The Herald (Zimbabwe)

‘Essential to invest forex in production’

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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.

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Mr Dondo
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