DEALING WITH THE ECONOMY NEEDS CAUTION:
The economy recently experienced rampant price increases that resulted in a blame game among key stakeholders.
BEING neither politically aligned nor interested in any sector of the economy save for my passion for this great country, I am a qualified to engage in this matter, through this article.
Before we look at where we are, it is important to understand where we are coming from. The adoption of the multiple currency regime saw Government fiscal space severely constrained. As a result, Government has failed to balance its budget and resorted to religiously finance its budget, including domestic debts totalling $3,7 billion as at October 31, 2016, through borrowing.
This situation combined with incessant trade deficits since dollarisation, has cumulated to $30 billion. These twin factors, trade and budget deficits, have been largely responsible for crunching liquidity challenges.
Now, economic agents and households still smarting from the 2008 loss of wealth as a result of the economic meltdown of that ear, have in recent weeks responded to the mismatch between cash balances, liquidity constraints and shortages of basic commodities through rent seeking behaviour.
In a number of cases, the reaction from economic players are derailing efforts to turnaround the economy. For example, some sections of businesses are still using the four — tier pricing system where cash, mobile payment platforms, real time gross settlement (RTGS) and bond note have different prices.
These multiple pricing systems have seen price differentials for the same product in the region of three times depending on the mode of payment.
In brief, this is where we are coming from and this has taken us to where we are now today. We are at a point where there is growing despondence among Zimbabweans.
Consumers and workers are getting poorer every day since their money is continuously losing value. Consumers are blaming producers/ retailers.
Politicians are getting impatient with the obtaining situation and blame has been put squarely on businesses.
In as much as business and the general economic agents are responsible for the current state of affairs, we must not forget that Government has been partly responsible as well due to some of the policies that have not been helping to take the economy forward, such as the unabated budget deficits. So, before we point fingers at each other we need to objectively review what has taken where we are and be pragmatic in dealing with the matter. Let us be cautious.
While we are in despair over the current situation, there is refreshing evidence on the ground that the economy is recording some positive gains in the area of trade and real sectors.
From a trade perspective, for the first time since the last five years or so Zimbabwe achieved impressive exports worth $4 billion in the last nine months.
If this trend continues like this, chances are that we will hit over $5 billion by the end of the year. Interestingly, imports are falling largely as a result of foreign exchange and important management measures which came with the Statutory Instrument 122 of 2017 (an amalgamation of SI64 and previous statutory instruments). Chances are that we are likely to move from negative trade balance to equilibrium or even surplus soon.
From the real sector, the successful agricultural season together with impressive performance from the mining sector and services like tourism have supported the economy to achieve growth rate of around 2,8 percent as predicted by the World Bank and the International Monetary Fund. This is quite refreshing.
In taking a cautious approach to our economic problems, all of us, that is, households, industry, Government and politicians, must focus on the positives and move away from retrogressive practices and even utterances, which are sowing despondence and possibly radical policy responses.
I have always said that Zimbabwe is a small country and as such, its problems can be solved by focusing on identifying the winning horses. Here, I will make reference to tobacco, cotton and mineral exports for illustration purpose.
Tobacco is one of our winning horses. Right now we should put concerted efforts on supporting farmers so that they have all the necessary support to produce tobacco timely so that by February 2018 the farmers should be hitting the market, which will help in easing the cash challenges.
An interesting crop which under the wisdom of President Mugabe, received significant support in 2016/ 2017 season is cotton. Private sector must join the President’s hand and support the growing of this crop in the same format as tobacco.
The good thing about the crop is that cotton is largely sold after the tobacco season and during the good times, we used to raise over $150 million from the crop. This can be increased and will play a key role in smoothening the country’s cash position after the tobacco auctions closes.
Soya bean is an interesting winning horse in the sense that it helps the country to save foreign exchange.
Statistics shows that Zimbabwe is wasting over $250 million per year in importing soya bean. Efforts in boosting soya production for substituting imports have the same impact as generating exports.
The effect is the same — narrowing trade deficit and improving liquidity.
Finally, the mining sector has been the goose, which has been laying the eggs when it comes to foreign exchange generation.
What this sector needs is a conducive business environment and sustained availability of foreign exchange for the procurement of key inputs. They are bringing foreign exchange anyway so they must not wait in the queue.
As I sum up, the current rampant price hikes and rent seeking behaviour is not benefiting anybody. It is short lived.
There is no guarantee that businesses will continue to receive normal sales when the consumers are getting poor. The current budget deficits are unsustainable. This year’s budget revisit cash budgeting.
Our history shows that we do well when we have collective thinking as demonstrated on command agriculture. On the contrary, we have not yielded positive outcome in our divided form as in price control era.
Together we make Zimbabwe great.
Dr Mugano is an Author and Expert in Trade and Development. He is a Research Associate at Nelson Mandela Metropolitan University. Feedback: Email: gmugano@gmail.com, Cell: +263 772 541 209.