Inflation forces citizens into mafia economy

Harare - The reaction to the question put to a long-established gold producer: "Would you like to be legal again?" was a long sigh of profound yearning.Decent people in the business community - industrialists, farmers, informal traders, gold miners, fuel importers, foreign aid workers - want to obey the law.They want to be able to stop talking in code on the appalling mobile networks, to stop doing billion-dollar deals by sms, pay tax even, never again do business in car parks at night or slip wads of money under the table at coffee shops.The vendors want to be able to sell tomatoes on Fridays without having to dodge and dive, fearful that underpaid municipal police will seize their produce for their weekend needs, "because they don't have a licence".

They can't get licences, so they build their losses into the selling price of the next bag of beans.
The craziness of officialdom has forced ordinarily law-abiding Zimbabweans to become part of the mafia economy, which is now the only economy.The big, established speculators, who deal in gold, diamonds, cigarettes and currency, will do what they have to, and maintain the system from which they profit, which means bribes - some call it "commission" - paid out at every tier of their operations. And however distasteful that system might be, it does keep the economy going.The Reserve Bank of Zimbabwe, which is not restricted by any laws to maintain the absurd price they officially pay for gold, also breaks its own price rules all the time.

It officially pays producers ZIM$16 000 (about R500) a gram for gold, and gives them written receipts from the mint, known as Fidelity Printers, on that basis. At the official exchange rate of ZIM$250 to the dollar, that is quite a generous $64 (about R470) a gram. But the real, parallel or black market exchange rate is more like ZIM$10 000 to the dollar (and rising) so ZIM$16 000 a gram translates into only $1,6 (R11,80). Even for Zimbabwe, this is absurd, so in reality, Fidelity Printers is paying the gold producers (in cash of course,) ZIM$60 000. At the parallel rate, that is $6 a gram, still slightly more than a quarter of the world price for gold - about $21 a gram - which is what the Reserve Bank gets when it sells the gold internationally. But it's the best the gold producers can get, officially.

Even though they are being ripped off, the gold dealers must conduct these transactions from luxury 4x4s in pot-holed shopping malls or at private houses, because they are getting more than they "should" be getting - in the cloud cuckoo-land official world where one dollar is worth only ZIM$250. So the gold producer, yearning to be legal but trying to stay alive, is forced to sell a minimum to the government and to flog the bulk of his gold to traders who pay him about two-thirds of what he would get on the open market. Several key officials in the government's quite well-manned and regulated mining departments spend their days twiddling their thumbs, because officials from the Reserve Bank of Zimbabwe have unofficially taken over their jobs.

So this year gold production will officially slump to 100 000 ounces, half what it was in 2006, which was half what it was the year before. And so on. Unofficially, the gold is still coming out of the ground at about the same rate.To change this and bring all the gold into the economy, all the Reserve Bank need do is pay Zimbabwe's gold producers just a bit less than producers get in South Africa.

Since the Reserve Bank of Zimbabwe's purge of the gold industry began last November, producers, official and unofficial, are either out of business or operate in great danger of arrest and worse, or they have been taken over by the central bank.This combination means that Zimbabwe's gold - and there is plenty of it - has largely disappeared from the formal market. Runaway inflation has almost destroyed normal business transactions. In the past 10 days, the rate has doubled. When I started writing this story, the parallel exchange rate was more like ZIM$10 000 to the dollar. Now it's about $11 000. By the time you read this, who knows? This makes business difficult for everyone, not just gold dealers.

In a computer shop this week, a man walked in to buy a cartridge for his printer. "How much?" he said to the girl Friday manning the phones. "Don't know, we are not trading today. The boss is in Jo'burg, and the rate [the value of the Zimbabwe dollar] has gone mad, so we don't know what to charge." The buyer, a regular customer, shrugged. He needed his cartridge. He put it in his pocket and the receptionist noted the sale and said she would charge him next week, when the rate settled, if it ever did.

When the price of milk went up on Wednesday to about ZIM$17 000 for a two-litre bottle, from ZIM$10 000 the day before, a woman wailed at the checkout till. That was just one voice in a chorus of wails, because that 24-hours scenario is being repeated everywhere. At the official rate of exchange, that two litres of milk would have cost about R504. That's correct, ladies and gentlemen, the calculator on my mobile does not lie.

At the real price, if the sum is done using the black market rate of exchange (which is how everyone in the urban areas operates), it would have cost about R1,40 for the same bottle of milk. Quite cheap really. So the man in Harare's upmarket Avondale suburb running a large house, a borehole all day and the usual DStv, kettles, electric stove, etc, pays R15 a month for electricity, calculated at the black market rate. Imagine, now, if the Zimbabwe Electricity Supply Authority, Zesa, did begin charging for power at an economic rate, perhaps similar to South African power bills. No one, except the five percent of the population with access to foreign currency, would be able to switch on a light. Or turn a tap on, providing of course the lights and water are working, which they often aren't. And yet Gideon Gono, the Reserve Bank governor, has bowed to pressure from Mugabe to keep the official exchange rate of $1 to ZIM$250.

So is a revolution or insurrection around the corner? On the streets and abroad, that's the talk. In reality, it's so hard to tell. Schoolchildren are still alighting from buses neatly dressed in green checked uniforms, laughing and looking like children in any half-decent society. Yes, their teachers went on strike but only for a day. There's no sugar, as usual, in the supermarkets, in high or low density areas. But you can get it from the vendors, who keep it hidden under a bush on the side of the road.

In one particularly desolate township this week, where 35 vegetable vendors died when their minibus ploughed into a locomotive, there is talk of revolution. And in other townships too, there is anger and insurrection in the air. But the police seem well prepared and motivated to beat up enough people to maintain "law and order" should it look like it is getting out of hand. Remember, it is only the minority of the population who live in the towns. More than 70 percent are out in the rural areas and, while they are struggling, and angrier now than ever before, Zanu-PF is still firmly in control in its three stronghold Mashonaland provinces.

"The army is there, the war veterans are there watching, the police are hanging about, the CIO (Central Intelligence Organisation) is watching, and one can't move without being noticed," said a small trader who was in Harare for the day to pick up supplies for his shop. "It is very different where I live," he said, loading up groceries into his van. - Foreign Service
This article was originally published on page 5 of Sunday Independent on March 11, 2007

Basic Accounting Principles

Accounting — often called the language of business — is the process of recording, classifying, reporting and analyzing financial data. And while the accounting requirements of every business vary, all organizations need a way to keep track of their money. Unfortunately, there's very little that's intuitive about accounting. Many small businesses hire accountants to set up and keep their books. Other companies use accounting software like QuickBooks, Pastel, Brilliant and M.Y.O.B. Accounting and keep their accounting functions in house.

It's All about Balance
Using a system of debits and credits, called double-entry accounting, accountants use a general ledger to track money as it flows in and out of a business. They record each financial transaction on a balance sheet, which provides a snapshot of a business's financial condition. Accountants record every financial transaction in a way that keeps the following equation balanced:

Assets = Liabilities + Owner's Equity (Capital)

The Accounting Cycle Accounting is based on the periodic reporting of financial data. The basic accounting cycle includes:

Recording business transactions. Businesses keep a daily record of transactions in sales journals, cash-receipt journals or cash-disbursement journals.

Posting debits and credits to a general ledger. A general ledger is a summary of all business journals. An up-to-date general ledger shows current information about accounts payable, accounts receivable, owners' equity and other accounts.

Making adjustments to the general ledger. General-ledger adjustments let businesses account for items that don't get recorded in daily journals, such as bad debts, and accrued interest or taxes. By adjusting entries, businesses can match revenues with expenses within each accounting period.

Closing the books. After all revenues and expenses are accounted for, any net profit gets posted in the owners' equity account. Revenue and expense accounts are always brought to a zero balance before a new accounting cycle begins.

Preparing financial statements. At the end of a period, businesses prepare financial reports — income statements, statements of capital, balance sheets, cash-flow statements and other reports — that summarize all of the financial activity for that period.

The Importance of Financial Statements
At the end of a period — either annually or more frequently, depending on the length of a business's accounting cycle — accountants create financial statements that show the financial health (or decline) of a business.

Many people inside and outside a company use the information found in financial statements. Business owners and managers use the data in financial statements to chart the course of their companies, project revenues and expenses, monitor cash flow, keep tabs on costs and plan for the future. Present and prospective employees also want to see their employers' financial performance.

Stockholders and investors closely examine financial statements to check a company's performance. They want to compare a business's financial statements with those of other companies to guide their investment choices. Bankers look at a company's most recent financial statements when they make lending decisions.

Financial statements also make it easier to for accountants to prepare tax returns and report financial information to the South African Revenue Services. In fact, so many business partners, investors, and other interested parties rely on your these documents that it's important to get a handle on all the common financial reports your business will be expected to produce.

The day-to-day aspect of your financial management involves overseeing your business cash flow. We can assist with cash flow forecasts and analysis, allowing you to focus more on the operational side of your business.

Making Sense Of Financial Statements

Making Sense of Financial Statements

Day-to-day operations take up most of your time and energy, and you know you can't ignore the financial statements. You probably need some guidance in reading and making sense of them.

Financial statements are important because they can help to both uncover problems and identify corrective action. The most important financial statements are the balance sheet, the profit and loss (income) statement, and the cash-flow statement.
A balance sheet is nothing more than a list of the accumulated assets and liabilities incurred by the business. The difference between the two represents the net worth of the business. The profit and loss basically answers the question, "How did we do?" and the cash-flow statement answers the question, "Where was the cash used?"

Understanding these statements is crucial, since they all tell you what's happened in the past. But more important from a management perspective is what's going to happen in the future. Therefore, developing both a profit and loss forecast plan and a cash-flow forecast plan is essential to making the historical data more meaningful.

With a forecast in place, you'll have the ability to get data (via your financial statements) that tells you how you did compared with your plan. You should also be able to figure out what went wrong and how to correct any problems.

What Does Your Accountant Do ?

Probably the first thing you think of is that accountants keep the books — they keep the records of the financial activities of the business. But accountants perform other very critical, but less well-known, functions in a business:

Accountants carry out vital back-office operating functions that keep the business running smoothly and effectively — including payroll, cash inflows and cash payments, purchases and inventory, and property records.

Accountants prepare tax returns, including the federal income tax return for the business, as well as payroll and property tax returns.

Accountants determine how to measure and record the costs of products and how to allocate common costs among different departments and other organizational units of the business.

Accountants are the professional profit scorekeepers of the business world. They prepare reports for the managers of a business, which keep managers informed about costs and expenses, how sales are going, whether the cash balance is adequate, what the inventory situation is, and, the most important thing — accountants help managers understand on the reasons for changes in the bottom-line performance of a business.

Accountants prepare financial statements that help the owners and stockholders of a business understand where the business stands financially. Stockholders wouldn't invest in a business without a clear understanding of the financial health business, which regular financial reports (sometimes called the financials) provide.

Accountants provide the critical numbers to help business managers make good decisions, which keep a business on course toward its financial objectives. Accounting also involves bookkeeping, which refers to the painstaking and detailed recording of economic activity and business transactions. However, accounting is a much broader term that refers to the design of the bookkeeping system. It addresses the many problems in measuring the financial effects of economic activity and events and then communicating these economic measures of value and performance to non-accountants in a clear and concise manner — a diverse range of people need this accounting information to make good economic decisions.

Accountants design the internals controls in an accounting system, which serve to minimize errors in the large number of entries that a business records over the period. The internal controls that accountants design can detect and deter theft, embezzlement, fraud, and dishonest behavior of all kinds. In accounting, internal controls are the ounce of prevention that is worth a pound of cure.

Seldom does an accountant prepare a complete listing of all activities that took place during a period. Instead, he or she prepares a summary financial statement, which shows totals, not a complete listing of all the individual activities making up the total. Managers may occasionally need to search through a detailed list of all the specific transactions that make up the total, but this is not common. Most managers just want summary financial statements for the period — if they want to drill down into the details making up a total amount for the period, they can ask the accountant for this more detailed backup information. Also, outside investors usually only see these summary-level financial statements.