Hard-Boiled Egg Index: Surviving Zimbabwe’s Hyperinflation

By Kudzai Joseph Gumunyu

Hard-Boiled Egg Index is a true story on the struggles Kudzai Gumunyu and most Zimbabweans went through during the record- and heart-breaking hyper-inflationary period in Zimbabwe. Though saddening, the story is told in a humorous and vivid way detailing how Kudzai had to adjust to the effects of economic meltdown. Zimbabwe’s inflation rate reached a mind-boggling 89.7 sextillion percent by 2008 and US$1 was worth 3 nonillion Zimbabwean dollars had the Central Bank not debased the currency three times with twenty-five zeros. The ZWD100 trillion became the highest denomination on the planet. Before the crazily denominated notes, money was being carried in wheelbarrows and grain bags and the purchased item in your hand due to rapid loss of value. Every day became a struggle from shortages of foodstuffs, collapse of services, bank queues, as well a salary that could not keep up with inflation. The writer also gives the life and economic lessons learned, which can be useful to other countries navigating similar economic minefields. It ends with a positive outlook for the country and the hope that the Jewel of Africa (Zimbabwe) will sparkle again given its educated and competent human capital, abundant and rich mineral fields, tourist attractions, rich agricultural lands aided by a favorable climate, as well as, recently, a change of leadership.

• Language: English
• Publisher: LifeRich Publishing
• Release date: Mar 30, 2019
• ISBN: 9781489722287

Kudzai Joseph Gumunyu

Kudzai Gumunyu grew up in rural Zimbabwe and holds a BSc. Agricultural Economics degree and MBA from the University of Zimbabwe. His passion is Agribusiness Finance with emphasis on financial inclusion and impact investment that target and improve small holder agriculture. His experience in Zimbabwe’s economic meltdown enables him to tell a story on how economic challenges affected people’s lives and how poor decisions destroyed a vibrant economy. Kudzai has worked in Zimbabwe and Nigeria in the banking industry impacting both large and small scale Agribusinesses positively. His vision is to see an Africa that can feed itself and compete favorably among the family of nations through digital innovation that can leap frog Africa from where it currently stands. He is married and has three children.

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Copyright © 2019 Kudzai Joseph Gumunyu.

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ISBN: 978-1-4897-2227-0 (sc)

ISBN: 978-1-4897-2228-7 (e)

LifeRich Publishing rev. date: 05/02/2019

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CONTENTS

About the Author

Foreword

Preface

Chapter 1 Promising Future

Chapter 2 Rabble-Rousers

Chapter 3 Gradual Decay

Chapter 4 Burner-preneurs

Chapter 5 Rural Shopping

Chapter 6 Second Mortgage

Chapter 7 High Inflation

Chapter 8 Shopping Trips to South Africa

Chapter 9 Forceconomics

Chapter 10 The Symptoms of Economic Malaise

Chapter 11 Runaway Exchange Rate

Chapter 12 Quasi-Fiscal Activities

Chapter 13 Inflation on Steroids

Chapter 14 Currency Revaluations

Chapter 15 Y2K Reloaded

Chapter 16 Crazy but Inadequate Inflation Salary Adjustments

Chapter 17 Real Time Goat Settlement

Chapter 18 Economic Sanctions

Chapter 19 Answered Prayers

Chapter 20 Can History Repeat Itself?

Chapter 21 Invaluable Lessons Learned

Chapter 22 Conclusion

References

Acknowledgments

ABOUT THE AUTHOR

Kudzai Joseph Gumunyu was born and brought up in Zimbabwe. He studied agricultural economics and has an MBA from the University of Zimbabwe. Kudzai is a career agribusiness banker, spanning Zimbabwe and Nigeria. He started writing this book while stuck in the legendary Lagos traffic, notoriously known as holdup. His next book will be on his experiences in Nigeria.

FOREWORD

It is a pleasure to write the foreword for Hard-Boiled Egg Index: Surviving Zimbabwe’s Hyperinflation by Kudzai Gumunyu. I came across the Hard-Boiled Egg Index when I was working on a monograph, Zimbabwe: Hyperinflation to Growth, which was published in Harare by the New Zanj Publishing House in 2008. As I began to use scientific methods to measure Zimbabwe’s inflation rate in 2008, after the Reserve Bank of Zimbabwe stopped reporting inflation in July 2008, I always kept my eye on the Hard-Boiled Egg Index, realizing that it was an index limited to a tiny basket that contained three hard-boiled eggs.

One may ask, why would a scientist using purchasing-power parity theory to provide the only accurate measure of Zimbabwe’s hyperinflation keep his eye on the Hard-Boiled Egg Index? Well, it was because I thought the index was very clever and well done. Additionally, I found Kudzai Gumunyu’s commentary both entertaining and insightful. Yes, it’s always a good thing to obtain observations from the field.

In the end, I published an article that contained the methodology for measuring hyperinflations and the measurements from Zimbabwe in an article I coauthored with Alex Kwok, On the Measurement of Zimbabwe’s Hyperinflation.¹ We found that at its peak in mid-November 2008, Zimbabwe’s inflation rate reached an astounding 89.7 sextillion percent. Daily, prices were doubling at a rate of 98 percent per day. This rate landed Zimbabwe in the second spot, behind Hungary, in the Hanke-Krus table of world hyperinflations.²

And that’s not the end of Zimbabwe’s inflation story. In less than ten years, Zimbabwe experienced another bout of hyperinflation when the annual inflation rate peaked out at 313 percent in October 2017.³ So Zimbabwe has accounted for two of the world’s fifty-eight hyperinflations, and it did so in a span of less than ten years.

To understand what this disastrous record of inflation felt like on the ground, Kudzai Gumunyu is an excellent chronicler. His Hard-Boiled Egg Index: Surviving Zimbabwe’s Hyperinflation provides us with the color of hyperinflation, not just the numbers.

Prof. Dr. Steve H. Hanke

Johns Hopkins University

Baltimore, Maryland

December 12, 2018

To God Almighty, who sustains us in parched and untenable environs

We pulled through; we survived. I pray that one day Zimbabwe will be out of these treacherous economic woods. This jewel of Africa called Zimbabwe will not remain covered by this garment of shame forever.

To my dearest wife, Mildred, and children, Takunda and Tinayeishe

You made me look forward to another day and maintained my sanity, despite the debilitating economic challenges of the tragicomedy in Zimbabwe. Takomborerwa, you came much later, and I am happy you did not experience the economic devastation, but you brought smiles and energized me to resolve to write this book for posterity.

PREFACE

A real shocker that defies logic in every sense was brewed by this teapot-shaped country, and temperatures went past the boiling point in terms of economic instability. Like the old whistling kettle without an automatic cut-off switch, the noise was growing louder and louder with nobody taking any effective measures to quiet the crescendos. The terrible twins, inflation and devaluation, were wreaking havoc in people’s lives, savings, dignity, and the very ability to eke out a living. They were like agents sent from the bottomless pit of hell to fan the consuming fires of poverty and desperation. The tragedy was that neither business leaders nor politicians had any curative measures to the cruel and dehumanizing effects of the economic meltdown, which was amplified by the strangulating effects of sanctions slapped on the country by the Western world, led by the United Kingdom and the United States of America.

All interventions and controls had failed badly and tended to boomerang with spine-chilling, unintended negative consequences. In fact, the inflation had gone well beyond hyper and into uncharted territory, to the extent that no one knew its exact rate. Jokes abounded on this depressing situation. One such joke, which unfortunately was true, was that the moment you finished calculating the rate, it would have changed, and therefore, there was no need to engage in this futile and unprofitable exercise. Prices no longer made sense and were sometimes adjusted twice as you stood in the queue to buy goods.

I vividly remember reading a bold sign in one of the supermarkets, which discouragingly stated, Prices are valid only after you have paid and have been presented with your receipt. I thought it was a protest joke until the cruel reality of the statement hit me like a ton of bricks after prices were adjusted before my very eyes. I had to leave some items at the till, which I could have afforded with the luxury of some spare change, if I had been served and had paid a minute earlier. A lump of anger and frustration was stuck in my throat when I left the shop with teary eyes, but unfortunately, I could do nothing about it. If I had left the shop and gone to another one, I probably would have gotten there when the prices had increased again anyway.

The adage Time is money had a new and impactful meaning for the general Zimbabwean populace, as they had to make urgent and panicky decisions if they earned Zimbabwean dollar (ZWD) cash; otherwise, the purchasing power of the money in their possession would be decimated by each passing second.

Due to the extremely high inflation, the demand for notes skyrocketed, as cash became the most convenient and value-preserving way to transact. The time value of money created three prices for goods and services; namely, a cash price, an RTGS (real-time gross settlement) price, and a check price. Since money would reflect the next day for RTGS, prices of goods, as well as the exchange rate, were higher than for cash payments, as no one knew what the next day would bring. Eventually, no one accepted checks, which took five days to clear, save for government-controlled entities such as the city councils, parastatals for power, and fixed-line telephone bills.

In any case, check payments would bounce due to insufficient funds, and the buyer could resell the goods received and pay you back in a week’s time and remain with some change, as prices of goods would have appreciated. The ditching of checks as a medium of exchange heightened the demand for cash transaction. Cash ruled the day, as one would quickly dash to the black market, with its epicenter at Fourth Street bus terminus in Harare, as well as other convenient places in cities and towns around the country, and buy United States dollars or other stable currencies. The official sources of foreign currency had dried up, and the black market was the only one left for the sought-after currencies, which were now used as a store of value, rather than a medium of exchange.

Moreover, we had to do transactions with trusted foreign currency dealers, as one could fall victim to fake notes and secret-police details planted to fight the booming black market. By the way, we had to use acceptable language and had to use the term parallel market instead of black market, as one would not want to ridicule the majority black populace (who had suffered a lot due to colonialism and racism of the Smith regime) by using black in a derogatory manner. You had to be alive to the political sensitivities of the regime that was in power then, or you would pay dearly.

Salaries were adjusted upward and paid on a weekly basis for some organizations to try to cushion workers but to no avail, as the Zimbabwean dollar continued to tumble in value against major currencies. The demand for cash became so great that the printing press no longer coped. As the Zimbabwean dollar (ZWD) lost value, increasingly more cash was required to purchase the same amount of USD or goods as time progressed.

Queues formed in and outside banks, as periodic stockout of cash became a common occurrence. As time progressed, we went to a shop with a bag full of cash and came out holding the purchased item in our hands. The central bank reacted by introducing new higher-denomination notes, and this act added gasoline to the raging fire. Overnight, shops rounded off their prices to the nearest biggest note, and inflation went into overdrive. The printing of the higher-denomination notes became just a meaningless zero-sums game, as the value and purchase power plummeted with the increase in the zeroing zeros.

The inflation rate was eventually incomprehensible, and the government Statistical Office stopped publishing the inflation rate. Some creative minds devised a method to track inflation and the exchange rate and termed this innovation the Hard-Boiled Egg Index. It sounds extreme, but we had to calculate the exchange rate and estimate inflation, based on how much ZWD one needed to buy a hard-boiled egg over time. It was generally accepted that the purchase parity of three hard-boiled eggs in most parts of Africa was one dollar US, and therefore this became a reference point. Tracking how much the price in ZWD of three hard-boiled eggs over time would give a fair estimate of the movement in exchange rate and inflation rate.

The government of the day, feeling the heat and threatened by the economic turmoil, reacted by introducing price and exchange rate controls, based on the official exchange rates. This became the additional stick that broke the camel’s back. This ill-advised action was akin to attempting to douse a raging fire using gasoline or another equally flammable and combustible liquid. People rushed in and bought goods and assets at the controlled prices, which were rock-bottom cheap, and thus emptied the shops of stock. Shop owners were unable to restock, and goods became very scarce while services were now irritatingly epileptic or nonexistent. Ordinary basic groceries vanished from shop floors and emerged on the parallel market at obscenely high prices, where the medium of exchange was exclusively foreign currency (i.e., USD, South African rand, or Botswana pula). The parallel market for goods and services became the death knell for the Zimbabwean dollar (ZWD). The ZWD use was left only as a medium of exchange of currency. Its use as a medium of exchange of goods and services and as a store of value had become extinct, like the mammoths