Exploring the dynamics of informal foreign currency trading : the case of Harare's black market traders.
Mazarura, Onesimo L.
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Zimbabwe's economy has shrunk by 40 percent over five years (Bratton and Masununngure 2006:23). The country currently faces an unemployment rate of at least 80 percent, and an inflation rate of 165 000 per cent (BBC News, 8 /10/2008). Many Zimbabweans have turned to the informal sector as a source of livelihood and survival with formal employment estimated to constitute only 16 percent of the labour force in 2006 (Tibaijuka, 2005). The violation of political and civil rights as well as the state's approach to regulation of the economy has translated into low investor confidence. In addition the country has serious foreign currency shortages. The sheer scale of informality combined with radical attempts by the state to regulate these and other economic activities make Zimbabwe a unique context within which to understand the nature of the informal economy. Recent research on the Zimbabwean informal economy has focused on its destruction through the Operation Murambatsvina (Potts, 2007; Tibaijuka, 2005) as well as the nature and extent of cross border trading (Muzvidziwa, 1998). Other authors have explored the nature of the informal economy in crisis states in particular Zaire / Democratic Republic of Congo (MacGaffey, 1997; Dehart and Marysse, 1997). There however is no research which explores the dynamics of informal foreign currency trading in this or other contexts. The objective of this study is to explore the nature of informal foreign currency trading in Zimbabwe. The research aims to investigate the dynamics of informal foreign currency trading by tracing the role of state regulation in these operations, linkages between the formal sector and informal currency traders, the role of social networks, the lived experiences of traders involved and the social-economic benefits derived by these operations. The research approach drew on ethnographic methods. The researcher spent considerable time with the people whose realities the research aims to understand. In total 10 traders were observed and interviewed in January 2008. This research shows that excessive state intervention in the foreign exchange market leads to the emergence of informal foreign currency trading on the 'black market'. As the black market premium widens, the intensity of informality with regards to foreign currency trading increases. The existence of informal—formal linkages is strongly demonstrated by this research. It shows that there is a strong relationship between the informal currency traders and the private sector including other government entities. In order for this relationship to be sustained the research also reveals that social networks are essential for informal foreign currency traders. The study shows that informal foreign currency traders operate mainly from the streets and rented office space although deals can done from any environment as long as it is secured from law enforcement agencies. The benefits of informal foreign currency trading accrue more at the household level (micro level) rather than the macro level. This research reveals that in a state of economic crisis the formal economy fails to provide adequate basic services and commodities. As a result, an informal economy is created to ensure the supply of scarce goods and services. The study shows that Zimbabwe's economy has managed to sustain itself despite economic collapse. Informal activities are identified as playing critical role in sustaining the population of the country. The study shows that foreign currency is being traded entirely on the parallel market. Private sector and government entities totally rely on informal foreign currency traders for their supplies of foreign currency. Chapter 2 reviews the literature on the informal economy. Various theoretical approaches to the informal economy are outlined. Much of the research on informality draws attention to the role of networks of trust and reciprocity - social capital. Debates about this notion are also reviewed. In Chapter 3 the background to the Zimbabwean economic and political crisis generally and the foreign currency problems facing the country particularly is outlined. The foreign currency regulations of Zimbabwe and how they have changed over time are also considered. International experience of parallel exchange rate regimes and currency crises are also reviewed. Chapter 4 reflects the research methodology. This chapter explains how the data was collected, analyzed and interpreted. The ethical concerns and potential biases arising from the methodology are explored. Chapter 5 presents the findings from the interviews. It analyses and interprets the various views gathered from the participants. The concluding chapter, Chapter 6 reflects back on the literature and outlines the policy recommendations drawing from the research findings.