The Mail & Guardian reports that the Zimbabwe government is in advanced stages of resurrecting the Zim dollar. I noted to clients yesterday that this shouldn’t be a major problem if the government continues to allow foreign currencies to circulate next to the Zim dollar, but that if the public don’t accept the Zim dollar as payment for goods and services, the government would have to resort to force to get people to use the currency again and ban foreign currencies. This would be very disruptive to the overall economy and could send the economy back into collapse.
Professor Steve Hanke sent two tweets about this yesterday that I thought were good and worth sharing, because I agreed with them. Prof Hanke was an advisor to the Zim government and advocated a complete dollarisation of the economy, which after implementation instantly stabilized the collapsing economy.
That didn’t take long. I wrote an article last week titled “Asset Expropriation Risk Soars in Post-Hyperinflation Zimbabwe,” and published it on Mises.co.za this morning. In it I explain why asset expropriation risk in Zimbabwe is the highest in Africa, and concluded that:
Everything points toward high and rising asset expropriation risk in Zimbabwe. The less ability the regime has to expropriate resources through monetary inflation and subsidized borrowing, the more it will rely on expropriating assets visibly. The tragic irony of this is that Zimbabwe holds great investment opportunities following the ravages of hyperinflation, yet pervasive asset expropriation risk neuters those opportunities significantly. Investors should be aware that expropriation may not end with farms, banks and mines, but could spread to other industries. In fact, Zimbabwe’s current governance and institutional arrangements that place it among the least free countries in the world essentially guarantee more expropriations in the future.
Thamsanqa Netha and Ana Monteiro have just brought my attention to a Bloomberg article that says the Zimbabwe government is preparing a law that would allow it to seize company stakes without compensating the owners.
There are good reasons for this spate of asset seizures in Zimbabwe, it was quite predictable. For more insight, read the Mises.co.za article. For even deeper analysis and risk monitoring, get in touch with me and I could introduce the Asset Expropriation Risk monitor to you.
UPDATE: In my haste to put this post up and get back to work, I wrote in the title that the law had already been “passed.” It has not been passed, it is still in the pipeline.