‘Essential to invest forex in production’
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.