Category: News Feeds

It’s November 1, and Thanksgiving is just a couple of weeks away, which means that bonus season is right around the corner. Wouldn’t it be nice if your law firm gave you a little something extra to be thankful for this year? We sure think it would be! As a little reminder — as if you really needed one — this is what last year’s Cravath bonuses looked like:

Class of 2018 — $15,000 (pro-rated)
Class of 2017 — $15,000
Class of 2016 — $25,000
Class of 2015 — $50,000
Class of 2014 — $65,000
Class of 2013 — $80,000
Class of 2012 — $90,000
Class of 2011 — $100,000
Class of 2010 — $100,000

For those of you who are wondering when your bank accounts will be a little more flush, here’s a list of the dates when year-end market bonuses hit Biglaw since 2006, the very first year Above the Law started publishing bonus news. Take a look:

With visions of bonus dollars dancing in your heads, it’s time to check in on how people are doing with their billable hours. There are just about eight weeks to go in 2019, and this year, as with every year, hitting your target is very, very important. Some firms might make bank-busting payments that will generate sweet headlines, but not all associates will hit the hours mark necessary for the top payment.

Still, with about two months to go, there’s plenty of time to get on your hours. Now that holiday season is on the horizon, attorneys may start poking around for an extra discrete assignment or two — after all, some hours here and there could mean a world of difference.

So how are people doing? Take our poll, and get a sense of how many hours your peers are on pace to hit in 2019. While you’re at it, let us know when you think this year’s bonuses will drop, and whether they’ll be higher or lower than last year’s bonuses.

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Remember everyone, we depend on your tips to stay on top of important bonus updates, so when your firm matches, please text us (646-820-8477) or email us (subject line: “[Firm Name] Matches”). Please include the memo if available. You can take a photo of the memo and send it via text or email if you don’t want to forward the original PDF or Word file.

And if you’d like to sign up for ATL’s Bonus Alerts (which is the alert list we also use for salary announcements), please scroll down and enter your email address in the box below this post. If you previously signed up for the bonus alerts, you don’t need to do anything. You’ll receive an email notification within minutes of each bonus announcement that we publish. Thanks for all of your help!

Staci Zaretsky is a senior editor at Above the Law, where she’s worked since 2011. She’d love to hear from you, so please feel free to email her with any tips, questions, comments, or critiques. You can follow her on Twitter or connect with her on LinkedIn.

With dramatic shifts in the legal market, law firms, in-house legal departments, and alternative legal service providers (ALSPs) are increasingly turning to freelance lawyers and paralegals to build their workforce. In turn, lawyers and paralegals may find their careers increasingly including contract and freelance work.

This new world can feel overwhelming with a new legal marketplace concept popping up every month. To add to the confusion, some of these marketplaces are focused on helping consumer clients locate attorneys in violation of fee-sharing rules while others offer only independent contractor services which can cause penalties for improper worker classification and wage-and-hour claims.

Here’s a breakdown of the four basic legal staffing concepts on the market to help candidates and clients sort through this new landscape, ensure compliance, and pick the concept that works best for their law practice or career,

Staffing Solutions

1. Brick & Mortar Staffing Agencies: Traditional and “new law” concept staffing firms can help with direct and contract hiring services. These provide full payroll and employment compliance as well as professional liability insurance specific to staffing that adds an extra layer of protection for hirers and contractors. Further, the ABA model rules adopted by the majority of jurisdictions permit staffing services as not in violation of fee sharing. The downside is, brick and mortar agency processes tend to be less transparent and more manual, time-consuming, and expensive than online options. Candidates may find recruiters who are tasked with executing these manual processes and staffing many roles simultaneously are not responsive and hirers may not like the friction and time required to interface with a recruiter to access and communicate with candidates.

Benefits:

• Dedicated recruiters
• In compliance with Model Rules of Professional Conduct
• Payroll and employment compliance services
• Temp and direct-hire options
• Ability to meet a wide range of staffing needs, including specialized and non-attorney roles

Limitations:

• Fees tend to be higher than modern staffing solutions
• Non-transparent fee structures that may vary from project to project (or candidate to candidate)
• Some can find it clunky and time-consuming to go through a recruiter to connect with and communicate with candidates
• New Law staffing agency concepts that focus on attorneys with Fortune 500 and Am Law backgrounds can have rigid hour and length requirements requiring hirers to commit to 20-40 hours on a multi-month basis

2. Boutique Freelance “Platforms”: These services often call themselves marketplaces or platforms. They generally contain a marketing website through which a point person is contacted, much like an agency. These concepts offer independent contractor services without payroll and professional liability insurance. While they lack the services and compliance of agencies, often the fees are lower and more transparent and they also tend to offer more experienced and specialized attorneys.

Benefits:

• Ability to connect with attorneys for a project basis
• License and identity verification
• High-touch, manual experience for the tech-adverse
• Fees generally lower for 1099 work than traditional agency concepts
• Focus on more experienced, specialized attorneys

Limitations:

• No payroll or employment compliance services
• No paralegals or junior or entry-level resources
• No professional liability insurance as provided by a staffing agency
• High-touch, manual experience that results in longer turnaround time
• Just as with a traditional agency, it can be clunky and time-consuming to go through a recruiter to connect with and communicate with candidates

3. Lawyer Marketplaces: These marketplaces allow attorneys and hirers to search for and connect with one another without the friction and time of going through a recruiter. Most do a basic bar license verification. These primarily offer 1099 independent contractor services and many disclaim responsibility as a staffing agency and related employment compliance responsibilities and guarantees of contractors. Also, to be compliant with model rules as a non-agency “marketplace,” the attorney should technically be working in a clerk or “paraprofessional” capacity.

Benefits:

• Ability to connect with attorneys to provide assistance with legal writing and drafting projects
• Direct access and communication with candidates
• Basic license and identity verification

Limitations:

• No payroll or employment compliance services
• Limited vetting and screening of candidates
• Many have smaller pools of attorneys and track records
• No professional liability insurance as provided by a staffing agency
• Most specifically disclaim they are a staffing agency and the related responsibilities and there are little if any guarantees provided on contractors or payment to contractors
• As a marketplace and non-staffing service — attorneys must work as paraprofessionals to stay compliant with Model Rules of Professional Conduct
• Questionable compliance with Model Rules of Professional Conduct for those offering services to the general public
• With some, a project has to be flat rate which can cause a lack of flexibility for hirers and can cause scope creep for contractors after they’ve agreed to a defined price

4. Data-Driven, On-Demand, Online Legal Staffing Agency: This model combines technology-driven, on-demand convenience with all of the benefits of a staffing agency. It provides thorough vetting, payroll, employment, and professional responsibility compliance benefits along with professional liability coverage. This is the only concept to use established research on Psychometrics (aka “Moneyball for legal hiring”) to predict candidate performance and fit for a role. Currently, Hire an Esquire is the only online concept to provide the services of an agency and on-demand convenience of a technology platform and the only online or offline agency to provide a soft-skill analysis.

Benefits:

• Instant matches upon job posting (72 percent of jobs are filled as a result of these instant matches)
• The largest online network of legal professionals, including over 2 percent of the U.S. attorney population
• A wide variety of jobs for candidates as well as job recommendations and notifications when a role fits their skillset
• License and identity verification
• Thorough candidate vetting that includes soft skill analysis based on established Psychometrics on predicting workplace performance
• Candidate selection enabled via easy via proprietary Job Fit scores based on “Moneyball” for legal hiring from proven research
• Vetting of clients to ensure clients are staffing service clients in compliance with the Model Rules of Professional Conduct
• Direct access to and communication with candidates
• Full payroll and employment compliance services
• W2, 1099, and direct hire options available
• A wide range of contractors, from highly skilled senior attorneys to mid-level associates, junior attorneys, document reviewers, and paralegals
• Compliant with Model Rules of Professional Conduct
• Transparent hourly or flat fees available

Limitations:

• Must have a supervising attorney on staff and be a law firm, in-house legal department, or legal services company

And, we’ve put together this chart to give you a side-by-side comparison:

Happy staffing!

Lady Justice Law School, we hardly knew ye.

Just three years after the unaccredited law school opened in Bakersfield, Calif., it’s shutting down.

The school recently told the State Bar it would submit a letter by Halloween surrendering its registration.

It wasn’t a good sign when Lady Justice told students in August that classes would be suspended just before they were set to begin. The students “were not informed of a date when classes would resume,” the bar said.

The students had not yet paid for tuition, and at least one of them has already transferred, the agency said. The bar said there were up to 10 students attending.

The school’s part-time JD program cost $400 a month and would take four years to complete, according to its website.

“The purpose of Lady Justice Law School is to provide an affordable, quality education for working adults who might not have had the opportunity to fulfill their legal education dreams,” the website said.

The only other law school in the region is Kern County College of Law, which is state-accredited. The Bakersfield branch of Monterey College of Law opened in recent years.

“We have already received inquiries from former Lady Justice students who are willing to start over in order to be enrolled in an accredited program,” said Kern County College of Law Dean Mitch Winick.

Voicemails left for Lady Justice Law School were not returned.

Lady Justice’s planned closure comes a little more than a year after it received State Bar approval to move to a different location in Bakersfield.

The new location was expected to generate cost savings that could be invested in Lady Justice’s educational program. A bar staff memo said the new location was also more convenient for students because it was just blocks from Kern County Superior Court.

Overall, the state’s nearly 20 unaccredited schools have drawn scrutiny from the media and the State Bar due to low bar exam passage rates and high student attrition.

The bar has sought in recent years to advance a plan to force the state’s unaccredited law schools to obtain accreditation or gradually shut down, but the agency has said there is resistance in the Legislature.

A top bar official said earlier this year that the agency may try to move their plan forward again after examining additional bar exam passage information.

The unaccredited institutions are not the only law schools in California that are struggling.

News emerged this week that the University of La Verne is considering closing its law school due to financial concerns and fears the American Bar Association-accredited institution may not be able to comply with a stricter ABA bar passage standard.

ABA-accredited Whittier Law School in Orange County is in the process of shutting down. ABA-accredited Thomas Jefferson School of Law in San Diego is trying to fight off the loss of its ABA accreditation, a potential death knell, and previously lost the ability to accept students’ GI Bill benefits for a time .

In addition, ABA-accredited Western State College of Law fended off potential closure this spring.

Lyle Moran is a freelance writer in San Diego who handles both journalism and content writing projects. He previously reported for the Los Angeles Daily Journal, San Diego Daily Transcript, Associated Press, and Lowell Sun. He can be reached at lmoransun@gmail.com and found on Twitter @lylemoran.

Yesterday may have been Halloween, but that doesn’t mean Kim Kardashian has forgotten about her law school dreams — not even for the day. That’s because in honor of the holiday, Kim dressed up as everyone’s favorite law student, none other than Elle Woods.

Of course, because it is Kim Kardashian and there’s nothing that’s worth doing that’s not worth overdoing, she does more than just dress up as the Legally Blonde heroine. That’d be too easy. No, she did more than just throw on a costume — she recreated the entire Elle Woods video essay that she used to apply to Harvard Law School. You really have to check it out.

Reese Witherspoon, the original Elle Woods, appreciated Kardashian’s efforts as well:

As many people are aware, in addition to being a beauty product mogul and reality TV star, Kim Kardashian has recently set her sights on becoming a lawyer, like her father, the infamous O.J. Simpson attorney, Robert Kardashian. Though she isn’t actually in law school (not having a bachelor’s degree makes that tough), she is studying via apprenticeship to be a lawyer with plans to take the bar exam in 2022. And of course, because it is Kim, she’s taken to social media to document the process.

She shared a criminal law issue spotter that cast Justin Bieber as a criminal mastermind, complained about the fact that law student life sucks, explained that she neglected her Keeping Up With the Kardashians livetweeting duties to keep up with torts homework, and she bailed on summer holiday festivities as she continued with her contracts homework. She even has a favorite law professor — University of Washington contracts professor Steve Calandrillo — that she’s shouted out on Insta.

Kathryn Rubino is a Senior Editor at Above the Law, and host of The Jabot podcast. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter (@Kathryn1).

Several stupid lawsuits have been brought against social media companies. Some feature actual lawyers (but mostly from the same law firms) helping clients throw money away on allegations that Twitter and Facebook are at least indirectly responsible for terrorist attacks.

Others also use real lawyers, but lawyers willing to misread precedent to declare large social media platforms “public squares” and advance some very questionable arguments about First Amendment violations.

Then there’s everyone else: the kind of people who think being temporarily suspended from a platform is a billion dollar Constitutional violation. (h/t Eric Goldman)

In this lawsuit, Adrian Rangel alleges his brief suspension violated the Constitution harder than it’s ever been violated before. Rangel’s Twitter account is no longer suspended and it’s not because he emerged victorious from this lawsuit. It has already been tossed by the federal court.

Rangel’s short-lived lawsuit [PDF] asked for $1 billion in damages for his brief suspension, which he alleges violated his First Amendment right to yell “HANG THEM ALL” in a crowded platform. While we can agree Rangel’s heated response to “topics from the mundane to the comical” probably should not have resulted in a suspension, we can also agree Twitter’s moderation call did none of the following:

Plaintiff contends that by suspending Plaintiff’s account religiouserpico Defendants Twitter Foundation and Vijaya Gadde violated Adrian Rangel’s constitutional rights to ( (1) freedom of speech, (2) freedom of expression, (3) freedom of religion, (4) freedom of assembly, (5) freedom against unlawful seizure, (6) due process, (7) substantive due process and (8) equal protection of the United States Constitution.

This despite Rangel’s claim on his own Twitter feed that he is a “CONSTITUTIONALIST.”

Rangel logically points out his “HANG THEM ALL” tweet was not a threat. It targeted no one and was a hyperbolic expression of Rangel’s general exasperation with the status quo. (I’m construing his complaint liberally. Rangel doesn’t actually reference the tweet his responded to, but judging the rest of the complaint, it probably had something to do with liberal politicians.)

Now, while you might be familiar with misguided assertions that moderation by private platforms violates First Amendment rights (including freedom of assembly), you’re probably unaware that account suspensions also violate religious rights.

Before the Defendants suspended Plaintiff’s account, Plaintiff used Twitter to proclaim his religious beliefs to the public of being a Born Again King James Bible Only Christian. Plaintiff included the being Born Again King James Bible Only Christian in his Twitter profile. ln addition, Plaintiff followed and was followed by a number of people on Twitter – one group being people of like-minded religious beliefs.

Tangentially, Plaintiff contends that President Donald J Trump was nothing short of miraculously elected by God into the Presidency; most specifically because of Donald Trump’s victory in light of the tremendous media, political and social resistance to his election to the Presidency of the United States. Plaintiff used Twitter to support what Plaintiff contends is Donald J Trump’s nothing short of miraculous election to the Presidency. As such, Plaintiff’s religious beliefs are intertwined with Plaintiff’s support of Donald J Trump as President of the United States of America.

Recourse options are limited for those who feel their cult-like admiration of elected leaders has been harmed by moderation efforts. “Limited” as in “zero.” There are no options available to someone who has managed to “intertwine” their belief in God with their worship of a president.

Going from that surprising tangent, Rangel alleges the appeals process provided by Twitter doesn’t approach the standards of due process provided by the Constitution. Of course they don’t. They never will. Only the government has this obligation, much like the government’s monopoly on First Amendment rights violations. The same goes for the Equal Protection clause, which is invoked in Rangel’s lawsuit to make a perfectly valid point.

Plaintiff further contends that Defendants Twitter Foundation and Vijaya Gadde have illegally embarked upon an illegal circumvention of the United States Constitution in attempting to impose on United States citizens the legal cultures of foreign countries i.e. India, China, Russia, Germany, United Kingdom etc. Many of these foreign countries were once or still are considered third world countries because of their former or present totalitarian subjugation or colonizing regimes.

Unfortunately, valid points aren’t the same thing as cognizable claims and the court has no jurisdiction or duty to prevent Twitter from aligning moderation efforts with foreign laws. I agree with Rangel that Twitter should not be humoring authoritarian regimes by complying with removal notices and/or suspending accounts, but a billion dollar lawsuit claiming a private company violated Constitutional rights isn’t the place to make this argument.

Since there’s no moving forward with the case, there will be no discussion of Section 230 immunity, which would have seen this case dismissed if Twitter (a “California nonprofit,” according to the plaintiff) had needed to file a response. Love it or hate it, social media platforms can moderate as they please without violating Constitutional rights. Understanding this simple concept would save a lot of people time and money.

Man Sues Twitter For $1 Billion Claiming His Account’s Suspension Violated His Right To Worship President Trump As A Demigod

More Law-Related Stories From Techdirt:

Deputy Sued Over Forced Baptism Sued Again By A Minor Alleging Another Bizarre Mixture Of God And Invasive Searches
Sometimes The Cost Of Revenue Is Too High: Twitter Bans Political Ads As Facebook Deals With Ongoing Shitshow
Cops: People In Their Own Homes Are In The Wrong Place At The Wrong Time Whenever A Cop Enters Unlawfully

2019 might go down as the beginning of the boom years for investment in legal technology companies (“Legaltech”), or it might be remembered as the good times that preceded yet another historic crash.

Let’s start with the good news. It’s both common knowledge and well established by research that the legal industry has historically been, to put it delicately, slow to adopt technology. If the greater business world is cruising along in a Tesla, most legal offices are puttering around in a ’97 Neon. That might finally be changing, at least if you judge it by the metric of investment in legal technology firms.

The ABA recently published an interesting overview of the upswing in investment in Legaltech over the past two-to-three years. For a long time, investors simply haven’t been interested in betting their dollars on the development of technologies specifically designed for lawyers. And why would they? There are some lawyers still drafting up briefs and contracts in Corel WordPerfect on a Windows 95 machine. The practice of lawyering has not experienced widespread technological disruption since perhaps the introduction of the email-enabled phone. If we can’t be bothered to update our antivirus software, how likely are we to sign on to expensive and complicated new technological platforms?

The Pump Is Primed

But to the VCs in Silicon Valley, well-established, technologically stagnant industries are an untapped well of profit. Silicon Valley thrives on forcing disruption, remaking old industries in a new image. The potential for a massive upside is certainly there, and more and more investors are now taking the swing, betting on projects that promise to improve the legal space.

Around $100M was invested in legal tech by VCs in 2012, whereas in 2018, that number was nearly $1.6B, a 20-fold increase over six years. 2019 is on pace to blow past 2018 both in the number of deals done and total dollars invested.

This is a good thing, full stop. Consumers of legal services stand to benefit across the board. Any innovation that makes legal services cheaper, more broadly available, more efficient, or more transparent is going to be a benefit to the customer.

Whether law firms benefit from these new technologies will depend largely on the firms themselves, but some likely stand to grow hugely off the back of these innovations. The firms that identify value-add technology early and beat the market in adopting it stand to increase their market share, develop happier clients, cut firm overhead, and potentially bring in entirely new lines of business. Integrating disruptive technology can be painful, but it’s a necessary step for firms looking to stay competitive in the coming economic lean times.

The Seven Worst Words In The World

Now for the bad news. It’s a fact that investment in legal technology is accelerating, but the reasons offered above aren’t the only possible driving forces in play. The best reason for investment in legal tech is the one we already explored: Law firms are finally becoming willing to adopt new technologies, and so a market is springing up to create tech for those firms to adopt, and VCs are joyfully funding that market. This rosy view is probably at least part of the reason for the uptick in investment, but there are larger industry trends at play that need to be factored in.

Howard Marks, a billionaire investor for Oaktree Capital, summed the problem up in a wide-circulated memo called “The Seven Worst Words In The World.” The entire memo is worth a read, but the titular seven words sum it up:

“Too much money chasing too few deals.”

That’s the basic problem of VC investing at the dawn of the 2020s. The world has figured out that investing in technology companies is cheap, but has tremendous upside compared to the cash required to buy in. For a relatively small investment, VCs essentially get a lottery ticket. If the company goes bust, they lose their modest investment. If the company turns into a unicorn, the VC might find itself billions of dollars in the black on a six- or seven-figure outlay.

The problem is that there are currently so many investment funds, angel investors, VC firms, and even sovereign nations chasing those investment opportunities that the price of investment has gone up across the board. Demand for tech companies to fund is drastically outpacing the supply of viable companies, and it’s likely leading to overpricing and excessive investment throughout the entire tech field.

This has two primary effects. First, it drives the price of investing up. When multiple investors are jockeying for the privilege of putting their money into the company, it’s generally the investors willing to put in the most money, while accepting the lease control, who get the nod. This is the dynamic that led to some of the more insane pro-company, anti-investor conditions at WeWork we explored in my last article.

The other effect is that it broadens the scope of what can be deemed an acceptable deal. Frustrated investors who missed out on the traditional tech companies will branch out looking for other industries where the competition is slimmer, industries primed for disruption… industries like Legaltech.

Combine it all together, and all signs are pointing to the VC industry being in a speculative bubble that, sooner or later, has to pop.

The Looming Crash

So here’s the question of the moment: how much of the recent rise in Legaltech investment is attributable to organic maturation of the market, and how much is just splashing over from the investment mania sweeping the larger VC world? If the Legaltech sector is developing mostly in line with the actual increasing value of investments and adoption of new technologies, then a pop to the larger VC bubble shouldn’t have all that much effect. In fact, it might even drive more investment to Legaltech if the market segment can weather a larger downturn intact, and prove that the market really is maturing.

On the other hand, it’s possible that most of this growth is just froth generated in the larger industry’s quest for the next billion-dollar business. If a popping VC bubble takes down the Legaltech sector, it could push us back even further on our profession’s quest to join the 21^st century.

I plan to spend the next two columns digging deeper into the Legaltech industry as it stands. If we get lucky, we might start developing illuminating answers. If we’re luckier still, we’ll develop some even more illuminating questions.

James Goodnow

James Goodnow is an attorney, commentator, and Above the Law columnist. He is a graduate of Harvard Law School and is the managing partner of NLJ 250 firm Fennemore Craig. He is the co-author of Motivating Millennials, which hit number one on Amazon in the business management new release category. As a practitioner, he and his colleagues created a tech-based plaintiffs’ practice and business model. You can connect with James on Twitter (@JamesGoodnow) or by emailing him at James@JamesGoodnow.com.

* The New Jersey Supreme Court has disbarred an attorney who charged a widow $120,000 for work that should have cost no more than $15,000. This takes running the meter to a completely different level. [Bloomberg Law]

* A judge has thrown out a conspiracy theorist’s lawsuit against Robert Mueller. Looks like it ain’t Mueller time anymore… [The Hill]

* A Brooklyn pimp has argued in court that he did not kill his girlfriend, but merely chopped up her body. Sounds like a defense Robert Durst would make. [New York Post]

* A former Manhattan Assistant U.S. Attorney is a main contender to be Rudy Giuliani’s lawyer. [CNN]

* NYC’s new top lawyer says that going after Trump is a top priority. [New York Post]

* Two Midwestern firms have merged to form a 400-lawyer firm. That’s a lot of Midwestern charm! [ABA Journal]

Jordan Rothman is a partner of The Rothman Law Firm, a full-service New York and New Jersey law firm. He is also the founder of Student Debt Diaries, a website discussing how he paid off his student loans. You can reach Jordan through email at jordan@rothmanlawyer.com.

That has dimmed hopes of a quick economic recovery under President Emmerson Mnangagwa, who took power after the late Robert Mugabe was ousted in a coup in 2017.

The Apex Council of public sector unions said the government had not responded to its demands for U.S. dollar-indexed salaries to cushion workers against inflation that economists say reached 380% in September.

The unions said on Oct. 15. that the worst economic crisis in a decade – marked by 18-hour power cuts, soaring prices and shortages of foreign currency, fuel and medicines – meant they were unable to go to work.

“As a consequence of the above, the Apex Council is calling upon all civil servants to prepare for a massive protest march,” the council said.

In a letter to labor minister Sekai Nzenza, the union chair Cecilia Alexander and her deputy Thomas Muzondo said the demonstration would be held on Wednesday, when they would hand a petition to government.

Nzenza did not respond to calls seeking for comment.

Surging inflation has brought back memories of the horrors of a decade ago when 500 billion percent hyperinflation wiped out savings and forced the government to abandon its currency.

The planned march is a test for Mnangagwa, who is accused of using his predecessor’s heavy-handed tactics to stifle dissent after banning several opposition protests.

Critics say Mnangagwa, 76, lacks commitment to political reforms and tackling corruption but he has pleaded for time to bring the economy back.

Finance Minister Mthuli Ncube earlier told lawmakers that the economy is set to shrink by 6.5% this year – its first contraction in a decade – after a drought and power shortages.

Ncube said water in the Kariba dam, which can produce 1,050 MW, was so low that “we are dangerously close to a level where we have to cut off power generation”. Kariba was producing 122 MW on Thursday.

Zimbabwe would spend more than $300 million to import 840,000 tonnes of maize, after the drought left more than half the population in need of food aid, said Ncube.

He said the economy was projected to recover and grow 3% next year on the expectation that there would be better rains to power agriculture as well as improved foreign exchange inflows and electricity generation.

Power cuts have hit industry and mining, the biggest export earner. Earnings from mining fell to $1.9 billion between January and September this year, from $2.4 billion during the same period in 2018, central bank governor John Mangudya said.

Post published in: Business

This week the government moved a step ahead in its currency reforms when the central bank announced new notes will be introduced in two weeks to fight transactional challenges emanating from over-reliance on digital and mobile money in light of exacerbated by cash shortages.

Mobile money, an area in which Econet spin-off, EcoCash is the dominant player, has often been helpful for ordinary Zimbabweans in alleviating the cash shortages they have been experiencing. However, mobile money has also become problematic as wallet holders have had to pay premiums of up to 50% to access their funds in cash and this is why the Monetary Policy Committee of the central bank is moving to introduce new currency notes under the banner of the Zim dollar.

But to understand the Zimbabwean currency changes and reforms and the resultant crisis, one needs to go back to 2009 when the country—ravaged by hyper-inflation—abandoned the Zimbabwe dollar and adopted multiple currencies including the US dollar and South African rand. In 2015, the foreign currency notes dried up at the banks, leading to cash shortages in the economy. Then in 2016, Zimbabwe introduced bond notes as a surrogate currency which initially had equal value to the US dollar but today it trades at 1:15 with the greenback.

The currency crisis worsened even after longtime president Robert Mugabe was replaced by Emmerson Mnangagwa in late 2017. He appointed Mthuli Ncube as finance minister in 2018 leading to the adoption of a monetary policy pivoted around currency reforms which have in turn led to the removal of foreign currencies and re-adoption of the Zim dollar in 2019.

This November Zimbabwe will inject more cash into the economy in the form of new ZWL 2 coins, ZWL 2 and ZWL 5 notes and these will be legal tender alongside the bond notes introduced in 2016 pending their gradual phasing out from the market. According to the monetary policy committee of the Zimbabwean central bank, “the level of physical cash in the economy is inadequate to meet transactional demand” hence its decision to “boost the domestic availability of cash for transactional purposes through a gradual increase in cash supply over the next six months” and starting with the new notes coming up next month.

Hyperinflation fear

With Zimbabweans having to pay premiums for their own money in their mobile wallets, economists including Oxlink Capital’s Brains Muchemwa have described the situation as a reflection of policy failures. But some Zimbabwean economists believe the introduction of new notes under the Zim dollar banner will help address cash shortages in the economy, mainly because of fears that further injection of money will drive up inflation. It may be too late, the economy recently officially sunk into hyper-inflation despite the government stopping publication of yearly inflation data.

Cash shortages have been pushing up transaction fees for digital money, leaving analysts divided over the role of mobile money in abetting or worsening the monetary crisis. Authorities in Zimbabwe have recently ordered mobile money operators to stop cash in and cash out functionalities, apparently because of the premiums some agents were charging and has only re-instatement of these functions after imposing limits of about ZWL100 per transaction. On the parallel market, ZWL100 is equal to $5 while on the official interbank market, ZWL100 is about $6.60

Apart from the pricing distortions and premiums on cash, Zimbabweans are having to cope with sharp price rises, the most recent of which has been fuel prices and data tariffs. Econet Wireless this week hiked mobile voice call and mobile data tariffs while fuel has also gone up by about 12% after the removal of subsidies on petroleum products this year. This is expected to provide further room for inflation increases. Re-Invent Zimbabwe chair and economist Vince Musewe says “increasing liquidity through hard cash will be like giving more chips to the gambler” as prices will likely shoot over the roof.

Apart from the skepticism and divided opinions over the new notes to be introduced and their impact on the economy, some analysts such as independent economist Jeffrey Kasirori say the government still has to do more to clear the way for the new currency notes to have a positive impact. Zimbabwean businesses have long complained about the high costs of doing business and a placid regulatory framework.

“If we don’t address fundamentals especially around the cost of production then the new currency might not work. We await to see what else the government will do to address the business operating framework because as things stand, accessing foreign currency is still problematic for many companies and this makes their production difficult,” says Kasirori.