Bond notes and the export narrative

IN a few days, the Reserve Bank of Zimbabwe will release another batch of the bond notes backed by a $300 million standby liquidity facility from Afreximbank.

This will bring the total amount of bond notes in circulation to $500 million after the first $200 was released when the facility was introduced in November last year. According to the RBZ, this new facility is not introduced because there are cash shortages but because the initial export incentive has been exhausted.

Maybe to put it into context, when the bond notes were introduced in November last year they were introduced as an export incentive. This is what RBZ Governor Dr John Mangudya said at the time.

“The bond notes will be released into the market through normal banking channels in small denominations of $2 and $5 to fund export incentives of up to five percent which will be paid to exporters of goods and services and diaspora remittances.”

Since the introduction of these notes, there have been conflicting undertones surrounding bond notes.

Officially, according to the RBZ, the bond notes are just an export incentive. It is some incentive which exporters get when they export goods to bring the much needed foreign currency. According to the RBZ you are given up to five percent of the value of goods which you would have exported as an incentive in the form of bond notes.

The incentive was also targeting diaspora remittances, meaning up to five percent incentive was being added on the foreign currency that would have been remitted into Zimbabwe. However, to the ordinary person on the street, this has never been the case. Bond notes were simply another form of currency and that is why some joked when the notes were first introduced about why banks were giving them the money when they had not exported even a match stick.

The street thinking seems to hold water. The bond notes has somehow become currency. The notes have almost elbowed the US dollars out of the market and today it is rare for you to get hold of the US dollar. The bond notes have penetrated the market to the extent that they have found their way outside our borders where they are used by money changers. Suddenly even foreigners are scrambling for our “local” export incentive.

Which brings us to the question: what are bonds notes and what is their real purpose? Maybe it is time for economists or even the RBZ to clarify this for the benefit of the nation. If it is an export incentive, maybe it is also time for the RBZ to show the nation the foreign currency which the country has received which necessitated disbursement of the $200 million of the incentive.

Simple mathematics will show that if $200 million worth of bond notes have been released as an export incentive, this means that since the introduction of the notes in November last year, the country’s foreign currency earnings from exports and diaspora remittances must be $4 billion. This is a huge figure, if that is the case. However, what is worrying is that at a time when the country has exhausted $200 million worth of export incentives by rewarding a supposedly $4 billion worth of exports and remittances, we are facing serious foreign currency shortages.

Industry has already raised a red flag complaining that they are now failing to acquire essential raw materials for their companies due to shortage of the hard currency and this has already impacted on production. Banks are also complaining that their nostro reserves are now thin, forcing them to limit foreign currency payments for their clients.

Assuming that the additional $300 million worth of bond notes is also coming in as an export incentive, the paper argument is that the country is expecting to reward exports worth about $6 billion. All in all including the first batch, at $500 million worth of bond notes, we are looking at exports valued at around $10 billion.

This is where the RBZ needs to come clear because the obvious question which anyone would ask then is where is the money raised from the exports that were used as basis to issue the five percent $200 million bond notes incentive. With $10 billion or maybe just the $4 billion which was “raised” from the initial $200 million, this country must not be facing the economic challenges it is facing today.

Such contradictions tend to give a lot of credence to the belief of the ordinary man on the street who is refusing to buy the export incentive narrative and just believes that the RBZ is not coming out clean to explain what bond notes are and what really their purpose is.

The country is facing serious liquidity challenges that have resulted in banks literally running out of money.

Banks have reduced their withdrawal limits to as low as $20 per day. Cash barons have emerged and are selling money for a premium on the street. This can not be a sign of a country that has just exported goods worth $4 billion in less than 10 months.

Dr Mangudya says the situation now is not really a shortage of cash but foreign exchange shortages. So where is the money that we have raised after the exports that saw us giving away $200 million bond notes as incentives?

Some economists have argued that the bond notes are already Zimbabwe’s new currency and must be given a value rather than this thinking where depending on the situation they are real money and another day they are just an incentive. You only need to listen to the ordinary person on the street to get what they think about bond notes. To a worker who has been spending hours in bank queues, the news that another batch of $300 million bond notes is on the way is never seen in this jargon of export incentives but as more money that will enable him/her to withdraw his salary or savings and use as and when he/she feels like.

The farmer who has just sold his bumper maize at GMB will also expect to take some of the money home.

This is not to say that the use of plastic money is wrong. Most countries are doing that but at the same time if need arises, citizens of these countries can still walk into a bank or an ATM and withdraw some of their money on demand. This is what must happen also here. Let us use plastic money but if I need $10 to buy tomatoes on the street, it must not be a headache. Which is exactly why we need to come clean on the issue of bond notes and do away with the fear, clearly declaring what they are.

For, if we continue to hide under some jargon, the situation happening on the ground will prove us wrong and it will be far much difficult to justify the economics when they spiral out of control.

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