in Zimbabwe after 10 years of hyperinflation characterised by acute foreign currency shortages and low investment has ushered economic stability but it has also caused even worse economic challenges. During the period, across all sectors of the economy, there has been no capital re-investment and post-dollarisation companies have failed to recapitalise due to serious shortages and the cost of money. The prevailing pricing system in the country was distorted and most assets were overvalued and the introduction of the multiple currency saw most institutional shareholders failing to support their overvalued assets. The business models used during the Zimbabwe dollar era continued into the multiple-currency era and companies have failed to cope with models which required a large workforce and more money. "Operating under the hyperinflationary environment, recruiting was not an issue but we were forced to retrench after the multiple-currency system because the workforce was no longer sustainable. Capital equipment is depleted, production levels are low due to limited capacity utilisation and consumers were retrenched and they do not have the disposable income to buy the products," said an investment analyst with a local bank. A decade ago companies hired more staff to deal with the huge volumes of the local currency and with the introduction of the multiple currency companies had to retrench at huge costs. Most companies listed on the Zimbabwe Stock Exchange have failed to raise capital, the third year into dollarisation simply because the shareholders are poor as they overpriced their assets in the Zimbabwe dollar era and now they can no longer follow their rights. Analysts say Zimbabwe reached its rock bottom in the 10 years but due to the negative effects of the US dollar the economy is expected to go down again and then take off again on a solid base. "At the moment businesses need capital investment, strong and...
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