The Zimbabwe National Chamber of Commerce (ZNCC), has called on Finance minister Patrick Chinamasa to unequivocally assure the nation that there will be no immediate return to the Zimbabwe dollar or resorting to any local currency as a precondition for efforts to boost waning investor confidence.
In its submissions towards the 2014 national budget, ZNCC said issues relating to currency reforms were very crucial in determining the nature, tenor and quantum of foreign investments and foreign lines of credit the country could lure.
ZNCC believes the 2014 national budget should be premised on confidence-building, capacitating local industry, employment creation, reduction of the trade deficit and improving the liquidity position.
“As part of the all-important confidence building process, we urge you honourable minister to be very clear with regards to government’s view of the multiple currency regime and categorically state that there will be no immediate return of the local currency. In addition to that, we implore that you, honourable minister, spell out the pre-conditions necessary for the re-introduction of the local currency. This is important in bringing certainty around possibilities on immediate currency reform,” ZNCC said.
In order to dispel any such speculation on the possible near-future re-introduction of the local currency in the minds of the general public and investing community, ZNCC said, Chinamasa should state the model on which a local currency would be introduced.
ZNCC added Chinamasa should consider clarifying further that in the event that the local currency is re-introduced, it shall be introduced alongside a basket of currencies that are currently in circulation and that economic agents will make their independent choices of the currency to use and shall not be under any obligation to accept any currency they may not be comfortable with.
The submission noted that clarity on currency should clear the uncertainty and perceived risk of the return of the Zimbabwe dollar and instill confidence in the public and investing community that even if the local currency were re-introduced, it would have minimal disruptive influence on investments, even in instances where the government lacked fiscal prudence.
“The current state of the economy desperately needs huge inflows of fresh liquidity and investments that would need to be supported by a stable banking sector. Unfortunately these may not be achieved if the tenor of the multiple currency regime is not clear,” ZNCC said.
The industry body noted the multiple currencies regime could not be in place forever because government, at some point, would need to benefit from seignorage revenue and re-introduce local currency so that it can utilise the levers of monetary and fiscal policies to achieve the twin objectives of creating employment and maintaining economic growth while keeping inflation under check.
The chamber proposed that there should be minimum capacity utilisation of about 70% across industry compared to the current 39% while agricultural production had to recover to achieve food self sufficiency amounting to 24 months grain reserves before a local currency could be reintroduced.
ZNCC said the country should consider other preconditions for a local currency such as foreign exchange reserves of 6 months import cover, low and stable inflation below 5%, unemployment below 30% and a well-capitalised and fully functional central bank along with a stable banking sector.
The business body also said there was need for government to prioritise infrastructure projects, resolve the country’s debt, finalise land reform and respect property rights in order to attract capital.
“The tax levels in this country are very high and are a deterrent to increased economic activity. There is merit in reducing taxes to levels that will stimulate expenditure,” the chamber said.
This week ZNCC told parliament’s portfolio committee on industry that government should suspend aid to distressed companies as well as amend current labour legislation so that employees cannot hold struggling companies to ransom.
ZNCC macroeconomic committee chairperson Brains Muchemwa said government should change labour laws in response to the current industrial crisis. Currently, many employees quickly resort to getting their employers liquidated if they don’t receive their salaries and wages for a few months.
“If you check the (news) papers you will see properties being liquidated and the Sheriff has been busy. One individual can attach a machine used by 1 000 people over non-payment of his/her salary,” Muchemwa said, adding the cost of labour in Zimbabwe remained higher than regional averages while productivity was low.
He also said government should give aid to companies that were already viable and had a good multiplier effect as opposed to those that are distressed.
“Funding distressed companies will not do anything other than financing their existing credit and then they go back to the same position,” Muchemwa said.