eBusiness Weekly
Misheck Ugaro
The last two years from 2018 to date have seen a plethora of policy announcements and proclamations, by way of issuance of directives through several statutory instruments. Many initiatives were implemented including strengthening anti-money laundering measures even at some points leading to the freezing of certain accounts.
A new Zimbabwe dollar currency (ZW$) was introduced with the hope of replacing the multi-currency basket as the sole legal tender for local transactions. The main objectives of these measures were the stabilisation of the country’s economic fundamentals as well as establishing the local currency as the only medium of exchange thereby enabling the authorities full control of monetary policy.
The multiplicity of policy directives in many instances created conflicting positions and unnecessary doubts amongst economic players.
On several occasions some directives were reversed as afterthought reactive corrections which further dented public confidence. The much taunted de dollarisation of the economy in the end did in effect not happen leading to some commentators to conclude that there was never any de dollarisation in the economy.
In fact there was just a consolidation of currencies into just two, being the local currency ZW$ and the United States dollar (US$) away from the multi-currency basket. Despite public rejections by the authorities that the economy is dollarised, recent announcements, however, point to a coalescing of activities around the US$ and the ZW$.
In fact on March 6 the authorities issued SI 61 of 2020 that amended section 4 of SI 212 of 2019 and allowed for the payment of emergency passport fees in foreign currency as a culmination of many policy reversals over the period.
Prior to this latest announcement, other government departments such as ZIMRA were already allowed to levy tax in foreign currency and lately selected fuel companies were allowed for some designated service stations to sell fuel in foreign currency. By and large the fast food outlets were already generating a significant portion of their sales in foreign currency as part of the tourism sector which was allowed to transact in foreign currency.
It appears there is no scientific or systematic method being followed and hence it is difficult to decide where the line will be drawn on which sectors will transact solely in local currency and which sectors will be allowed to transact in foreign currency.
This all led to the conclusion indicated above by some commentators that the country had not in effect de dollarised.
Of particular note is the recent approval for oil companies to sell their product in foreign currency. It has just cemented the conclusion above because of the potential filter through effect that the petroleum sector has on the rest of the economy.
ZERA has recently issued a public notice regarding the licensing of petroleum sector operators which, when taken in conjunction with the approval for organisations to directly import petroleum products using free funds, leads to the conclusion that the whole sector has been opened up for a full trade in foreign currency. The licensing of a few outlets to sell in foreign currency will create a loophole where ultimately all petroleum companies will only avail product in foreign currency for purposes of replenishing stocks.
It is this level of policy inconsistencies and in some cases what looks like a trial and error approach that has led to doubts on the efficacies of a mono currency goal. It is argued that a well-researched and thought through process would have identified the possible risks of rent seeking behaviours that would arise from allowing only a section of the fuel sector to transact in foreign currency, or any other sector in that case, including some government departments.
This same situation occurred regarding the roller meal subsidies and it led to a quick revision of the set retail prices and subsidy procedures.
Human beings as economic agents are expected to always make rational decisions. It follows that businesses led by humans will make the same decisions where an arbitrage opportunity has emerged or is unintentionally created. Business will take profits.
Authorities are advised to move away from reactive policy announcements and issuances that sometimes criminalise what would otherwise be regarded as rational business behaviour in taking advantage of a given situation to make quick profits, especially given that our local currency lacks the important storage of value attribute, leading to loss of confidence on it.
There is need to re-jig the management of the whole matrix of policy measures and align them into a unitary purpose. An insightful statement by the famous former British Prime Minister of the war error Winston Churchill is very instructive, and we quote:
“Destroy the free market and you create a black market. You overwhelm your people with laws and regulations and you induce a general disrespect of law. You may try to destroy wealth, and find that all you have done is to increase poverty.”
It is imperative, by way of conclusion, and as has already been alluded to in other publications elsewhere, that the country is de facto a dual currency economy. If anything, market forces have dictated this position.
It is advisable and wise for policies to be consolidated and aligned to the strengthening of this reality on the ground. The ultimate aim should remain that of creating and increasing confidence in the local currency over time.
Economic players seem to take advantage of the current mixed state of policies and there is a strong suspicion that the authorities themselves may be taking the opportunity for seigniorage profits by insisting on local currency which they are aware is not holding ground.
This seigniorage opportunity is not lost to analysts’ glare and is evidenced by the seemingly uncontrollable growth in money supply despite the promised targets. More so the latest Monetary Policy Statement reinforced this thinking among many economists.
It is a widely held view that there is a political benefit for the authorities from the seigniorage just as much as business are rushing to take advantage of loopholes created. A typical example is the fuel sector where recent developments have shown that large fuel quantities uptake by fuel companies in the first week of March has not been matched by a discernible availability of fuel in the retail stations. Queues have not reduced and it resulted in a warning statement from authorities to players who are suspected to be hoarding product and only distributing it through the stations allowed to sell in foreign currency.
Zimbabwe has arguably one way to go now. Acknowledge the duo currency reality status of ZW$ and US$ on the ground and consolidate policies around strengthening the monetary attributes of the local currency over time.
Key perspectives are the creation and building up of confidence of the market on the local currency and that it currently lacks this and cannot be forced by any kind of legislation as aptly summarised by Sir Winston Churchill. (Not even by running the cat and mouse battles by the riot police against the foreign currency dealers, so called money changers, on the streets of the cities).
Misheck is a former expatriate banker based in several SADC countries and currently works as a corporate advisory services consultant. He is the founder of Rucabel Investments Private Limited, an investment company based in Zimbabwe. He is a member and past Vice President of the Zimbabwe Economics Society. He can be contacted on (263) 777052004/712808140 misheckugaro@ hotmail.com. Linkedin: https://www.linkedin.com/in/misheckugaro. Twitter: @twitcagan.com
