‘Es­sen­tial to in­vest forex in pro­duc­tion’

The Herald (Zimbabwe) - - Cartoon, Q&a, Opinion -

A top bev­er­age man­u­fac­turer torched a storm re­cently when it sought to sell its prod­ucts in United States dol­lars. The Gov­ern­ment in­ter­vened, re­sult­ing in the firm re­vert­ing back to a mul­ti­c­ur­rency charge. Lately, in­dus­try has been show­ing a sub­tle ap­petite to charge in US dol­lars, while civil ser­vants are ex­ert­ing pres­sure on Gov­ern­ment to be paid in hard cur­rency. Here, The Her­ald’s Se­nior Writer El­liot Zi­wira (EZ) speaks to Zim­babwe National Cham­ber of Com­merce (ZNCC) vice pres­i­dent for Mashona­land Re­gion Archie Dondo (AD), who pro­vided an in­sight into re­cent de­ci­sions by firms, and the im­pact of redol­lar­i­sa­tion on the econ­omy. Be­low are ex­cerpts of the in­ter­view:

EZ: What is your read­ing of Zim­babwe’s eco­nomic out­look in view of some sup­pli­ers and re­tail­ers’ de­mands for pay­ment in US dol­lars? AD: Based on the re­form in­ten­tions of the Gov­ern­ment as en­cap­su­lated in the TSP doc­u­ment, there is rea­son for op­ti­mism as some of the fun­da­men­tals re­quir­ing at­ten­tion, in­clud­ing cur­rency re­form are high­lighted. We look for­ward to its full im­ple­men­ta­tion. Cur­rent de­mands for pay­ment in United States dol­lars in the ab­sence of a le­gal mech­a­nism for busi­ness en­ti­ties to charge in US dol­lars or ex­change RTGS for US dol­lars are neg­a­tively im­pact­ing the busi­ness sec­tor’s out­look. Should this be ad­dressed, the out­look is likely to im­prove as vi­a­bil­ity will be en­hanced. This, has how­ever, been high­lighted to reg­u­la­tors and we are cer­tain mea­sures will be put in place to fa­cil­i­tate trade. EZ: Sen­ti­ment is rife that the econ­omy is self-redol­lar­is­ing. Are the height­ened calls for redol­lar­i­sa­tion likely to speed up the process? AD: It ap­pears the mar­ket is be­gin­ning to spon­ta­neously redol­larise as there is a per­cep­tion that it is more ad­van­ta­geous to hold US dol­lars rather than bond or RTGS. The height­ened calls are per­haps a symp­tom of this spon­ta­neous redol­lar­i­sa­tion, which took root soon after the sep­a­ra­tion of bank ac­counts into nos­tro and RTGS, a few months ago. EZ: Con­sid­er­ing that US dol­lars are not printed in Zim­babwe, and few com­pa­nies are ex­port­ing. What should be done to in­crease for­eign cur­rency in­flows? AD: In­creased for­eign cur­rency in­flows can be achieved through a sus­tained in­crease in pro­duc­tion by the pri­vate sec­tor in min­ing, agri­cul­ture, man­u­fac­tur­ing, tourism and ser­vices, with par­tic­u­lar at­ten­tion paid to im­port sub­sti­tu­tion to re­duce the cur­rent 50 to 60 per­cent im­port con­tent in lo­cal prod­ucts. Tourism is par­tic­u­larly in­ter­est­ing in this re­gard as we have been ranked as a must-see des­ti­na­tion in 2019 by var­i­ous in­ter­na­tional des­ti­na­tion rank­ing agen­cies and pub­li­ca­tions. A ma­jor fo­cus on in­creas­ing ex­ports fur­ther from the cur­rent US$6 bil­lion is also nec­es­sary. One way of do­ing this is by shift­ing to the ex­port of value added prod­ucts from our min­ing and agri­cul­tural sec­tors where we have the ad­van­tage of nat­u­ral re­source abun­dance as shown by the con­tin­ued dis­cov­ery of new min­er­als such as lithium. The level of re­serves of the known ex­ploitable min­er­als, as well as our abil­ity to grow or­ganic pro­duce with­out much hin­drance, can also be con­sid­ered. It is im­por­tant that we in­vest the forex that we are cur­rently earn­ing in pro­duc­tion, which will en­hance ex­ports and in­crease forex in­flows in the fu­ture. It is also im­per­a­tive that we as the busi­ness sec­tor be­come out­ward look­ing in order to ex­ploit op­por­tu­ni­ties in the re­gion, con­sid­er­ing the ex­is­tence of ar­range­ments such as the African Con­ti­nen­tal Free Trade Area and the Tri­par­tite Free Trade Area. It is im­por­tant for the busi­ness sec­tor to en­gage in more trade in­ves­ti­ga­tions in re­gional coun­tries. It is in light of this that ZNCC con­tin­ues to or­gan­ise trade del­e­ga­tions to coun­tries such as Rwanda and Mau­ri­tius that are highly ranked in Africa in terms of ease of do­ing busi­ness. EZ: Par­al­lel mar­ket rates are known to re­spond to any jit­ters in the mar­ket. What is your read­ing of the un­of­fi­cial mar­ket’s re­sponse to calls for redol­lar­i­sa­tion? AD: It is dif­fi­cult to fathom or pre­dict the in­flu­ences and re­sponses of the par­al­lel mar­ket as it is ar­guably a grey mar­ket whose op­er­a­tions are un­der the radar. How­ever, le­gal, reg­u­lated trad­ing of for­eign cur­ren­cies will likely re­duce its in­flu­ence on the for­mal econ­omy, ren­der­ing it in­con­se­quen­tial. EZ: ZIMRA made a pro­nounce­ment that busi­nesses charg­ing in for­eign cur­rency should pay their taxes in forex. Duty, es­pe­cially for ve­hi­cles, is also paid in US dol­lars. What is your com­ment on that? AD: Tax and forex pay­ments in US dol­lars seem to con­tra­dict the multi-cur­rency policy that has ob­tained since 2009. How­ever, re­gard must be paid to the labour pres­sures for pay­ment in US dol­lars that the Gov­ern­ment is fac­ing. This is per­haps an­other in­di­ca­tor of the process of redol­lar­i­sa­tion. While the tax au­thor­ity would like to col­lect US dol­lars, for­mal busi­ness re­quires an en­abling le­gal frame­work to charge in US dol­lars with­out fall­ing afoul of re­cently pro­mul­gated laws on par­al­lel mar­ket trans­ac­tions. If this is not done, pay­ing tax in US dol­lars may in some in­stances be­come ev­i­dence of il­le­gal­ity. EZ: In your view, is it sus­tain­able for Gov­ern­ment to keep on sup­port­ing in­dus­try with for­eign cur­rency? AD: It is in the in­ter­est of any Gov­ern­ment

to sup­port the de­vel­op­ment of its busi­ness sec­tor as sta­tis­tics the world over in­di­cate the suc­cess of pri­vate sec­tor driven economies. The sus­tain­abil­ity of this sup­port is, how­ever, de­ter­mined by the na­ture of the sup­port and its im­pact on the busi­ness en­vi­ron­ment. For in­stance, sub­si­dies that over­bur­den the fis­cus tend to back­fire after some time, and neg­a­tively af­fect the op­er­a­tions of the very in­dus­tries that were sup­ported. EZ: Fuel is a cost driver in busi­ness, and there is sen­ti­ment that if prices are in­creased, or pe­tro­leum prod­ucts are charged in US dol­lars, or al­ter­na­tively Gov­ern­ment al­lows mar­ket forces to de­ter­mine prices, avail­abil­ity may im­prove. What is your take on that?

AD: It is a gen­er­ally ac­cepted prin­ci­ple that any prod­uct whose price is re­garded as be­ing low in com­par­i­son to its value will ex­pe­ri­ence an in­crease in de­mand. Ra­tioning that de­mand can be achieved through rais­ing the price. So, if fuel price is raised, this will im­prove avail­abil­ity for those that can af­ford the new price level. As a na­tion we have to move to­wards mar­ket de­ter­mined prices at some point. EZ: And what is likely to hap­pen in costs, and sub­se­quently prices regimes? AD: Any in­crease in the price of fuel will need to be fac­tored into the cost the goods be­ing traded in pro­por­tion to how much fuel con­trib­utes to the en­tity’s cost build-up.

Mr Dondo

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