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Claim: Black market trading and the illegal fuel trade have contributed to severe fuel shortages in Zimbabwe.
Verdict: This is correct, but not the complete story. The conditions that led to this situation are rooted in the government's introduction of a controversial local currency tied to the US dollar.
Many demonstrations took place in Zimbabwe's largest cities as fuel prices rose.
Prices have more than doubled, making the most expensive gasoline and diesel in the world.
So why did the government do that?
The most expensive fuel in the world
The government said price increases were put in place to avoid fuel shortages and fight the illegal fuel trade.
The price of gasoline rose from $ 1.24 per liter to $ 3.31, and that of diesel from $ 1.36 to $ 3.11.
President Mnangagwa announced the increases and quickly left the country for a European tour and attend the World Economic Forum in Davos, Switzerland.
The price of fuel is set by the government and gas stations are required to sell fuel at this price, indexed to the US dollar.
First, let 's look at the shortages.
Zimbabwe must import all its petroleum products. For that, it needs a strong currency and, given the current economic problems, it is very rare.
In November, Finance Minister Mthuli Ncube said that the few foreign currencies had been allocated to other more pressing sectors – and he stressed the need to invest in the country's mining industries.
At the time, the minister had acknowledged the shortages and had promised to find ways to finance the additional fuel import.
A sharp increase in demand over the past year has also contributed to the shortage.
This rise is perhaps surprising given the current economic sluggishness.
One of the explanations is that it is the tobacco harvest season, Zimbabwe's most important crop, which means that there is a high demand for fuel to feed. tractors and machinery.
But that would not explain the increase in fuel demand in the long run.
Fuel accumulation and contraband
The government has accused people of storing fuel and then selling it on the black market at inflated prices.
And since fuel in Zimbabwe is cheaper than in neighboring countries, smuggling is also a big problem.
These activities have contributed significantly to increasing fuel demand in Zimbabwe and contributing to shortages.
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Disturbances erupted after the introduction of the fuel price hike
Zimbabwe's controversial monetary arrangements have also contributed to the problem.
The country has a local currency, officially attached to the US dollar. However, in reality, it is trading on the black market at a price well below that value.
This means that if you have access to hard currency – US dollars for example – then you can buy the local currency on the black market and use it to buy gasoline at a price corresponding to 1: 1 .
The effect is that the fuel has been much cheaper for those who buy this way.
It also means that it is possible to generalize profits generated in the country or smuggle fuel to Zimbabwe's neighbors, such as South Africa.
Monetary confusion
So, if this causes such a problem, why is the currency indexed?
It has its roots in 2008, when Zimbabwe's economy was in free fall and its currency was experiencing unprecedented hyperinflation.
The Zimbabwean dollar has lost almost all its value and people have been forced to trade in foreign currencies – the US dollar and the South African rand.
The following year, with the goal of stabilizing the economy, the government declared legal the price of the US currency, officially abandoning Zimbabwe's worthless dollar.
When a government does this, it gives up its ability to set interest rates and print local currency, important levers of economic control.
It can not finance public spending by printing money, which means the government has to cut spending or find other sources of revenue.
The introduction of this policy in 2009 largely stabilized the economy – and in 2016 the government introduced a new monetary system.
It consisted of two parts: a bond note that could be traded in cash and another that could be traded electronically.
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Zimbabwe bonds were introduced in 2016
The advantage of this arrangement was that it allowed the government to print and spend money again to finance the development and infrastructure needed.
This was also the problem. Successive governments have spent beyond their means to print money, thereby generating inflation and a decline in monetary value.
Dumisani Sibanda, an independent Zimbabwean economist, says this has particularly increased after the military takeover in November 2017.
The local currency, which is officially indexed at the same rate as the US dollar, has almost less value and its value decreases.
Thus, the hard currency becomes more attractive and those who dispose of it will tend to keep it because it keeps its value, while the local currency depreciates.
"Bad money leads to good, if you have a fixed exchange rate for one to one, if one of the funds is bad, it increases the good," said Steve Hanke, professor of applied economics at the Johns Hopkins University of Baltimore, specialist in hyperinflation.
How does this affect the price of fuel?
The government's attempt to maintain the value of the local currency at par with the US dollar has resulted in numerous incentives for buying and trading fuel on the black market.
This resulted in severe fuel shortages. And the lack of hard currency, due in part to hoarding, has limited the government's ability to import enough fuel to meet the demand.
The decision to significantly increase the price of fuel is designed to stifle demand and reduce black market transactions.
But the result was a widespread protest and requests to overturn the decision.
And across the country, companies – who are already struggling to survive in times of economic crisis – are facing a significant increase in their operating costs.
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