Bond notes – A look at the bigger picture
THE cornerstone of economic development of any country is production of goods and services. In Zimbabwe the problem is that the domestic industry is not producing enough to meet local demand and effectively export. Many local industries generally lack the necessary sophistication to compete with their high-tech counterparts in the global economy.
The persistent dilemma of cheap imports and the resultant trade deficit, reduced revenue collection, loss of jobs and the foreign exchange shortages, are some of the symptoms of a weak production base in the economy.
It follows, therefore, that Zimbabwe needs to come up with a strategy to stimulate export production and increase foreign exchange earnings. This is also crucial for purposes of liquefying the use the multiplecurrency system, which is dependent on the economy’s capacity to generate sufficient foreign exchange to meet its requirements.
To achieve this, the Government as an enabler, has the mandate to come up with a package of incentives to cushion the productive sectors and nurture growth. The private sector as such needs to work closely with the Government in creating favourable policy space for investment and identifying areas for incentivising production.
Confidence building is a key factor in this regard hence the public also needs to be informed to support such initiatives.The coming in of bond notes, an export bonus scheme introduced by the central bank to boost domestic production, should be appreciated from this broader context.
The new notes are expected to be in circulation in a few weeks’ time with the Reserve Bank of Zimbabwe (RBZ) rolling out massive awareness campaigns ahead of their usage.
The Government has already promulgated the necessary legislation backing the implementation of the strategy. Indeed much effort has been devoted to highlighting reasons behind negative growth and the widespread public pessimism and speculation about bond notes.
Official data from the RBZ shows foreign exchange that is being used by everyone in the country is derived from exports, diaspora remittances, foreign investments, loans and grants. Sixty percent (around $3,6 billion) of foreign exchange is from exports alone. Zimbabwe’s major exports include tobacco, gold, platinum, diamonds and ferrochrome, which account for around 80 percent ($2,6 billion) of the country’s total export receipts. Over 40 percent of the country’s exports are destined to South Africa, a sub-regional power house, which is also a source of close to 60 percent imports.
While the country’s exports have grown up from an average $1.7 billion during the 1990-2009 period to $3.6 billion during 2010-2015, the current low level of production is not able to satisfy local demand, experts say.
Also in view of the widening trade deficit at around $2.5 billion, authorities need to craft substantial policy measures to promote exports and enhance competitiveness. The significance of measures such as the bond notes strategy should, therefore, take centre stage especially considering the strengthening of the US dollar against regional currencies, weakening global commodity prices and tightening of global financial conditions.
The central bank has emphasised the need to bring sanity in the management of foreign exchange in order to promote local production and reduce import dependence to avert further economic ruin.
It is against this background that the Government is introducing the bond notes, as a performance related export incentive or bonus scheme to be awarded to exporters of goods and services.
Under this scheme the central bank would pay up to five percent incentive or bonus in bond notes to exporters of goods and services.
“You will earn up to five percent through exporting goods and services or when you receive money from the diaspora.
The export incentive will be paid in bond notes, which have the same value as the US dollar (1:1) and are deposited into and withdrawn from your existing US dollar bank account,” says RBZ.
The strategy is also meant to complement measures by the apex bank to deal with externalisation and inefficient distribution and utilisation of foreign exchange in the economy. The act of rewarding every contribution in foreign currency generation is in itself a noble gesture that demonstrates the Government’s commitment to transforming the economy. It is unfortunate that this bigger long-term production side of policy is being overlooked by many and actually sacrificed at the altar of divergent opinion and speculation.
Reserve Bank of Zimbabwe Governor Dr John Mangudya