After a three-week break, the foreign currency auction trading system resumed, in earnest, on January 12.
The first two auctions this year followed the pattern set last year. Importers’ needs were met and the exchange rate remained fairly stable.
At 82,09, the current exchange rate is not much of a difference from the 81,78 exchange rate, recorded on December 21, the last one in 2020.
Stability of the exchange rate is the reason why we have a Foreign Currency Auction System in the first place. So full marks to the central bank for making sure we have had a stable exchange rate for so long.
A stable exchange rate is key to price stability of goods and services in the economy. The 2020 inflation outturn is testimony to this. Before the introduction of the forex auction, the country had runaway inflation, which reached a peak of 837 percent in July 2020. But once the forex auction system was put in place and the exchange rate stabilised, the rate of inflation receded.
At the last count in December 2020, inflation was at 348 percent. It’s a remarkable achievement. Inflation numbers released by Zimstat last week, are testimony to the great work that has been done by the team at the central bank and of course the team at Treasury.
Interestingly, the inflation outturn is hugely in line with Treasury’s projections. In his 2021 National Budget, Finance and Economic Development Minister Mthuli Ncube, estimated inflation to close 2020 at 336 percent. The actual of 348 percent is within range.
What is clear from the above, is that the team at the central bank, supported by the team at Treasury, has largely managed to bring inflation down. Although the annual inflation is still on the high side at 348 percent, the trend is encouraging.
In terms of the exchange rate, it has been kept in check. Granted there is still a significant premium between the official rate and the parallel market one, but what is encouraging is that for as long as the auction system was in place, both exchange rates were stable.
We expect the resumption of the forex auction to bring the premium down again.
Having said that, we believe there is a need for other economy related ministries to formulate and implement policies that support those being implemented by monetary and fiscal authorities.
A pattern we have seen since inception of the auction system is that the bulk of the funds allotted have been going towards the importation of raw materials, plant and equipment, as well as the importation of consumables.
At the first two auctions this year, the pattern remained the same. Of the US$76 million that was allotted, the bulk of US$32,2 million was for the importation of raw materials.
Importers of machinery and equipment were allotted US$10 million while importers of consumables were allotted US$4 million.
The reason why as a nation we continue to look at what happens to the exchange rate daily is our huge appetite to import.
We do not believe it is normal that citizens of a country have to calculate or consider the exchange rate every time they want to make a transaction. That’s fundamentally wrong. But we are in that situation because of our appetite to import.
The question is what is it that we are importing, do we have to import that, and can we not produce locally?
To find answers we looked at the items that dominate our import bill. We picked just a few to make our case.
According to figures released this week by the Zimbabwe National Statistics Agency (Zimstat), the country imported goods worth US$4,48 billion for the 11 months to November 2020.
Topping our import bill is the importation of diesel with US$358 million having been spent for the 11 months under review.
Petrol gobbled US$165 million. On the face of it, it’s acceptable that we import diesel. After all we do not produce any locally. But on second thought, this import bill should probably not be this high.
A look at our transport system will reveal that we have potential to significantly reduce this bill. If we put in place functioning and efficient public transport system, we could save a lot of foreign currency as most people would opt not to drive to different destinations.
If we had a functioning and efficient railway system, again our industries would use that for transportation and distribution of goods, saving the economy millions of US dollars currently being used to import fuel.
This is something the relevant ministries should look at.
Still on energy, we imported electricity worth US$140 million. In this era where renewable energy is taking centre stage even at industrial and household level, and also given the abundant coal resources we have in this country, this import bill is something we can do away with if we put our act together.
We wasted years talking about the Intratek Gwanda solar power plant, but that should not have stopped other deals to be done concurrently.
Another huge chunk of our import bill went towards the importation of maize (US$284 million) crude soyabean (US$115 million) and durum wheat (US$89 million).
On the face of it, we have a perfect excuse for this. We were hit by drought. In our view though, we should be able to sufficiently produce our food, whether there is a drought or not.
The country has so many water bodies that if optimally put to use, should be able to produce sufficient grain requirements.
The latest wheat production is testimony that it’s possible to significantly increase local production.
The good thing is that the Government is now putting resources toward dam construction, and if more resources are channelled towards irrigation systems, then we should be able to cut this unnecessary import bill.
These are just few examples we are giving, but we encourage economic players, both in the private and public sector to examine our import bill and identify areas that can be exploited for import substitution.
Our currency problems can never be solved by exporting more. We say so because our exports have been growing over the years, as well as our imports.
The only way most people can forget about the exchange rate of the day ,is if the bulk of our requirements are produced locally. We have done it before and we have the potential to do so again.