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Stock-taking time at CZI congress

Godfrey Marawanyika

CONFUSED about your continued business operations in Zimbabwe? At this time of the year, another conference seems to be the most sensible thing for business leaders t

o do when they meet next week during the Confederation of Zimbabwe Industries (CZI) annual congress in the resort town of Nyanga.

Next week’s meeting will be held under the theme “The paradigm shift required to transform Zimbabwe’s economic fortunes.”

Since last year when the business leaders met in Victoria Falls, the operating environment for many firms has degenerated.

In fact, there are now fears that the country could be sliding to the 2003 levels, effectively rendering meaningless the “gains” that were made last year.

Before the latest recession, the country had recorded major improvements which included a decline of inflation from 622% in January 2004 to 123,7% in March this year. But the inflation has started going up and is currently sitting on 254,8%.

There were also major improvements in foreign currency inflows which went up by 486% last year.

Yellow metal inflows increased by 80% in terms of volumes and, above all, there was stabilisation and restructuring of the financial sector.

The gains were achieved after the government and the central bank embarked on a turnaround programme which included wide consultations with various stakeholders.

Tight controls of money supply along with the targeted support for the productive sectors of the economy were used to rein in inflation.

Last year, government maintained unusual fiscal discipline. During the same time, the auction system was introduced to give a more effective means of managing the country’s foreign currency inflows. To an extent, this translated into a more viable exchange for exporters.

However, 12 months down the line, the business sector appears somewhat bleak.

The auction system has stopped working because of inadequate foreign currency inflows from the diaspora.

On August 22 bids amounted to US$142 million against an offer of US$12,5 million, representing a rejection rate of about 92%.

For business, hard currency is needed for operations.

The foreign currency blues are also causing scarcities in other sectors of the economy, effectively distorting supply patterns.

The shortages have also led to the resurgence of foreign currency trade on parallel market as well as a general shortage of goods which results in black market activities.

Fuel and other commodities are now being sold on the black market, whilst the auction rate is not viable for exporters.

Business is also facing tough interest rates while the business environment is again facing serious infrastructure problems such as unreliable water supplies.

Zesa requires attention while the transportation network is deteriorating as a result of the failure by the National Railways of Zimbabwe to operate effectively thereby exerting pressure on the road system.

What is needed now is a new approach which allows the exchange rate to be adjusted within a range not exceeding the month-on-month inflation rate.

There is also a need to review the foreign currency system on a quarterly basis or, as and when necessary.

At the same time there is need for the purchasing power parity exchange rate to be used as a guide for the determination of the actual exchange rate.

For a nation which is now under a rebuilding exercise, there is need for government to secure external support in order to ensure the supply of foreign currency, but again this will need the support of both business and labour.

Government should remove suspicion and make efforts to improve its relations with business and labour.

Government should also allow private players who can bring in foreign currency resources without limitations and without any questions being asked.

Liberalisation of financial markets as part of an economic recovery package should be undertaken.

Although the government has in the past steadfastly refused to liberalise the exchange rate, time is now ripe to consider it.

Once the economy is liberalised it will not be necessary to maintain the 5% concessionary lending scheme for exporters and the 25% cash incentives.

Under the liberalised system, exporters will be incentivised by the competitive exchange rate that will result.

Over the past six years, the application of a government exchange rate has been a major source of economic distortions.

There is now need for the government to acquire its foreign currency at the prevailing auction rate.

Although this might cause a strain on the government as it might increase expenditure and affect the fiscal balance, it is important that government be part of the “painful adjustment” to a realistic economic platform.

Once the foreign currency situation improves following the liberalisation of the exchange rate, the number of companies needing to maintain foreign currency accounts will be reduced.

Effectively this will mean that firms will now be able to access forex as and when they need it.

Once the economy is liberalised there will not be any need to maintain corporate foreign currency accounts, as they will be phased out.

Next week’s meeting is set to be attended by Industry and International Trade minister Obert Mpofu.

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