Cash cri­sis so­lu­tion di­vides opin­ion

The Manica Post - - Business News - Kudzanai Gerede Busi­ness Cor­re­spon­dent

THE cash cri­sis that chok­ing the coun­try has di­vided opin­ion on what stance Gov­ern­ment should take in or­der to sub­vert the chal­lenge, with the de­bate tak­ing cen­tre stage in a re­cent Par­lia­men­tary post-bud­get work­shop held last week on Mon­day in Harare.

There is gen­eral con­sen­sus that a US dol­lar de­nom­i­nated econ­omy is not sus­tain­able any­more de­spite it hav­ing brought eco­nomic sta­bil­i­sa­tion from hy­per in­fla­tion since its in­tro­duc­tion in 2009.

Since it’s an in­ter­na­tional trad­ing cur­rency, the US dol­lar has been ex­ces­sively ex­ter­nalised over the past few years lead­ing to the cur­rent cash short­ages be­ing ex­pe­ri­enced.

The Re­serve Bank of Zim­babwe (RBZ) came up with pos­si­ble in­ter­ven­tions to liq­uefy the econ­omy al­beit with some­what limited suc­cess by in­tro­duc­ing a sur­ro­gate bond note cur­rency backed by a US$ 200 mil­lion fa­cil­ity from the Afrex­im­bank which was drip-fed into the mar­ket as an in­cen­tive to ex­porters.

The US$ 200 mil­lion has since been de­pleted yet the cash short­ages con­tinue to haunt the mar­ket, trig­ger­ing the Cen­tral Bank to set an ad­di­tional US$ 300 mil­lion worth of bond notes.

The push for elec­tronic money us­age in the form of mo­bile money trans­fers and plas­tic cards has so far yielded pos­i­tive re­sults with about 70 per­cent of to­tal trans­ac­tions in the for­mal sec­tor done elec­tron­i­cally.

But for this highly in­for­mal econ­omy, de­mand for hard cash is over­whelm­ing, and its scarcity has ne­ces­si­tated a blos­som­ing black mar­ket, sell­ing cash at high pre­mi­ums hence de­valu­ing the bond notes.

Whereas the of­fi­cial rate be­tween the US dol­lar and the bond note is at par, as at early this week, the bond was be­ing traded at US$ 1 to 1,30.

Suf­fice from the ex­change rate dis­tor­tions, the neg­a­tive ef­fects of a strong cur­rency are well doc­u­mented in the pro­duc­tion sec­tors par­tic­u­larly that of man­u­fac­tur­ing, that has been ren­dered un­com­pet­i­tive due to high pro­duc­tion costs.

This im­plies that lo­cally pro­duced goods can­not en­ter the ex­port mar­ket as they are very ex­pen­sive.

Ad­dress­ing Par­lia­men­tar­i­ans and Sen­a­tors at the 2018 post bud­get Par­lia­men­tary work­shop, Speaker of Par­lia­ment Ad­vo­cate Ja­cob Mu­denda stressed the need for the coun­try to now fo­cus on hav­ing its own gold backed cur­rency lever­ag­ing on small scale min­ers’ pro­duc­tion ca­pac­ity in or­der to ad­dress some of the struc­tural im­bal­ances em­a­nat­ing from the use of the US dol­lar pegged cur­rency.

“If Par­lia­ment ad­vo­cated for US$ 100 mil­lion for the pur­chases of 200 com­plete milling plants for at least 2 000 small scale min­ers, the ar­ti­sanal min­ers can pro­duce 100 tonnes of gold an­nu­ally whose value can be US$ 4,2 bil­lion,”

“Com­bine this level of pro­duc­tion with that of pri­mary pro­duc­ers, Zim­babwe can re­alise at least 150 tonnes of gold yearly. It is pos­si­ble to es­tab­lish our gold bank and in­tro­duce our own na­tional cur­rency,” said Ad­vo­cate Mu­denda.

Cur­rently, the coun­try is pro­duc­ing 24 tonnes an­nu­ally with small scale min­ers pro­duc­ing 10,3 tonnes as at 31 Oc­to­ber last year, de­spite us­ing hand tools with min­i­mal tech­nolo­gies.

In his pre­sen­ta­tion at the same event, eco­nomic an­a­lyst Dr Gift Mugano con­curred with the need for a cur­rency shift in the medium term with pri­or­ity fo­cused on pro­duc­tion in or­der to in­crease for­eign cur­rency re­serves at the Cen­tral Bank.

“We need to have our pro­duc­tion lev­els ef­fi­cient and in­creased so that we drive our ex­ports high then pile our hard US dol­lar cur­rency stocks at the Re­serve Bank be­fore we in­tro­duce a na­tional cur­rency. This is dif­fer­ent from hav­ing a US$ 200 mil­lion fa­cil­ity stocked some­where at Afrex­im­bank and print your bond notes then say they are at par with the US dol­lar.

“By gen­er­at­ing real US dol­lars and have them stocked in the Cen­tral Bank it will bring con­fi­dent in our cur­rency. If we don’t do that and we in­tro­duce a lo­cal cur­rency now, it will def­i­nitely crum­ble to­mor­row morn­ing,” said Dr Mugano.

There are how­ever, sug­ges­tions for the adop­tion of the South African Rand which is gen­er­ally viewed as sta­ble and less firm as com­pared to the US dol­lar.

Fi­nan­cial and eco­nomic ex­pert Pro­fes­sor Ashok Chakravarti said not only is the Rand sta­ble and less firmer but it also puts the coun­try at a bet­ter com­pet­i­tive po­si­tion with its big­gest trad­ing part­ner South Africa who have been rid­ing on pro­duc­ing her goods at a lower cost than Zim­babwe.

“I have been ad­vo­cat­ing for the Rand for the past seven years. With a less firm cur­rency such as the Rand we wouldn’t have got to where we are, ex­ter­nal­iza­tion of funds to any­where in the world. The Rand is a re­gional cur­rency and its prox­im­ity as our big­gest trad­ing part­ner will im­prove our com­pet­i­tive­ness and cut our trade deficits,” he said.

How­ever, some an­a­lysts like Dr Mugano are of the view that the Rand will still yield the same re­sults as the US dol­lar given the coun­try’s pro­duc­tion in­ef­fi­ciency.

“Highly in­dus­tri­al­ized South Africa will rel­ish com­pet­ing with Zim­babwe us­ing the same cur­rency be­cause South Africa will still pro­duce more cost ef­fi­cient that Zim­babwe’s ar­chaic in­dus­tries so we will still have prob­lems with im­ports from our big­gest trad­ing part­ner. A less firm cur­rency than the Rand is bet­ter,” he said.

Peo­ple queue to with­draw cash from a ZB Bank ATM in Mutare

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