In the Business Weekly issue of December 13-19, 2019 there was an article that attracted my attention because of its relevance to the challenges that are currently dogging this economy.
In order to make it easier for us to appreciate the issues involved here, let me extract some quotes from it.
First of all, it was titled; “Confidence building, (and) money supply (are) imperative (for our economy)”.
Secondly, a well known and respected Zimbabwean economist commenting on the matter of a new currency in the country, pointed out: “As the Governor of the RBZ has spelt out that we cannot have a domestic currency until we build up our (meaning foreign) reserves, we cannot have a domestic currency until we build confidence in it( . . . )”
“( . . . ) And then we cannot have a currency if we continue to print money. It just doesn’t work because we will fool and impoverish ourselves”.
The way I see the matter, there are three major aspects that are critical to this issue. To me, the first and most critical of them is (the concept of) confidence. Then there is issue of currency — that is, both local and foreign currency.
At this stage you may be wondering why I am appearing to subordinate something as crucial to our lives as money — to confidence, itself, only a concept. The way I see the matter, the first port of call for imparting value to anything is the one who confidently says: “This thing is mine”. I believe this should be the case with a currency also.
And to have an own functional currency, one has to have an economy first. On the other hand, as I argued in my article; “Zimbabwe badly need its own currency”, even in this day and age of globalism and a vibrant world service industry — it may not be possible to have a prosperous, or even a functional economy, that does not have a productive sector.
You see, capitalism is a living phenomenon. Consequently, it is very sensitive to what you do (or don’t do) to it while it lives. So, considered from this perspective, it becomes quite true to assert, as the learned economist says — that you can lose all your assets through your currency’s loss of value. And this is what has been, and still is happening in this country lately.
But then, you lose that value much faster if you do not have a productive system. The Japanese experienced this phenomenon during “the lost score” from 1991 to 2010 when their industrialists reduced the manufacturing activity in that economy due to their loss of confidence in their economy after the property bubble that occurred there.
The Americans suffered the same fate after the dot.com bubble of 1994 to 2000. However, they (ironically) cured it by printing money — a practice known as quantitative easing. But to make the strategy work, they had to concurrently resuscitate the manufacturing industry.
Sadly, this is what we are failing to do today.
At this juncture, let us continue to look into the issue of confidence. Here we come across another variant of “confidence” — that is, “self confidence”. Applying the same argument, we find that it becomes easier — almost natural — for one to have confidence in another individual or system if they do not have confidence in themselves or in their own system, if any.
In our case, the changes that necessitated that the black Zimbabwean take over the reigns of the local economy become relevant here.
This is a situation that literally threw the black Zimbabwean at the deep end before he could build the self confidence required to run the economy.
In this regard, I believe that despite our apparent excellence at dealing with lower level issues in life, we still lack the self confidence to deal with higher level ones.
Part of the proof of this assertion is our desire to have this economy run almost 100 percent by FDI. I feel this is also the reason for our disdain and everything that we (are supposed to) own. And our currency is part of these things.
On considering the matter in its totality, we find that the sort of economic challenges that confront us today, demand that we reconsider our position vis-a-vis the economy (Refer to mine and Albert Mthimkulu’s articles in this paper on benchmarks and visions).
And interestingly, in our case, do you still remember that the economist I am referring to above, once founded a bank that at first, appeared to be a real gem in the arena of black empowerment? But sadly, he lost it to some prominent Rhodesian businessmen.
These men were from the stock of a people who were endowed with the astuteness to run an economy under British sanctions, and even after the said capital flight of 2000!
On the other hand, self confidence itself, is an acquired trait. This implies that in order to effectively run this economy, we need to somehow, build it up ourselves.
Now, let us go on to the issues of foreign currency and money supply. You see, in a country such as ours, with its heavy dependence on commodity exports, it is almost impossible to accumulate adequate foreign currency reserves.
This is because, without manufacturing and/or value addition of our raw materials, a good part of which are our natural resources, our rate of foreign currency generation and accumulation will always be lower than our rate of expenditure for same.
Our bane in this case, is our unsustainable fuel import bill. Interestingly, this was the case even during the Rhodesian days. However, to get round that challenge, they bust the sanctions that were mainly centred around the throttling of their fuel lifeline.
That said, in order to fully understand the complexity of our challenge, we need to briefly revisit our history, starting with the period before UDI.
In doing so, we need to consider the aspect of capital, the backbone of any economy.
Before UDI, a good proportion of the capital used in this country came from Britain, even though some was doing so through South Africa via such companies as the BSAC and the Anglo American Corporation.
As time went on, some companies were weaned from that umbilical cord through the accumulation and/or formation of local capital.
This process was bolstered by the spiteful attitude of the Rhodesians to the punishment that was being meted on them by Britain. During those days, investment companies such as UDC and Fincor were founded. On the agricultural front were the Land Bank and later, the Agricultural Finance Corporation, now Agribank.
And as Antony Hocking explains in Oppenheimer and Son, Anglo American also founded its own investment vehicle, Anglo American Investment Trust within the Anglo group itself, while also getting investment capital from London, the Netherlands, America, Canada and Australia.
At this juncture, it becomes clear how the country became linked to the international capital markets while staking its own small but viable position in it.
These are the sort of connections that even the British sanctions could not sever. And this was actually the capital that left the country after the land reform programme.
However, part of that capital still remained through Caucasian companies, which are still the backbone of the local economy. The foreign currency transfers through Panama as well as the transfer pricing activities that these same companies indulge in today, are part of the same strategy of maintaining those connections that are their lifeline.
I believe that they badly need these connections in order to continue tapping into the country’s natural resources. So they will not let go off this line that easily.
The Rhodesian private sector did not need to resort to such furtive practices because that same sector and Central Government were virtually one and the same thing.
Remember how they had been kicked out of the British pound zone and had gotten round the challenge by using a three pronged strategy — that of printing their own money and using it locally.
They then seized the opportunity to peg that currency to the US dollar through dollarisation, at the same time controlling foreign currency movement in and out of the country.
As far as the local money supply issue is concerned, I feel it is being overplayed for a purpose — that is, to discourage the monetary authorities from re-introducing the Zimbabwe dollar into the economy. And I have quite a few reasons for taking this position.
First of all, one cannot really assert that The Treasury is printing “too much money” here. This especially so since with our currency denominations at a maximum of the five dollar note, it is impossible to reach such a condition.
That said, some of us surprisingly, including some very highly placed monetary authorities — have always argued that there is hidden money supply in this country working though the RTGS system. However, this is a debatable position.
That said, as far as I can see the matter, an untenable amount of our cash is finding its way into the black market to buy foreign currency in US dollars.
At this juncture, I want to still argue that as black Zimbabweans, we are not yet serious about running this economy effectively, otherwise we would not be concentrating on currency manipulation without using it to restart the manufacturing industries.
As an example of the criticality of such a strategy, after a long period of outsourcing manufacturing services, Americans went back to resuscitating their manufacturing industries (see above). The power behind manufacturing is the creation of large numbers of employment as well as the spin off from same.
On the other hand, the arguments being used to have the US dollar back into the economy are interesting but worrying. The man in the street says, “It’s the currency with value and purchasing power”. The businessman says he needs it to import “raw materials”.
Then there is the vendor who survives on the importation of finished goods for resale locally; and the money dealer whose sources of foreign currency include among others — diaspora remittances, gold sales and precious mineral smuggling. To me, this is a lethal concoction that is now embedded in the economy.
That said, I still believe that a determined resort to manufacturing using the available capacity will do the trick. This strategy can be made to initially run concurrently with those nefarious activities until things normalise.
In any case, the thinking that one’s economic challenges can be solved through the internal use of a foreign currency is faulty for a number of reasons.
Firstly, your economy will not grow because you cannot expand it trough the money supply (QE) mechanism. In this respect, only people who are not in full control of their production system are afraid of money supply induced inflation.
In fact, even an economy as strong as the US is disturbed by the strengthening of the US dollar against the currencies of her major trading partners such as the EU.
This is also the reason why she is fighting the trade war with China — a country which she often accuses of devaluing its currency against hers. Her tariff increase strategy is an attempt to raise the price of Chinese imports into that country to a level where they can compete “fairly” with locally manufactured goods.
Secondly, because of pricing your goods against the high costs induced by a strong currency, you will be compelled to raise your prices with the result that you will lose out to competition in the international market.
Then there is the issue of arbitraging — a practice that Zimbabweans were indulging in when trading with the country’s neighbours in goods as maize and fuel among others.
Ultimately, in order for Zimbabwe’s economy to grow by any meaningful quantum, she needs to up her export trade act, starting with her neighbours, then her African compatriots. But in order to do this, she needs to produce those goods first, hence my insistence on the manufacturing route for her.
Shambare is an agriculturist cum economist and is reachable on 0774960937.