Two steps to the left … two steps to the right

By Admire Mavolwane


HOW would you describe Zimbabwe? This was one of the easier questions to respond to honestly during the 1980s and into the 1990s.

The answer has, since 2000, taken different forms depending on one’s forthrightness or political co

rrectness. To make matters worse, events of the past six or so months have made the question even much harder to address earnestly without a sense of nostalgia.

Most, if not all business executives, though, will respond by saying that Zimbabwe is a country where strategic seminars and the accompanying documents are now just a waste of precious resources.

The strategic options adopted at such colloquiums would in most cases be valid for just a couple of months if not only one. In the banking sector the time factor for trading strategies is even shorter, sometimes just a few hours.

Stock market investors, on the other hand, would allude to how it is easy to make, or lose, money on the Zimbabwe Stock Exchange.

One thing that stands out at the moment is how frequently the country’s policies change. Moreover, some official pronouncements can change depending simply on the audience. Policy shifts, especially from the central bank, used to come every three months, but have now become even more frequent. So every few weeks, businesses have to make costly realignments of strategies. Who would have thought after October 2005 that the country would once again have fixed exchange rates? The introduction of the Tradable Foreign Currency Balance system was greeted by many with a lot of optimism and it did not disappoint. The gap between the parallel market rate and the inter-bank rate narrowed significantly. Come end of January, the exchange rate was effectively pegged at $100 000 to the US dollar once again and has remained so since then. What it means is that those who had made their strategic plans and budgets in December 2005 based on the inter-bank rate needed, all of a sudden, to rethink their options.

In the past two months, policy volatility has increased markedly. On April 7, the Reserve Bank announced what was then called the 2006 Tobacco Support Framework. This was ahead of the opening of the tobacco auction floors on April 25, thus giving farmers roughly 17 days to plan. Farmers, presumably, started delivering their crop based on the April 7 framework. Arguments, against or for, subsidies aside, the announcement being official, could be used for planning purposes or so it would have seemed at the time. On April 24, just hours before selling commenced, the central bank announced a new framework. So the farmer had to sit down and re-do his numbers, weigh his options whether to sell or not, right there at the auction floor.

On the same Monday that the new tobacco support arrangements were announced, the central bank governor had an indaba with the bank chiefs wherein it was emphatically and unequivocally stated that the high interest regime would continue. To drive the point home, the overnight accommodation rate was increased from 750% to 800% for secured lending.

Exactly two weeks later, on May 8, a new monetary policy stance was put in place. The central bank would no longer be issuing 91 treasury bills, but will borrow longer using CPI index-linked; one, two or three-year bonds.

This, by implication, is an indirect dropping of interest rates. Good for the banks as they could now breathe again. But a number of players, who had drawn their road maps for the future based on the April 24 statement were wrong footed.

The sudden swing in the stock market this week, which saw the industrial index gaining 6,5% on Tuesday, and 25,69% on Wednesday, to 45 556 117,66 points, bears testimony to the fact that the move to suspend the 91-day treasury bills took both the money and stock markets by surprise. Everyone wanted to jump into the stock market at the same time.

Previously, one could sense that some changes were about to occur when the market started firming or weakening slowly as the “more informed” quietly took positions or exited the market. Investing on the stock market is now a question of taking a bet and sitting it out. In other words, those investors who took a bet that the high interest rate regime would not be sustained for long and even discounted the contents of the governor’s statement to bankers had already taken positions and were just waiting for the bulls to take off. The sudden 4,92% fall in the industrial index yesterday to 43 312 752,15 points came as a result of the panic was triggered by the re-introduction of 91-day treasury bills. The treasury bills were allotted at an average of 350% per annum, which is some 175 percentage points lower than the previous yield of 525% per annum, causing even more confusion.

Policies at the very least are meant to give direction and guiding parameters to the business community, markets and the generality of the public as to where the economy and country are headed. Thus in normal circumstances extensive consultations and scenario analyses have to be conducted before the policies are announced to the public. The announcement itself, usually explains the background to the policy and the intended outcome. 

A policy reversal is not bad per se provided concerned parties are educated on the rationale of the shift. This means policies that would have been discovered to be unworkable are withdrawn and new ones drafted. As policy changes are disruptive, due cognisance should be given to the profits and losses resulting with the intention of taxes the profits and compensation for the losses. This creates an environment for business and markets to thrive having overflowing confidence in policies and thus effectively perform their respective roles in the economy.

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