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Eric Bloch Column

Gono targets export recovery

By Eric Bloch

IN his mid-year Monetary Policy Statement the governor of the Reserve Bank of Zimbabwe (RBZ), Gideon Gono, focused on diverse is

sues confronting Zimbabwe’s distressed economic environment.

The statement had a number of significant highlights, of which one of the most meaningful was a pronounced recognition of a need to boost the viability of exporters. In order to achieve this, the governor announced three substantive monetary policies.

The first of those was that, with immediate effect, exporter retention of export proceeds in foreign currency was increased from 60% to 65%. Undoubtedly exporters in general, and those with extensive needs for imported inputs, hoped that the mandatory surrender of export proceeds to the central bank, in exchange for Zimbabwean currency, would be more substantially reduced.

Equally undoubtedly, the governor would have liked to accommodate that desire of exporters, but the chronic scarcity of foreign exchange that afflicts Zimbabwe inevitably limited the extent that he could relax the surrender requirements.

Hopefully, with the effluxion of time, he will be able to do so but, in the meanwhile he was at least able to accord some slight relief to exporters, their need for foreign exchange generally being as great as other economic sectors.

Of a very much beneficial impact upon exporters was the introduction of an overnight investment window at the central bank wherein exporters can invest the currency conversion proceeds, at a once-off overnight return of 800%.

Thus, on the portion of export proceeds as are converted from foreign currency, being the prescribed minimum of 35%, or such greater proportion as the exporter may wish, the exporter now receives the official exchange rate, currently being US$1:$30 000, plus an overnight return thereon of 800%.

Effectively, based on the current official exchange rate, the exporter therefore receives US$1: $270 000, on surrendered export proceeds, as distinct from a previous effective exchange rate, up to last month’s mid-year Fiscal Policy Review and Supplementary Budget Statement of the minister of Finance, of US$1: $15 000. Thus, exporters will now be enjoying an 18-fold greater exchange rate than previously.

Admittedly, the new effective rate is considerably lower than rates prevailing in the unlawful alternative markets, but that would always be so, irrespective of the level of the official rate, for so long as foreign currency availability does not match demand.

But the rate enhanced belatedly compensates exporters, to some major extent, for the vastly increased production and operating costs, driven horrendously upwards by Zimbabwe’s appallingly great hyperinflation, and thereby restores viability to many exporters who were either battling to survive, or who had no alternative but to discontinue exports and concentrate exclusively upon domestic market production.

Reinforcing those new measures, the governor further announced that “to ensure that exporters preserve the real value of their foreign exchange deposits…all such deposits will earn an all-inclusive interest rate of 12% per annum in hard currency”.

That is a better interest rate than is generally payable for hard currency deposits in international markets.

Amongst the vast economic ills that characterise Zimbabwe, one of the greatest is a gross inadequacy of foreign exchange. To some considerable extent that is because of the minimal extent to which Zimbabwe can access lines of credit, international loans, balance of payments’ support, and the like.

That non-availability is unsurprising, bearing in mind Zimbabwe’s abysmal image of a very high credit risk. That image is, unfortunately, very justified, bearing in mind not only the magnitude of Zimbabwe’s debt-servicing arrears, but also that its economy is so emaciated that its prospects of timeous settlement of future debts are minimal.

The insufficiency of foreign exchange is exacerbated by the paucity of Foreign Direct Investment (FDI). Not only is the Zimbabwean economic environment unattractive to potential investors, but the lack of attraction is exponentially intensified by the government’s determined and rigid pursuit of all precepts of “command economics”.

President Mugabe and others continuously and scathingly disparage advocates of “textbook economics”, and yet they adhere to the textbook philosophies espoused by Lenin, Stalin, Karl Marx, Mao-Tse-Tung, Fidel Castro, and others of their ilk, whilst rejecting the textbook philosophies of Keynes, Friedman, Greenspan and others. Therefore government persists in grossly excessive regulation of the economy, making investors therein anathema to most potential investors.

Recently FDI has been further markedly discouraged, by the ill-considered Indigenisation and Economic Empowerment legislation, worsened by the racist and scathing comments of the politicians, targeted against foreign investors.

Both these factors are of a key nature to the disastrous lack of much-needed foreign exchange that grievously constricts the Zimbabwean economy, and yet an even greater factor is that Zimbabwe’s export performance has undergone major decline. In part, that is due to governmentally-created, near total collapse of agriculture, but to a considerable extent it has been because manufacturers, miners, and others, could not afford to produce for exports.

They were, and are, confronted, by continuously rising costs, but government’s past rigid fixation against currency devaluation precluded exchange rate compensation for rising costs.

Therefore the new monetary policies are a very significant advance to address the situation, and the private sector must respond positively, constructively, and rapidly, by resuming export activities dynamically.

However, it is also necessary that the authorities recognise that there can be no overnight transformation.

On the rare occasions of previous exchange rate adjustments, not only were those adjustments usually inadequate, unsatisfactory compromises which did not realistically address economic needs but, in addition, government each time expected immediate up-turns in exports and therefore, in foreign exchange inflows. When they did not materialise, government used that factor to justify not effecting further currency devaluations.

Regrettably, as absolutely essential as exchange rate movement correlated to inflation, is necessary, it cannot function as an instantaneous magic wand.

Now that Gono has courageously sought to address the exporter’s difficulties constructively, those as can export must be given adequate time to generate the much needed increase in foreign exchange. First, they have to woo back the export customers that they have lost, and obtain orders from them. Then they have to source foreign exchange for the inputs needed to produce the ordered goods, place orders for those inputs, receive delivery thereof, and then produce the goods. Thereafter the exports have to be delivered to the customers, payment awaited and in due course, received.

Thus, as admirable and essential as the governor’s policies are, government, RBZ and others must appreciate that the benefits therefrom will only flow to Zimbabwe progressively, over a period of time.

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