Zimbabwe’s monetary system is a complex system and the answers might be in continued restructuring.
Inflation remains high at +50 percent. Within this context is a great and undeniable achievement looking back at our immediate history and previous form with managing inflation in the first decade of the 21st century.
Some however, presently look at these inflation figures as not supported by bank interest rates for Zimbabwe dollar accounts. This still means a significant population would normally resort to USD as store of value despite the fall in inflation. Low bank interest rates are thought to be creating an internal forex demand factor in addition to forex outflow levels.
Whilst inflation cannot be arrested today, what we do today needs to be about bringing that rate to a universally sustainable level in Zimbabwe. Otherwise it will always be a case of little fires everywhere.
There remains a weakness in how forex usage is accounted for post transaction completion after a winning bid at auction. We are not clear on the weighting of internal (within Zimbabwe) transactions like instances of reselling outside the auction system against settling import bills.
One asks whether we have tight enough periodic measures of internal forex withdrawals against import bill settlements? If it was, let us say a 2-5 day cycle, we would have a clearer indication of how much USD does the rounds with the local currency before going beyond our borders or staying put in someone’s mattress or returning to auction in USD or local currency form. Help me out as per below.
Is it possible to go and seek US$500 000 and obtain it by parting with $42,5 million then sell the same US$0,5 million at $62,5 million at the next two auction rounds come with more local currency gunpowder to outbid competition by the necessary margin and obtain via the $62,5 million a sum of US$710 000 even if you are an outlier bidder at 1USD:88ZWL instead of 85 local currency?
This is US$210 000 above the initial US$500 000! You could then import what you need for your business and also something you have always wanted in your garage? It would be the last bit where local currency value goes as this is not Capex. That value starts to deteriorate with not much value generated. A liability that includes need for costly imported car parts for servicing, more fuel and many other bling bling things.
Someone help out on whether there is no such possibility — is this a possibility with our Auction system? Is doing this twice or multiple times possible?
Lack of insight into the profits and profit margins of auction beneficiaries.
Accounting for profit levels and adequately taxing them or incentivising their reinvestment gives better views on:
- the sustainability of our pricing compared to customer market earnings;
- how much monopolies are keeping import prices at the top end;
iii. how barriers to entry and killing of competition from SMEs is being perpetuated — SMEs would otherwise create progressive import cost advantage innovation all round through competition — lowering USD demand amongst players whilst also putting downward pressure on inflation in our pricing model — talk of the agglomeration effect that is also very necessary for our recovery and building upon Vision 2030 and inherently the National Development Strategy I;
- We might also discover that profits from these monopolies have an unhealthy proportion that is not Capex — our big cars, Italian tiles, Turkish rugs etc yet as a nation not yet funding at the adequate level an optimum import substitution industry. Trade-offs have to be confronted and dealt with! Part of realism!
I must here acknowledge that those that have made their money will want to enjoy it. We must also be clear that five Pagani Zonda importations into New York is very different in impact to the US economy compared to the same going into Mogadishu, Kampala, Kinshasa and Harare individually. These things do happen but there is a fair price to pay in our social contract with the nation that hosts our businesses.
The point being, in the business cycle it might be a significant forex cost factor from expensive luxury imports that is too significant for the stage of our development and the size of our economy. Such spending takes away a lot from capacity building for forex inflow vs outflow positive balances. Increased internal demand for local currency transacting follows as compared to all the many USD transactions of various urgency and necessity levels in the nation.
If anyone has studied silver and how it moves in the market compared to gold; silver’s many uses makes it hard to predict its value movement as besides store of value usage, it has significant volumes in industrial uses, jewellery, coins etc, which gold has less of, especially silver’s significant industrial demand with no substitutes. We have failed to make the USD be like gold through fewer uses limited to imports/reserve currency.
We treat it like silver with many demands including individual current account holding and continued basic internal transactions. The silver market has had attempts, though failed, of adverse monopoly and concomitantly price fixing. Globally, probably market size makes securities impossible to tame, but in a smaller market as ours, monopoly and price fixing is possible if given gaping opportunity.
We have to factor in where State institutions are in around Forex auctions (passively or deliberately); are they bidders at the auction by reason of low yield on collecting forex denominated dues within export and import receipts? We are paying for vaccines, we are bringing in equipment at tax free rates, we have leakages in high forex earning commodities, yet some of the primary earners only see their payments in the highly pressured local currency — tobacco farmers etc.
Is there a transitory and delayed benefit in the impact of the auction system that we need to tense up for temporarily? Will the above pay dividends soon including for the growers of Virginia leaves and mattock carrying miners? When can they save up and grow up to buy curing equipment for themselves? There is a lot of complexity and what appears at times as parallel monetary systems needing a quantum leap to operate from one and develop from the other.
A wondering Zimbabwean asks 5 questions:
- Are there solutions in reviewing the loan rates of FCAs and of local currency accounts against inflation?
- Will that make money stay in the banks? Will that give structure and efficiency to the forex system such that players know forex utilisation needs stringent investment appraisal that meet requisite payback levels?
- Does the Zimbabwean person need to have more access to stores of value in a more efficient manner? Is Fintech sleeping on an opportunity?
- Is there opportunity for an optional SADC central banks’ denominated digital currency to share risk?
- If too broad, a gold market pegged Zimbabwean digital currency of a finite circulation volume — as we mine (gold not crypto) and store a certain amount of bullion, have the value correlate with our Bullion and against the gold price? Is for Zimbabwe then a well managed gold standard currency worth consideration, with seeing what portion of bullion could be apportioned to the currency whilst the rest can be exported? Selling and mining to manage currency?
Sometimes listening to motherland’s Economists, business people and economic observers, thinkers and opinionistas, one sees us Africans following text for text economic equations for the West and trying transposition without alteration onto the African circumstances. We are in very different conditions of leverage in the global sphere!
I am sorry, it will not work!
A tall and longer reach jabbing boxer does not follow the short boxer’s aggressive and close combat tactics!
We are different by balance of trade, value chain integration and participation, technological advancement, economic activities and associated types of rents we can collect from our activities’ comparative and competitive advantages. That is before we even talk of social trends we also look to copy and just paste! We need to search for what works best for us in our monetary circumstances and more.