Forex: The solution is the problem

IN OUR highly globalised world, foreign currency reserves are a lubricant for domestic and international transactions. Foreign currency holdings — especially of United States dollars — are an integral part of global trade. Uniquely for Zimbabwe, which shifted from the vulnerable Zimbabwe-dollar to the multi-currency system in 2009, forex has been the silver bullet that arrested rampant pre-2009 hyperinflationary. But it has also become addictive. Due to its convertibility and inherent value as a global reserve currency, the US dollar is treasured by cross-border traders, small businesses and huge conglomerates, including foreign currency dealers.

However, the solution has become the problem: Zimbabwe is not generating enough foreign currency to support local transactions and meet international obligations for both the public and private sector.

It is, therefore, trite that the little forex that accrues to the fiscus has to be rationed, which is not always good news in an environment where competing demand for resources is huge.

This has put companies that rely on external third parties for funding in a bind.

Last year, the Reserve Bank of Zimbabwe unveiled an export incentive through which exporters are given a five 5 percent export incentive to try and stimulate the productive side of the economy.

Yes, exports are recovering, but not fast enough.

Even the surrogate currency that was supposed to deal with the cash shortages on the local market hasn’t been able to sufficiently deal with the problem because of rising demand, externalisation and rampant abuse by retailers.

What is now of concern are the differential rates attracted by bond notes and hard currencies.

It seems most players are now discounting bond notes because they are not easily convertible.

One cannot easily make international payments using bond notes, as should be the case, simply because they cannot be redeemed into foreign currency.

Remittances to foreign companies or suppliers are becoming increasingly difficult.

Arbitrage opportunities seem to be on the rise as speculators sell foreign currency at a premium. And this is potentially inflationary since it indirectly affects the price of commodities.

What is clear is that there is need for the country to exponentially increase exports.

Declining foreign reserves indicate that the economy imports more than it exports, and the central bank needs to chip in and fill the gap by replenishing nostro accounts.

However, in an environment where the country is still re-establishing relations with European countries and the US, it is difficult to access foreign finance.

This is why the introduction of Statutory Instrument 64 of 2016 is such an important development for the market.

But, clearly, Government needs to do more to ensure the local market can support itself.

The answer undoubtedly lies in production, and policies need to be pro-active and not reactive.

Napoleon Bonaparte once said: “Incidents should not govern policy; but policy incidents”.

The importance of planning cannot be over-emphasised.

What is rather unsettling currently is the fact that foreign currency shortages are now threatening the country’s potential to generate the same.

Business is no longer business as usual.

For example, service providers are now particular about the currency with which consumers are using to settling their bills.

And the bond notes, which are being routinely discounted on the gray market, have become a victim.

It is argued that paying for a service that is ordinarily outsourced outside the country in bond notes is not ideal since remitting payments is now difficult.

A potential sticking point is the fact that what the RBZ considers not to be a priority might be a priority for other sectors.

This is clearly one of the disadvantages of rationing foreign currency.

In as much as this is a measure to reduce unnecessary outflows from the fiscus, it is affecting legitimate companies.

Helen Keller, a blind American author, once remarked, “It is a terrible thing to see and have no vision.”

We need to have a vision in Zimbabwe and we really need to fix our industry and be a self-reliant country.

Zimbabwe has all the adequate resources to turn itself into a regional and continental economic giant.

The introduction of special economic zones is one such move that is expected to attract foreign direct investment into the country, but policy makers do not have the luxury to procrastinate.

Good policies have to implemented expeditiously.

But this can only have an impact on the economy in the long-term.

At the danger of restating the obvious, the RBZ must find a way of making foreign currency available to desperate companies that need it the most.

As it stands, local companies and ordinary consumers are increasingly becoming desperate and something has to be done fast. Taurai Changwa is a member of the Institute of Chartered Accountants of Zimbabwe and an estate administrator with vast experience in tax, accounting, audit and corporate governance issues. He is a director of Umar & Tach Advisory and writes in his personal capacity. Feedback: tauraichangwa1@ gmail.com and WhatsApp +263772374784