Let’s say you walk into a shop to buy an apple. The apple costs 1 USD according to its label. However, when you tell the shopkeeper you are paying cash, the price then becomes 85 cents. You then ask if they accept electronic payments; they do, but you will then be charged a price of 1.02 USD. Finally, what if you use bond notes? Well, then the apple would cost 1 USD, but unfortunately, they do not currently accept bond notes.
So, how much is the apple? For an International Data Researcher such as myself, who needs to be able to assess the cost of living for expatriates in all sorts of economic conditions, it can sometimes be almost impossible to tell. How do you capture an accurate picture when prices are dependent on such a range of factors? This was the challenge that confronted me on my latest data collection trip in Harare, Zimbabwe.
The first thing to do then, was to find out about the current economic situation for expats in Harare. Luckily, the owner of my guesthouse was an expat herself which was extremely helpful and gave me a quick overview of what to expect before I headed out to the shops. She explained current methods of spending, and which payment methods often proved more popular for the residents of Harare. Another useful piece of information she told me was that while paying in cash, dollars would command big discounts in shops. Equally, dollars were a good currency to save, as they were less vulnerable to both rising inflation and exchange-rate depreciation.
Perhaps the most informative thing I saw during my trip was a sign on a shop explaining the different methods of payment accepted within, which also stated that this was “due to dynamic economic circumstances and we appeal for your understanding and support”. Dynamic circumstances call for dynamic actions, and I saw many shops with signs explaining temporary measures such as “we are currently only accepting USD payments on all items” or, “please enquire for rates within”. While it seemed chaotic to an outside observer, I also got the sense that after many years living with a volatile economy and habitual change, Zimbabweans had become resilient in the face of such issues.
At this point it is important to note that when we are faced with different prices depending on the payment method, ECA will tend to use the higher price to ensure that the buying power of an assignee is protected at all times. In this particular scenario we have used the bond note prices rather than the US dollar cash prices in our cost of living indices to make sure that assignees in the country have their buying power protected.
With such large discounts available when paying in USD cash, logically you would expect expats to take advantage of this. However, due to massive shortages of US dollar notes, this is not always the simplest option. My guesthouse owner was once again invaluable, informing me that she would visit the bank most working days and, on average, they would only have USD available once a week, and even then, the maximum withdrawal was no more than 50 USD at a time. Operating with USD therefore becomes difficult as you would have to store large amounts in cash - not exactly the safest or most practical idea. This is why it is so important to note the quoted prices of items rather than discounted ones as it is not always possible to pay in US dollars cash.
Unfortunately, since my visit to Harare the economic situation in Zimbabwe has worsened significantly. Inflation has risen dramatically with many critics pointing to the excessive printing of bond notes as one of the main causes. This is why Zimbabwe, along with a number of other volatile locations across the world, were included in ECA’s December interim Cost of Living Survey. We want to be able to give the most accurate picture possible to assignees operating in the country and we do this by making sure that our indices and data are as reliable, detailed and up-to-date as they can be.
The December interim cost of living survey showed that prices had risen by more than 70% since my visit! But it gets worse; in January the Zimbabwean government more than doubled fuel prices which is likely to further stoke inflation, so please watch this space for more news on the “dynamic economic circumstances” in Zimbabwe and look out for the results of ECA’s next cost of living survey (March 2019). Our February currency review has further details on the ever-changing economic situation.
My experiences in Zimbabwe were a good example of the benefits of having eyes, and in this case ears, on the ground. Everything was very current, very fast-moving, and it felt important to not only capture the prices, but also the explanations behind them. My colleague Ben recently wrote an excellent piece on the pitfalls of free-to-access data and my experiences in Zimbabwe gave another clear illustration of the benefits of ECA’s approach to collecting data.