New Zim currency posing a challenge for trade with Eswatini - Economist
The introduction of Zimbabwe’s new currency the ZiG has hit the world by storm and the global market is expected to scramble to ‘get into bed’ with the SADC country.
According to economist Thembinkosi Dube, countries that have been trading with Zimbabwe, including Eswatini will likely be threatened by the new market and traders that will want to come to play courtesy of the currency backed by gold.
This of course will be determined by the currencies’ strength after its debut on Monday, April 6.
In its sixth attempt to resuscitate the Zimbabwean currency, the country introduced the ZiG short for Zimbabwe Gold and its predecessor the Zimbabwe Dolla lost value every single trading day of this year before being abandoned on April 5.
Reserve Bank Governor John Mushayavanhu set the introductory exchange rate of 13.56 per US dollar for the ZiG where it started trading.
During his presentation of his first monetary policy, the governor said the daily exchange rate would be determined in the interbank market from there on.
Eswatini is one of the countries that has been trading with Zimbabwe in that trade runs into billions of Emalangeni, which His Majesty King Mswati III described as insignificant and challenged the country to raise the figures.
His Majesty said this during the Zimbabwe International Trade Fair where he also noted that the two countries are member states of the Common Market for Eastern and Southern Africa (COMESA) and SADC which enables the two states to do business without technical trade barriers.
In an interview, Economist Thembinkosi Dube said the only important thing is whether the new currency is trading because that will determine its value based on demand.
He said the understanding is that the global market will be interested in the value of gold thus growing.
“Just as it was reported that when it debuted the ZiG was stronger than the Rand, if it continues to appreciate and escalate the value, this will mean the demand for the currency is high,” Dube said.
This he said will however affect trade with countries in that more commodities will be absorbed by Zimbabwe and in the process bring back the country’s economy into a sustainable state again.
“This can positively work for the Eswatini on that note, but if it is not in demand, it will be the opposite. If the demand for the currency is high, as an investor interested in making more money through a currency backed by gold, then it is a win,” he said.
According to Dube, different countries used to have a currency backed by gold, but it was removed, therefore Zimbabwe’s new currency is more favourable and will certainly not change at any point.
The global market is therefore expected to show high interest in the ZiG, which will pose a threat to the Eswatini trade in that prices might have to be dropped as many will want to sell to Zimbabwe to get ‘stable money’.
According to the Observatory of Economic Complexity (OEC), in 2022 Eswatini exported US$34.1 million to Zimbabwe and the main products were scented mixtures at US$21.6 million, industrial fatty acids, oils, and alcohols at US$9.44 million, and raw sugar at US$1.01 million.
During the last 22 years, the exports from Eswatini have increased at an annual rate of 0.096 per cent from US$33.4 million in 2000 to US$34.1 million in 2022
Meanwhile
2022, Zimbabwe exported $76.6k to Eswatini. The main products that Zimbabwe exported to Eswatini were Packaged Medicaments ($65.4k), Fruit Juice ($7.75k), and Flavored Water ($3.45k).
During the last 22 years, the exports of Zimbabwe to Eswatini have decreased at an annualized rate of 8.54 in per cent, from $547k in 2000 to $76.6k. no services were exported by either country to the other.
According to Dube, since the country has been exporting to Zimbabwe for all these years, there will likely be more demand for commodities from the Zimbabwean community because these will now be cheaper for them, which is good for the economy.
“It would have been difficult if we were importing more from them as is the case with South Africa. However, we must take note that they are also attracting the global market, and with more interest in a currency backed by gold, we might find that there will be new traders and new entities that will want to hold their currency backed by gold,” he said.
Dube further stated that currency backed by gold grows itself, because when a person has a certain amount, it means it is equivalent to gold worth that amount, which is physically in the Zimbabwe Central Bank.
He stated that during the Covid-19 pandemic, several central banks were buying gold to back their currencies, and it seems Zimbabwe is the first country in the region to take that route to completion.
“A lot of currencies globally are no longer backed by gold, there are very few if ever,”
he said.