Zim needs own currency

31 May, 2019 - 00:05 0 Views
Zim needs own currency Prof Mthuli Ncube

eBusiness Weekly

Clifford Shambare

This is a continuation fr0m last week.

Come to think of it, if those manufacturing companies currently in production tried to raise their capacity even by a modest margin, a good part of this challenge could be taken care of since they would be able to raise economies of scale, thereby hopefully, keeping prices at a reasonable level while achieving decent profit margins in the same breath! The overall result would be a better managed inflation regime and a consequent stabilisation of the local currency. But sadly, a study done by the CZI in 2017 revealed that the manufacturing industry’s production capacity then, was only 45 percent — that is below half of the total!

But interestingly, the Zimbabwean industry and political leadership, as well as the economics fraternity and some members of the public, are now well aware of this fact, so the question to ask here is this: where or what is the problem here?

Ask any of these people this question and you will be told; “We need foreign currency to purchase raw materials.”

But interestingly, even though our annual budgets — particularly the two most recent ones — the 2017/18 and the 2018/19 — have been improved considerably in terms of areas of priority as well as the estimates there in, there are some among us who do not agree with these budgets per se.

They also do not agree with the strategies the current Minister of Finance and Economic Development Professor Mthuli Ncube  is using to try and solve the current economic challenges through this budget, among other tools, let alone agreeing where the money for this purpose should come from.

At the extreme end are those who do not even support the idea of economic recovery under the current political leadership! And to make matters worse, the private sector itself, does not appear to have any clear plan or their own sub-budgets indicating priorities in their area of specialisation that is geared towards economic recovery.

In order to appreciate the criticality of resuscitating or shall we say re-setting, a viable manufacturing industry in the country, in the process hopefully straightening out the currency issue, consider the cases of the EU and China — two economies that have doggedly stuck to their currencies by making sure that their manufacturing industries stay productive. Going back to Zimbabwe’s case, as I alluded to in my previous article published in the May 10-16 issue of this paper, if we look critically into our current situation, in the process going back to the country’s history, we find that the Rhodesians who were — and to some extent still are, the de facto owners of Zimbabwe’s economy — possessed nearly all the ingredients for running it successfully. The capacity of the economic system to manufacture tangible goods then was comparatively much higher than that of most African economies, except that of South Africa.

In the human development, psychological and behavioural context, the Rhodesians had loads of self belief. Although their level of technological know-how could not be described as advanced in comparison to that of the developed economies, it was nevertheless, largely responsible for and actually, resulted in a robust and stable economy. This was the case even with a “rebel” currency — one that was not accepted in the international currency markets.

On the other hand, if one compares and contrasts this (now) historical situation with that pertaining in the country today, they will observe a sad but interesting reality. Zimbabweans, the majority of whom are black (today), do not appear to possess the attributes that the colonists possessed. Their level of self belief is quite low to say the least; currently, they virtually lack the capacity to manufacture tangible goods without FDI, and their level of technological development is questionable despite arguments to the contrary. This is not a racially tilted argument but a fact!

And even though to many people, the introduction of the basket of foreign currencies into our economy seemed to have been a blessing at that time, it has brought its own unintended complications into the economy.

My informal research on the subject of the value of the US dollar versus that of the RTGS or bond dollar has revealed a fascinating but worrying trend in the country today. I have come across the issue in a number of circumstances. In some cases I will have been trying to buy something, in other cases, the issue has suddenly cropped up in some discussions on the economy. Here are some of the responses I have got from such encounters: “How much is this (New Holland) tractor”, I asked a young tractor salesman in an agricultural equipment showroom in Harare one day.

“Twenty five thousand dollars.”

“US or RTGS dollars?”, I asked him pretending that I did not know that a tractor cannot cost such a sum in RTGS dollars today.

At that stage he laughed sarcastically before answering; “Twenty five thousand US dollars m’dara — real money with value— not bonds!”

“What if I want to pay in RTGS dollars, how much will it cost in that currency then?”, I asked him, unfazed by his provocative stance.

“I have to consult my boss on that one.”

“Why ?”I asked him, still unfazed, pretending not to appreciate the latent friction between us.

“Because the (exchange) rate changes all the time whereas if you had been buying in US dollars, it would not have changed at all since the US dollar is a stable currency”, he informed me proudly.

On May 6, 2019 I went to a Chicken Inn outlet in Fife Avenue in Harare intending to buy lunch — a two piecer chicken meal that went for $2, but the denomination was not specified in that case.

“Is the price in RTGS dollars? ” I asked the till operator, again pretending that I did not know the currency meant in that case.

“No, US dollars”.

“What if I have RTGS dollars?”

“Ten dollars”, she told me.

At this stage I just walked out quietly, wondering where they were getting this rate of 1:5 since on the black market the last time I went there, it was still around 1: 3.5. But on my way out I suddenly realised that since these rates are now quite fluid, I may be already behind in terms of knowing the new one!

Overall, in Zimbabwe today, the US dollar seems to have acquired a value well outside the economic one; in this context, this value is almost sentimental. In a sense it is now quite close to that of gold and therefore, going against the grain. (Remember the Nixon crash when gold was removed from the currency value equation?) Even though it may not be obvious to some, in fact to many of us, this state of affairs has landed Zimbabweans in a rut — a rut from where it will be difficult, if not impossible, to get out (of).

The parallel market is where the intriguing currency games are being played out. As a result, whenever the RBZ tries to reign in the situation, the black market gets into gear, making its own adjustments based on some apparently mysterious source. Under these circumstances, this market is actually involved in the direct setting of parallel market exchange rates as well as [indirectly] in the setting of the real rates.

Logic informs us that this market will try to ensure that the US dollar remains outside the purview of the authorities, that the exchange rate favours those with the US dollar, in the same vein ensuring that the local currency remains weak versus the hard currencies.

And today nobody knows for sure, how much foreign currency, mostly in US dollars and South African rands, is in the economy suffice to say that there is a substantial proportion of this money that is floating somewhere in there. This money ends up being a part of “free money”. In layman’s terms, this is the money that is by default or (by) omission, not committed to any part of the national economic plan — that is the budget.

Because of this characteristic of being “free” flowing, combined with the psyche and consequent behaviour (s) of Zimbabweans, most of this money is currently not being used to grow the economy but mostly, for importing consumption goods into the country and for speculation — an activity that happens mostly in the parallel money market.

And if one were to really think deeply about our currency related challenges today, they would find that they are mainly to do with our attitudes and mindset(s). To illustrate this assertion, let us use one hypothetical but simple example here.

Someone who has been penniless for some time picks up a ten US dollar note, so it is the only money they have on their person at that moment. Since they are almost collapsing from hunger, they go to a street food vendor intending to buy a plate of sadza. The vendor is rather surprised but nevertheless, pleased that someone has brought them a ten US dollar note — a very “valuable” though scarce currency today. She is selling her sadza at RTGS$ 2.50 a plate. So now the challenge is to convert one currency to the other. Let us suppose the vender decides to use the black market rate of US $1: 4.20 RTGS$.

Several outcomes are possible in this case; either one or both of them is able to do the computation and they find that the equivalent is US 60 cents a plate. But there are no US coins for change, so they agree to round off the charge to US 1 dollar. However, the buyer insists on a US dollar change but the seller does not have it. So, now we have a stalemate arising from a US ten dollar note that someone has picked up by chance, while that someone is almost collapsing from hunger!

But there are still two most practical ways in which the intending (food) buyer can get round the problem. One obvious way is for him to approach another food vendor but chances are that he will meet up with same problem as with the first vendor.

The other way is for the buyer to change the money to bonds in the street at the black market rate and then buy his sadza. Although there are several pertinent lessons that we can derive from this simple case, three of them stand out here. First and foremost, we need our own currency. Secondly, we need locally produced tangible goods to purchase with that money.

At this stage let us go back to the issue of the US dollar since the third one of our lessons is hinged on this currency. In this respect, if the situation remains as it is, the current contradictions will remain lodged in the economy.

These are contradictions that emanate from four sources; one is the perennial shortage of US dollar in the economy — a shortage not without a seasonal element in it. The other is the porosity in the system with regard to that currency’s flow into and out of the economy/country, the other is the accessibility of that currency to every Zimbabwean within and without the same environment, and yet the other is its dominance in the same economy.

Interestingly, the current monetary stalemate and the concomitant state of economic paralysis [in the country] have their base in the free market concept where currency exchange rates should be determined by the market, not by the monetary authorities. And the free market is a system that has of necessity, become conditional to the success of the Zimbabwean economy today because of the conditions and demands that the ‘international community’ has imposed on the country. Sadly, some of these conditions are political but anyway, this is the way of capitalism and its cobbled marriage to democracy; so there is not much Zimbabwe can do about the matter under current circumstances.

Interestingly and ironically still, the Rhodesia Front regime appeared to handle competently, quite similar contradictions that were embedded in the economy as it was then. It successfully ran a de facto command economy in which the movement of foreign currency was kept under tight control by the government of the day. This was in spite of what Ian Smith — its leader then — always preached about, espousing the idea of the ‘free world’ as he often referred to it; implied in this thinking was the ‘free market’ concept and/or system.

Under the current circumstances, the black market remains a resilient and ironically, a necessary but harmful part of the economy. In a sense, it has formed a symbiotic relationship with the local currency that paradoxically, borders on being an insidious and pernicious parasite [on that economy] by depriving it of much needed investment funds.

So, Zimbabwe’s currency challenge still remains intractable. Considered in its totality, this currency issue demonstrates the stubbornness of the dilemma that we have inadvertently thrust ourselves into, largely because of our current low capacity to run our own economy.

In our current quagmire, we have somehow mixed politics and economics in a dysfunctional way. And yet since politics and economics are phenomena that cannot be separated in real life, they should be made to interact in a way that leads to economic growth not the other way round. So, as long as we continue along the current mindset and consequent mode, our economic challenges, among which is the currency issue, will not be solved that easily.


Clifford Shambare is an agriculturist cum economist and is reachable on  0774960937.


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