Foreign currency ‘burning’ and the distortion in markets

Terence Zimwara

The coming on board of bond notes heralded a new era of cash ‘burning’, a 2007/8 phenomenon that is credited for hastening the Zimdollar’s demise. The distortions that now characterize retail markets can be traced back to this practice of selling cash at a premium, as well as the emergence of a foreign currency black market.

The Reserve Bank of Zimbabwe (RBZ) introduced bond notes against the backdrop of suspicion then that it was returning the Zimdollar through the backdoor. Perhaps as a confidence building step, the RBZ printed a limited number of bond notes to ease fears that the economy could be sliding back to the era of uncontrolled cash printing.

Sadly, the cash shortages that preceded the bond notes have persisted nonetheless.  Cash shortages (for both bond notes and US dollars) have naturally created arbitrage opportunities that cash dealers quickly seized. Cash dealers demand a premium from clients who wish to get cash in exchange for money in the bank or in mobile phone wallets. A premium is also charged for clients seeking to exchange bond notes with US dollars. This practice has been going on for sometime now.

The premiums charged have grown steadily since cash shortages began and some dealers now charge rates as high as 60 percent. Basically this means, a client seeking US dollars with money in a bank, will pay an extra 60 cents on top of a dollar to get their hands on a liquid US dollar bill. Conversely, this means the local currency in banks has in effect depreciated by up to 60 percent against the greenback. The implications for businesses and consumers are real and far reaching. Strangely though, the RBZ refuses to accept this by insisting that bond notes and indeed all local money remains at par with the US dollar.

Meanwhile, businesses responded to this state of affairs by creating a multi tier pricing system where the price is adjusted in relation to the method of payment. US dollar customers pay the lowest price, followed by bond note cash customers and lastly by bank transfer or ‘swiping’ customers. The latter pay the highest prices because on the currency black market, exchanging a bank transfer for cash attracts the highest premium. Unfortunately, many consumers have money trapped in banks and for this reason they can only pay via bank transfers, the most expensive way.

Although this practice is widespread, the multi tier pricing system is actually illegal according to the law and businesses caught on the wrong side of the law risk prosecution.

Still this multi tier pricing system has brought with it a new phenomenon, where products are sold at or just below their cost price thus causing distortions that we see in retail markets. Clever businesses have since devised ways to manipulate the three tier pricing system by selling products at or just below cost only to realize a profit upon selling cash at a premium to cash dealers. To illustrate, lets take the example of cooking oil. A wholesaler in Harare sells a box of cooking oil containing 12 two litre bottles at $42. Established wholesalers cannot charge different prices depending on the form of payment and are obliged to accept all forms of payment.

Clever businesspersons are buying cooking oil from the established wholesaler at that price ($42) and pay via a bank transfer. However, the product will then be sold at exactly the cost price of $42 for the box or $3.5 per unit. The only difference here is that the reseller will demand cash as the only form payment they will accept. When the product is sold, the cash received from the sale is then sold to cash hoarders at premiums ranging between 20 and 30 percent. The premium becomes the profit. Apparently, this is a faster way of selling because the product will appear to be much cheaper when compared with bigger retailers, who cannot employ the same strategy.

Such are the distortions that characterize the retail market today. Ignorant retailers will continue with the business as usual approach and lose out, while those in know will use this knowledge to their advantage. I recently visited Rushinga, approximately 250 kilomitres north-east of Harare where I discovered in one well stocked retail outlet, a 2kg packet of sugar selling at $1.60. That price is below the wholesale price of $1.70 obtained in Harare!

How many times have we seen airtime wholesalers selling the product at prices well below the cost price? In the streets of Harare, it is now common to see vendors selling products like Mazoe, cooking oil, laundry soap, etc, at prices below the cost. All these traders have one thing in common, they are all trying raise cash which they intend to sell at a premium.

All this stems from a combination of cash shortages and the foreign currency black market. Sadly for the economy, parity will only return once the bond notes are withdrawn and replaced with a stable currency, preferably the South African rand. So far the RBZ has steadfastly refused to even entertain this idea insisting it has better ways of dealing with the crisis. Media reports suggesting that the central bank intends to increase bond notes in circulation to ease current shortages are disconcerting.

Instead, the RBZ is advised to step back and rethink this decision (to inject $300 million bond notes) if it wishes to halt the current economic slide.

Terence Zimwara is a writer and commentator. Contact him on 0771799901 or tem2ra@gmail.com 

Protectionism; the other side

Terence Zimwara

Zimbabwe’s Vice President Emmerson Mnangagwa, recently applauded the government import control measure, statutory instrument (SI) 64 suggesting it helped revive local industry. Media reports indicate the country saved about $2 billion as a result of the statutory instrument according to figures from the Ministry of Industry and Commerce.

Many proponents of SI 64 seem to share the Vice President’s view that government intervention had brought success. The oil pressing industry is often touted as an example of the effectiveness of this protectionist policy. Local edible oil manufacturers now dominate the local market while one South African producer had to open a manufacturing site in Zimbabwe to circumvent the blockade on imported cooking oil.

Other manufacturers have also come out to support this government policy insisting that production levels increased as direct consequence of SI 64. However, government protection often comes at a cost, and it is this other side of the coin government must be worried about.

To help readers understand, let us rewind back to that fateful weekend last September, when prices suddenly spiraled out of control. There was chaos across the retail market, prices of basic goods suddenly rose by rates that just did not make any sense and cooking oil was one such product. In some instances, the price of this basic commodity more than doubled while reports of shortages of the product also emerged.

Here is a situation that must be a cause of concern to government and advocates of SI 64 and protectionism in general. Edible oil producers have specifically received state support as government frantically tries to halt the surge in imports. The blockade on imported cooking oil among others, gave local producers breathing room allowing them to increase production levels. Having attained optimum production levels however, some producers now feel they can act unilaterally without having to inform government just like what happened in September.

Granted, edible oil manufacturers might have increased prices with ‘good reasons’ just like everyone else but the fact that they are beneficiaries of a protectionist policy raises stink. Certainly it is a case of having your cake and eating it too! When business conditions are unfavourable, local producers seek support and protection from government, yet when it suits them they act unilaterally!

One can be forgiven for thinking that manufacturers celebrated the introduction of SI 64 because the statutory instrument created perfect conditions for them to dominate the market to the detriment of consumers. Having succeeded in limiting foreign competition, manufacturers know they are now in a position to dictate prices or to even limit production. The recent price increases are a testament to this.

In any case, we always have to remember that companies do not seek protection from imports because they have benign intentions, profit maximization is always the overriding motive. That is why a blanket ban on certain imports without securing concessions and commitments from local producers is ill advised.

Meanwhile, government says it has launched an inquiry into why prices soared in September and hopefully answers will be made public. For their part, local manufacturers through their trade bodies, distanced themselves from the price hikes insisting they had not made any price changes and that they had enough stocks.

 September price hikes might have been prompted by the volatile bond note currency, which lost value notably on the weekend in question. Suppliers of imported products quickly adjusted prices to match the changes in the ‘exchange rate’.

Surprisingly, some locally produced goods especially the ones protected by SI 64 were adjusted as well when panic gripped markets. Ultimately this short changes the Zimbabwean consumer even though no one is taking responsibility for the price increases. The Zimbabwean consumer is now exposed to a limited choice of products that are expensive, the true hallmarks of protectionism.

So while government celebrates the success of SI 64, a balance must be struck between the objectives of the statutory instrument and the welfare of consumers. Ignoring consumers concerns will inevitably lead to increased smuggling thus defeating the whole purpose of the SI 64.

Terence Zimwara is a writer and commentator. Contact him on 0771799901 or tem2ra@gmail.com 

Zim marching back to 2008 meltdown

Terence Zimwara

Since the infamous 23 September 2017 weekend when prices suddenly increased, a sense of dejavu has permeated through entire communities since then. There is fear everywhere, consumers fear a repeat of 2007-2008 meltdown, businesses are bracing for a clampdown by the state while politicians particularly the ruling elite fear for their ‘careers’.

Amidst all the panic and frenzy some are now asking; how did we manage to get back to this position so soon? Perhaps to those that are ignorant of how the economy has been managed in the last few years, those ignorant of key decisions made in that period, yes events of that weekend came as a shock. Yet for those regularly following the path of the economy, the price hikes were not a surprise at all.

What simply started as successive budget deficits has ultimately resulted in a failing currency, a thriving currency black market and a collapsing financial system. Following the end of the government of national unity (GNU) in 2013, government abandoned the cash budget system in favour of a deficit funding. Later the country’s long running liquidity problems would reach a crisis point as government repeatedly failed to pay its employees on time. Businesses faced declining demand and ultimately, the liquidity problems began to manifest in the form of cash shortages.

Without a well functioning central bank to bail it out, government had to resort to treasury bills to fund its expenditure, a painless solution that would hardly the address deep lying economic problems. To date, it is estimated that government borrowings have surpassed the $1 billion mark. Meanwhile, the central bank which played a largely ceremonial role during the GNU sprang back to life after 2013 particularly when a new governor was appointed. Directives and controls were returned but this was not enough as the new governor had a more ambitious plan, bringing back a local currency this time under a pseudo name- bond notes. The new medium of exchange came into existence in late 2016, almost 10 years after the demise of its predecessor, the Zimdollar.

One has to acknowledge the spirited resistance to this currency prior to its launch. Many had feared that this was a premature decision that would return the economy back to hyper-inflation but the central bank dismissed this by giving fuzzy reasons why bond notes would be successful. We were constantly assured that the currency would be backed by an Afreximbank facility and that enough steps were taken to avoid a repeat of the uncontrolled printing of money of the 2008 era.

Sadly, currencies can only survive when people have confidence in them and it takes a lot to return confidence once lost. The nature of the debate prior to the introduction of bond notes suggested that people did not have confidence in the proposed bond notes. However, bond notes were the only way the central bank could exert itself in financial markets and that was one of the main motivating factors for their introduction.

When bond notes finally hit the market, the central bank declared that the new currency would be at par with US dollar. In the streets, the situation is different, the US dollar comes at a premium and that is how the multi-tier pricing system began. As the old adage goes, ‘bad money drives out good money’. The coming on board of the maligned bond notes marked the beginning of an informal withdrawal of the greenback on the market. It is getting close to a year now since bond notes came into existence and the US dollar has virtually disappeared in the formal economy, it is only the parallel market currency dealers that still have the dollar in substantial quantities. Currency dealers of course demand a premium and this premium reaches the consumer in the form of higher prices. When the premium goes up so do prices and that is how we got back here so soon!

The parallel currency market is once again the main influencing player in the economy, not government or the central bank. Businesses and consumers alike are now more concerned with the movement of the ‘exchange rate’ rather than pronouncements from the central bank. Obviously this is undesirable from the point of view of government.

So when events began to unfold towards the end of September, government’s response was predictable, arresting currency dealers and clamping down on businesses that hiked prices without ‘justification’. A statutory instrument was hurriedly issued to deal with illegal currency dealers and other elements that caused panic in markets. A few people have been arrested already but that seems to have caused a further depreciation of the bond note as currency dealers now demand an extra risk-premium.

Further price hikes and shortages, a thriving black market and more speculative activities are certain to follow. Government supporters will argue that the economy has not yet reached the level last seen in 2008. They point to an ‘improving’ balance of trade deficit, gold production which is higher than what it was in 2008 and of course they point to the bumper harvest of the last agricultural season. Indeed, the economy is in a better shape than what it was in 2008 but government opponents argue that the economy is on course for a repeat of 2008 unless the bond notes are completely withdrawn.

Whatever the case, it seems we have not learnt anything, Zimbabwe needs real economic reforms if it is to permanently escape the recurring cycles of recessions. True reforms are not a walk in the park, they are painful and they can potentially cause civil unrests or protests. For instance, when the government had trouble paying its employees in 2015 and 2016, instead of printing money to pay for its recurrent expenditure, an alternative solution would have been to reduce the workforce significantly.

A mass retrenchment like that will for sure cause protests and disruption of government business in the short-term, however over the long term, this will be the most practical solution that reduces the  current ratio of civil service salaries to government revenues. If that route had been chosen then perhaps the budget deficit would not have grown to its present levels.

Real reforms may take several years often longer than the country’s electoral cycles before the country begins to enjoy the fruits. So if the economy comes first, then the government of the day will not hesitate to pursue real reforms even if they might potentially result in an electoral loss! In fact, everyone must expect pain if true reforms are to be successful. Just like medicine which has a bitter taste yet it heals, real reforms are not going to be easy yet the sooner they are implemented the better the chances that the next generation from now will enjoy fruits of this generation’s pain.

 Terence Zimwara is a writer and commentator contact him on 0771799901 or tem2ra@gmail.com

RBZ reforms an urgent matter

Terence Zimwara

The current Reserve Bank of Zimbabwe (RBZ) executive team is following to the letter, the script used by its predecessors if media reports are anything to go by. Media reports suggest that the RBZ is now taking centre stage again, officials definitely want the unbridled power of the central bank restored.

One media outlet carried a report suggesting the RBZ is once again raiding bank accounts of private individuals to finance its programs. The media report quotes the RBZ official as saying that the central bank ‘is sweating idle RTGS balances.’

Another headline suggested the RBZ was livid that pharmaceutical companies inflated prices despite getting foreign currency allocation from the central bank. While the two news items might elist different reactions, the difference is the same, both point to the flaws in the RBZ that need to be plugged.

So when a senior RBZ official publicly admits the central bank is using people’s money without their prior knowledge or consent, this potentially sets off a chain reaction that inevitably dents public confidence in the central bank.

Equally, it does not argur well for public confidence when the central reverts back to micro-managing the economy, a practice that once alienated the central bank from the rest of government. The RBZ should only concern itself with monetary policy and leave direct intervention to the relevant ministries or government. As it stands now, the RBZ has already resorted to the much maligned quasi-fiscal activities and that is bad news for the economy.

It must be said, the RBZ still has a public confidence deficit stemming from its previous misdemeanors before the 2008 economic meltdown. These latest revelations are only going to make life more difficult for the RBZ. The same disastrous policies that the RBZ is now pursuing are the same policies that were responsible for erosion public confidence in the institution by 2008.

It was imperative that after 2008, relevant authorities had to reform this institution before it returned to its traditional role in the economy. The fact that the central bank is already resorting to some of those roles, clearly proves the RBZ was prematurely returned to a focal point in the economy.

Confidence is a very fragile attribute, it is easy to destroy but very difficult to rebuild as the RBZ will attest. When a wide spectrum of economic experts and politicians all agree that the country is better off joining the rand monetary union, that itself is confirmation there is little confidence in the RBZ.

Consequently, there is need to revamp everything about the RBZ, its name, the process of appointing its staff, its responsibilities etc. this has to be done to help restore confidence. As it stands now, the same weaknesses or flaws that led to its cataclysmic collapse as an influential player in the economy remain in place. For instance, if Dr Gideon Gono’s RBZ could access private accounts back in 2008 and now Dr John Mangudya’s team is reported to be doing the same, then it is easy to conclude that no reforms ever took place. One would assume that by now, it would be impossible for the RBZ to easily draw funds from private bank accounts without the knowledge of the account holders.

Conceivably, that is why pleas, exhortations and even threats by RBZ have by and large failed to influence major companies like mining firms to stop externalizing some of their foreign currency receipts. The mistrust still exists and these news reports do not bode well for the RBZ.

Before the cash shortages began, bank deposits had remained transitory in their nature since dollarization because the public did not trust the financial system after losing money in 2008. Medium and long term deposits have since then eluded the Zimbabwe economy due to confidence issues.

Government must create a legal framework that deters RBZ officials or anyone else from illegally withdrawing from private bank accounts. This is one crucial step that must be taken to restore confidence in the central bank and the banking system in general.

The appointment of RBZ staff is one key area that has a bearing on public confidence and it needs to be looked into. According to the relevant laws, the governor of the central bank is appointed by the President after consultation with the minister. However, this might need to be changed to allow parliament to be involved in the recruitment of not only the governor but all senior staff and the board of directors.

While the new constitution reaffirmed an executive presidency, experience has shown that this presidency is quite often overwhelmed by the sheer size of duties and responsibilities heaped on it. Appointed individuals sometimes take advantage of this by engaging in activities outside the scope of their mandate.

However by sharing oversight of RBZ, both parliament and the presidency will be able to complement each other in ensuring appointed officials stick to their terms of reference. At least this way, relevant stakeholders will be assured of better management and oversight of this important institution.

Lastly, the Gono era popularized the so called quasi-fiscal activities as outlined in the preceding paragraphs. The RBZ spent millions of dollars funding agricultural activities and infrastructure development projects.  Dr Gono has previously defended his actions arguing that it was necessary at the time and consequently, he has not faced any retrospective action for going beyond his terms of reference. Now the present RBZ executive seems to be following the same path as that of its predecessors.

Here the issue is not so much about the type of activities carried but it is about oversight and responsibility as well as the RBZ’s capacity or lack thereof to handle such activities. For instance, if Dr Gono carried out his quasi-fiscal activities in a transparent and regulated manner then perhaps there would never had been any controversy.

In any case, the RBZ is not equipped to deal with farmers or pharmacies and the beneficiaries of the central bank’s interventions are well aware of this hence the abuse of assistance given.

If the RBZ is reformed to the satisfaction of all stakeholders then it might possible for the central bank to issue currency that will not be rejected.

Terence Zimwara is a writer and commentator. Contact him on 0771799901 or tem2ra@gmail.com

Wanted: Ariel Sharon 2.0 for peace in the Middle East

Terence Zimwara

Peace initiatives between Israel and Palestine will remain dormant as long as anti peace camps continue to dominate politics in the region. Israeli Prime Minister Benjamin Netanyahu has consistently pursued positions that are opposed to peace yet he remains a very influential figure in Israel politics.

He is on course to become the longest serving premier in modern day Israel, surpassing even a figure like Ben Gurion! Netanyahu owes much of this success to his fear mongering tactics and the general perception by citizens that Israel is safer with him as its leader.

On the eve of that country’s last election, Netanyahu who was trailing in opinion polls, stunned the world when he controversially claimed that Israeli Arabs were going to polls in droves to vote him out. Scared Israeli voters apparently took heed of Netanyahu’s racist warning by turning out in numbers resulting in his party Likud party coming first in the election.

So Israel remains stuck with a leader who does not believe in bringing peace or in solving problems through diplomatic means. Netanyahu and his right wing government are not afraid of starting a large scale conflict so Israel can maintain its military edge over regional rivals. It was widely reported a few years ago, that Israel wanted to bomb Iran’s nuclear facilities to stop Tehran from joining the nuclear club but this was thwarted by the Obama administration.

The situation is the same on the Palestinian side, the leaders of major movements are unwilling to commit to peace. Indeed the recent rapprochement between Fatah and Hamas is seen as a sign that the peace effort might just be on the cards. However, Hamas remains dedicated to the destruction of Israel and so are some of the organizations that sponsor it. When Hamas believes its popularity is waning, it will start off a series of provocations that often lead to war with Israel which often it is ill equipped to win.

Unfortunately, the war often results in thousands of Palestinians causalities as well as destruction of property. The same Hamas that played a part in starting the conflict will be seen offering assistance to Palestinians devastated by the war. This ploy has helped to keep Hamas immersed in the hearts of ordinary Palestinians thus it remains a key player in the whole Middle East matrix.

On the other hand, Fatah has discussed peace with Israel before and all that has come to naught. The two sides never seem to agree on anything or are unwilling to abide by previous agreements. At the moment, Fatah is also reluctant to go back to the negotiating table believing its diplomatic offensive is enough to pressure Israel into giving up territories it seized.

Domestic and international backers of Israel and Palestine have also failed to cajole them to a common position. Hardliners on both sides always seem to carry the day. The situation is crying out for another leader like Ariel Sharon to take real steps towards the peace effort once again.

The late Ariel Sharon, a former Israel Prime Minister, took a bold decision in 2005 to unilaterally withdraw Israel from the Gaza strip despite protests by both Palestinians and Israelis. Sharon’s decision was informed by the fact that hardliners on both sides were impeding peace efforts and that it was also in Israel’s security interests to leave Gaza. So as Sharon told the world that he was a making unilateral decision to leave since he had no peace partner on the Palestinian side, a revolt broke out in his own Likud party as members voiced opposition to his proposed pullout.

In the end, Sharon left Likud to start a new party along with a list of prominent politicians from different parties who supported his vision. The new party, Kadima, easily won enough backers giving Sharon the mandate to see through his plan. Unfortunately, Sharon went into a coma before he could fully advance his agenda and that is how his vision suffered a stillbirth. Be that as it may, the late Sharon will be remembered for his peacemaking efforts.

Israelis voters were sold to Sharon’s idea and they trusted his judgment, an election soon after his coma confirmed this, his party romped to victory against traditional parties. World leaders who initially loathed Sharon soon began to have a change of heart, for here was a man who’d finally come to his senses and that he now saw peace as the only solution. Prior to this, Sharon had a poor reputation with Arabs that stemmed primarily from his role during a conflict between Israel and Lebanon. He was even nicknamed the ‘butcher of Beirut’ and some Arab countries accused him of war crimes. Sharon understood the stakes were high and that he was the only one who could move the process forward.

Sadly, Kadima did not survive long after Sharon left the scene. Successive wars with Hezbollah and Hamas complicated peace efforts while scandals hit Sharon’s successor Prime Minister Ehud Olmert and eventually support for Kadima waned.  Since then no Israeli leader has emerged with the same courage and drive as Sharon or even Yitzchak Rabin. Shimon Peres and Tzipi Livni tried but they were never quite in the mold of Sharon. Perhaps upcoming politicians like Meir Dagan will be the new crop of leaders that will stand up to Prime Minister Netanyahu and move Israel away from right wing extremists that control the government.

Time is running out for Israel to protect itself as the changing demographics in Palestinian territories throw into question Israel’s very future as a Jewish state. Instead Israel risks becoming a new apartheid state if it does not make peace with Palestinians.Current leaders want this debate to be postponed forever but they can never change this inevitability.

Terence Zimwara is a writer and commentator. Contact him on 0771799901 or tem2ra@gmail.com

Trump amplifies US decline

Terence Zimwara

Donald Trump became United States of America’s 45^th president against all odds. The field was heavily tilted against his persona and his campaign from the very beginning. Traditional Republican party supporting organizations dumped him yet he prevailed by winning the oval on a Republican ticket. Perhaps it is also fair to point out that the Russian factor played a key part in his shocking victory.

However, it is not the essence of this piece to delve into Donald Trump’s electoral victory controversy. It is the events that have occurred in the US since his win that have brought to the fore more concerning issues not only for America’s ruling elite but for the entire world. The US has been on a gradual decline for a few years now and its traditional enemies are aware of this as well.

Admittedly, America’s enemies are closing the gap as they regularly challenge or attack Washington’s interests and the US response every time seems to embolden them. Take Russia for instance, under the leadership of Vladimir Putin, the former superpower has been trying to rebuild and to remake its image around the world as a global power.

Ever since Russia invaded Georgia in 2008, President Vladmir Putin has worked hard in his attempt to close the gap with the US by taking a series of moves and provocative actions aimed at making Russia a great power again. Russia annexed Crimea a Ukrainian territory in 2014, it intervened in the Syrian conflict by backing Bashar al Asad in 2015 and its military planes have routinely engaged in sometimes dangerous maneuvers against American military assets. However, it was the 2016 US elections that provided the perfect platform for Russia to launch what may rank as one of the most daring challenge to the US establishment in modern history.

By interfering in the election through hacking, Russia was apparently able to create conditions that made it impossible for its least favoured candidates to win. By leaking damaging information just before the elections, Russia was to able influence voting patterns not only for the presidential candidates but for congressional candidates as well.

What has alarmed some, was the response by the Obama administration at that time, it was feeble at best, only a handful of Russians were deported. Russia would later return the favour by deporting several American diplomats and Washington is simply watching. Russia calculated that the incoming Trump will not be too keen to punish them once he got into the office, after all their intervention helped him win.

Officially, Russia has denied any involvement in the hacking but privately you must bet the Russians are satisfied that a country, which the former US president Barack Obama, labeled a ‘regional power’ had pulled off this daring operation. The divided American response to Russia’s challenge is ample proof that the US is unable exert itself as much as it did before and this is good news to its adversaries.

President Trump believes he won fair and square but some leaders in the US congress believe he got help from Russia. The latter launched a formal investigation into the election hacking fiasco while President Trump continuously attempts to frustrate this. Whatever happens, if Russia emerges from this largely unscathed, it will be testament to all that the US is diminishing as a global power not matter how much President Trump bleats otherwise.

Yes President Trump tries very hard to project himself as a tough leader but behind all the blaster, he is just an impulsive leader without a real plan of dealing with America’s main problems. The Trump administration has had its hands full since coming to office, yet President Trump continues with his bombastic style, which unfortunately hurts the US all the time. Trump’s policy on North Korea is one prime example of how the unorthodox approach to international crises is backfiring.

Trump’s twitter statements in the lead up to his United Nations General Assembly speech failed to dissuade North Korea from abandoning its nuclear ambitions. Pyongyang had in fact escalated tensions by launching a series of missiles that reached Japanese territories in addition to the other missile that threatens Alaska, a US territory. Following a widely condemned Trump speech at the UN, North Korea seized on the moment by accusing the US of declaring war on her after US bombers flew close to its territory.

Both China and Russia, who are itching to takeover America’s global leadership role, immediately cashed in on the crisis, urging both sides to show restraint. Normally it will be the US that acts as an arbiter on issues like this, yet Trump has reduced himself to the level where he engages in a mudslinging contest with North Korea’s Kim.  As President Trump continues with his self destruct approach, more and more countries will look to China and perhaps Russia for leadership on global problems.

Perhaps President Trump should be forgiven, he has not had much experience in public office, if any, prior to becoming president. His diplomatic skills are just not there, his reckless statements only serve to undermine the global order thus endangering lives of many.

Previous US administrations have all gone the sanctions route when dealing with North Korea because there are really no viable military options. North Korea is always spoiling for a fight and top western security experts have always advised against any military action. However, President Trump’s impulsiveness has put himself in an impossible position, some are now waiting for him to make good on his promise to flatten North Korea.

No one really knows Pyongyang’s nuclear capabilities. The US which has not seen a large scale conventional attack on its territory since Pearl Harbor, cannot attack North Korea without expecting retaliatory attacks on its soil and this could spark a wider conflict. Pyongyang seems to have a death wish, it will continue with its dangerous antics and the US should not be baited by this.

There is another problem however, by not attacking as Trump promised, the US risks compromising its security standing in the world just as it did when Syria crossed ‘red lines’ and Obama ultimately failed to act. It’s a conundrum Trump brought on himself and the US simply because he thinks he knows better than everyone.

Make no mistake, the US military is by far the biggest in terms of funding, its annual budget dwarfs that of its nearest rival several times over making this military a fierce war machine. Yet it is in the realm of the cyberspace where the US seemingly lags behind, it is regularly targeted by state-sponsored cyber armies but it has not been able to stop further attacks.

The theft of department of Homelands Security employee database blamed on Chinese state sponsored hackers, the hacking of Sony Pictures blamed on North Korea and of course the US elections controversy are some of the high profile breaches. This US inability to deter these attacks raises the spectre of blackmail where powerful forces in cyberspace could in the future potentially arm twist America to negate on some its responsibilities as a guarantor of global security.

Perhaps the one Donald Trump flaw that leaves the US exposed has to be his preference for isolationism. Previous US administrations that favoured isolating America paid the heavy price as the US got attacked and was forced into war it did not to be a part of. President Trump thinks the US is better off working with a few countries and that the US needs to pull out of some international agreements it has signed.

Former president Barack Obama favoured the multilateral approach, where he forged strong alliances with Germany, Japan and South Korea when dealing with international crises. These alliances have helped to bolster American foreign policy where a unilateral approach would have failed, the sanctions against Russia are a case in point. Russia was hurt more by Germany sanctions rather than by American sanctions yet Trump has trashed this alliance because he appears more driven by an agenda to dismantle everything Obama built than maintaining world peace and security.

Such is the kind of president the US has these days, the turmoil that characterizes this administration says it all. The costs for the US are already very high less than a year into the Trump administration. Who knows what will happen in the next three years?

Terence Zimwara is a writer and commentator. He can be contacted on 263 771799901 or tem2ra@gmail.com