It’s miracle money because the government has been creating money from thin air at a time the economy is declining. I will come back to that later.
The Econet scenario is found across all mobile networks. This is because when the cash shortage started, smart dealers quickly realized that the most enduring cash source was the airtime business.
As such, they would transfer an RTGS balance to a mobile operator, get airtime, sell it at cost on the street for cash, flog that cash on the parallel market, make massive returns and repeat the cycle.
This is how some airtime vendors are able to sell airtime at less than it’s face value. Clever, isn’t it?
It’s an arbitrage opportunity created by clueless policy makers and fortune seekers jump on it.
Mobile operators have found themselves with massive liquid bank balances. Since they can’t pay foreign suppliers with it, what better way to use it than reward their local shareholders!
Recently, a friend reminded me of how we used to apply the Old Mutual Implied Rate during the hyperinflation era.
It is basically based on purchasing power parity – the same way the Big Mac Index published by The Economist does.
If you don’t know, here is how it works.
Old Mutual is listed on the ZSE, Johannesburg Stock Exchange and London Stock Exchange (LSE).
The shares are fungible and should theoretically have the same price.
As of now, the price of Old Mutual shares on the LSE is £1.96 (or $2.64) per share. That would be the theoretical price of the same shares in Zimbabwe. However, the current price for Old Mutual shares on the ZSE is $7.72.
So instead of trading for around $2.64, the fungible shares are available in Zimbabwe at 292% more. In other words, you pay almost three times more for Old Mutual Shares in Zimbabwe than you would in the UK.
What does that tell you? It simply means the currency we use in Zimbabwe, whatever we call it is no longer the US dollar (USD). That local unit has depreciated three times against the real USD.
This helps to explain why the revenues for Econet in my example about have gone up threefold.
To explain this using two sides of the same coin, the heads is inflation and the tails is currency depreciation.
The above examples simply show that what we call a dollar in Zimbabwe are not equivalent to the real USD.
Continued next page