Banananomics: Zimbabwe's Unique New Money And Lithium Reserve

Zimbabwe introduced a new currency (ZiG) backed by gold on April 5, 2024.

Inputs that matter: The ZiG is officially trading at 13.41 against the U.S. dollar (USD), but it is closer to 20 on the street.

• John Mushayavanhu, the new governor of the Reserve Bank of Zimbabwe, predicts the currency will succeed because it is backed by reserves of gold and other minerals worth $175 million and $100 million cash.

• Zimbabwe Professor of Economics Gift Mugano explains that they have seen this before, "[In] 2016, we introduced bond notes which were backed by Afreximbank (African Export-Import Bank) facility of $400 million."

• Mugano states that in Zimbabwe, "85% of transactions are being conducted in U.S. dollars because [the] local currency was not living up to the function of store of value."

The opportunity: The World Bank reports that "Zimbabwe is highly competitive in several value chains in agriculture and agribusiness industries, including sugar, cotton, horticulture, and meat and dairy."

• Annual inflation increased from 26.5% in December 2023 to 47.6% in February 2024.

• Real GDP growth is projected to slow further to 3.3% in 2024

• Extreme poverty has declined since its peak in 2020, but it remains high in the context of cyclical agricultural production and elevated food prices.

Zoom in: Zimbabwe has Africa's largest lithium reserves and is the world's sixth-largest producer and supplier.

• An essential mineral used in electric vehicle (EV) batteries is the country's economic catalyst to fuel growth.

• In August 2023, Zimbabwe's president, Emmerson Mnangagwa, opened a plant to process lithium in the eastern province of Manicaland.

Between the lines: Power China, a Chinese state-owned conglomerate, built the Sabi Star mine in 2022.

• According to a recent ZELA report, Chinese-owned companies have acquired Zimbabwe's most extensive lithium mining projects.

• On the other hand, Western investors remain reluctant to work in Zimbabwe and are concerned about human rights. 

Follow the money: The exponential global demand for lithium is essential for energy transition based on zero carbon emission.

• In addition to Lithium, Zimbabwe enjoys the world's second-largest gold reserves per square kilometer.

U.S. President Joe Biden and Japanese Prime Minister Fumio Kishida vowed a "new era" of cooperation, laying out a series of projects, from missile co-development to manned moon landings, with an eye on aggressive actions by BRICS nations.

Inputs that matter: DefenseNews reports, "The two countries will improve their respective command-and-control systems, form an industrial council to build weapons together, network their missile defense systems with Australia's, and start a joint exercise with the United Kingdom."

• Toshi Yoshihara, a China expert at the Center for Strategic and Budgetary Assessments, explains, "No one has done more to get Japan to modernize and get serious about defense than China itself."

• Defense officials from Australia, the United Kingdom, and the U.S. said that Japan and other countries might later join part of the AUKUS defense pact, an agreement to share nuclear-powered submarines and other defense technology.

The opportunity: NPR reports, "Japan has long been one of America's closest allies, and the Biden administration has sought to strengthen the relationship further as part of its push to counter China."

• Japan is being offered U.S. defense contracts to manufacture military equipment as part of the deal.

• According to C.B.S., "Details of the enhanced military partnership will be worked out by Defense Secretary Lloyd Austin and his Japanese counterpart in the next several months."

• Japan hopes to join the Five Eyes intelligence network, which includes the U.S., Canada, Australia, New Zealand, and the U.K.

• For Japan, the agreement represents added protection from China.

Zoom in: After Japan surrendered to Allied forces at the end of World War II, the U.S. occupation drafted a constitution that limited military engagements.

• Article 9 of the Japanese Constitution prohibits the country from establishing a military or solving international conflicts through violence.

• Despite talking about removing Article 9 since 2000, it still stands.

• Kyodo News reports that the country plans to upgrade 11 ports and five airports for defense use.

Between the lines: The U.S. and China are the world's two largest economies and the lead participants in competing groups of BRICS (Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, and the U.A.E.) and G7 (Canada, France, Germany, Italy, Japan, the U.K., the U.S., and unofficially the E.U.).

• The concern for the G7 is China's growing military and the threat it poses to Taiwan, just over 100 km (62 miles) from Japanese territory, including the region's strengthened alliances between China, Russia, and North Korea.

• Russia's invasion of Ukraine and the fallout from the war in Gaza are also shared concerns.

Follow the money: Grace Park, the director for Japan policy at the Defense Department's Indo-Pacific Security Affairs Office, explains, "We've got Russia's aggression against Ukraine, we've got the Red Sea and, of course, the aggressive course of behavior of the [Chinese] in the East China Sea, the South China Sea, as well as the Taiwan Strait."

• Park details, "In thinking through these networked security environments, … they're all interconnected. There's not very much an artificial line between economic and military coercion."

The G7, led by the U.S., will impose new sanctions on Iran's missile and drone program, explained White House national security adviser Jake Sullivan on Tuesday.

Inputs that matter: The new sanctions will also target entities supporting the Islamic Revolutionary Guard Corps (IRGC) and Iran's Defense Ministry. "We anticipate that our allies and partners will soon be following with their sanctions," Sullivan said.

• U.S. defense agencies are working on strengthening air and missile defense and early warning systems across the Middle East.

• The G7 is also considering sanctions to isolate Iran internationally and increase economic pressure on the regime, White House national security spokesman John Kirby told reporters Monday.

The opportunity: One America News reports, "Multiple surfacing reports claim that Iran is now receiving brand-new weaponry from Russia, including anti-aircraft launchers and fighter jets."

• Iranian President Ebrahim Raisi warns that if Israel takes even the "slightest action," it will face "a severe, extensive and painful response."

• "Iran has several nuclear research sites, two uranium mines, a research reactor, uranium processing facilities, and three uranium enrichment plants."

Zoom in: Before the attack on Israel, Iran seized an Israel-linked oil tanker from the Strait of Hormuz.

• This is Iran's sixth ship seizure this month, reports CNBC.

• According to The U.S. Energy Information Administration (E.I.A.), the Strait of Hormuz is the world's most important oil transit chokepoint.

• 82% of the crude oil that moves through the Strait of Hormuz goes to Asian markets: China, India, Japan, and South Korea.

Between the lines: "We can't just pick and say, Iran is bad, but Russia is OK, and China is bad… They're all in this together," Rep. Michael McCaul (R-Texas), chair of the House Foreign Affairs Committee, said Sunday on CBS.'s "Face the Nation."

• Iran is part of BRICS (Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, and the U.A.E.), which competes with the G7 (Canada, France, Germany, Italy, Japan, the U.K., the U.S., and unofficially the E.U.).

• According to Voice of America, analysts say Russia has chosen Iran as a preferred partner with weapons and access to their spy satellites.

Follow the money: The oil markets now await Israel's response to Iran's attack to decide how much risk premium for crude oil there will be.

• Currently, 80% of Iranian oil goes to China.

• Analysts at S&P Global Commodity Insights have predicted that global crude demand will increase by 1.4 mb/d in the current year.