Economic gymnastics (expensive today, cheap tomorrow)

7 03 2007

Conventional wisdom states that in a beyond-hyperinflationary environment one should always invest in resaleable assets rather than have money in the bank. I was pondering this yesterday having decided that there was too much money (Zimbabwe dollars that is) in the company bank account. But it is not that simple. Suppose that I buy a tin of 100000 hybrid cabbage seeds at $10 a seed. It may take me a month to sell these seeds to customers in the form of seedlings. The cost of the seed is passed on – obviously. My supplier is continually putting up his price as the seed is imported and he has to buy forex on the black market. Let’s assume that his price increases linearly (in reality it will be some sort of geometric progression but it is easier this way) and by the end of the month the price is $20 a seed. I have phoned up his secretary every day and increased my price with his. At the end of the month my AVERAGE seed price is $15 so I have lost money on the next tin that I have to buy. This is a problem. I could either charge what I think a new tin of seed will cost me (customers will leave in droves) so that I end up with an average price above his end of month price or I can use very small quantities of seed (impractical). Or as soon as ANY money comes in I can convert it to US$ and then use these to buy more seed. But that’s illegal!

I was chatting to my landlord yesterday too and he recounted a story his friend had told him. He’d gone to one of the big discount stores in town to buy a freezer for his wife. On hearing the price he enquired if there were any more (it seemed like a bargain). Yes there were so he arranged to buy them – all 12! On returning the next day with the bank cheque he found that the price had increased. Incensed he demanded to see the manager who agreed to sell them at the previous day’s price. The buyer enquired if the manager would be interested in buying the freezers (less the one for his wife) back. Yes, he would. A price was agreed, money changed hands and the freezers (except for one) stayed where they were!

On Monday I’d phoned up a company to buy some agricultural chemical and a price was quoted at $560000 a litre. Buy the time I got there in the afternoon it was $800000! I complained and got it at the old price. It IS possible to pick up the occasional bargain where the store has forgotten to put the price up on some goods but as the exchange rate to the US is changing all the time one needs to be quick off the mark! Yes, we are effectively dealing in US$ though all prices are supposed to be given in Zimbabwe $.

We have had a spate of burglaries at work, that’s what one gets for hiring “real” security guards! Anyway, anticipating that the problem is only going to get worse I decided to get a burglar alarm system installed. What one would normally do is get a series of quotes but things ain’t normal any more! I realized that by the time I’d got all the companies interested to give a quote the prices would have changed, so I went ahead and just got the first company that was interested. Expensive today, cheap tomorrow.

I was chatting to Austin at my local gym about this at lunchtime. He had just had his brother up from South Africa for his mother’s funeral. He just could not grasp the figures. The brother works for a German owned firm and they do their budgeting and planning for 10 years at a time! Planning? Budgets? It’s been a while since I did either of those! I will just settle for survival thanks!



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