HomeBusiness DigestZimbabwe to face ‘burden’ of stronger dollar for much longer

Zimbabwe to face ‘burden’ of stronger dollar for much longer

ZIMBABWEAN companies will have to carry the “burden” of a stronger U.S. dollar until the government clears its debts with global lenders and restores ties, according to Mthuli Ncube, a former vice president at the African Development Bank.

While a decision by President Robert Mugabe’s government to scrap the local currency in 2009 in favor of mainly the U.S. dollar helped end hyperinflation, it’s eroded manufacturers’ competitiveness by making it cheaper to import goods.

“Industries are going to be burdened with this dollar issue for a while,” Ncube, now an economist at University of Oxford, said in an interview in the Kenyan capital, Nairobi. “I don’t think there is a way around this until complete restoration with the global financial community.”

The manufacturing sector contracted in 2013 and 2014, but expanded by 1.6 percent last year, according to the Treasury.

The dollar is hurting industries due to liquidity challenges, and while it has made imports cheaper, exports are more expensive, adding to the country’s cash crunch. The economy is half the size it was in 2000.

Zimbabwe owes multilateral lenders US$7,1 billion, or 51% of gross domestic product, according to the World Bank. Total debts are around US$10 billion, the government says.

Settling debts with the International Monetary Fund, the World Bank, the AfDB and other lenders while reforming the US$13,5 billion economy may reopen credit lines, Ncube said.

Double-Edged Sword

While using the dollar helped fight hyperinflation, it had now become “a double-edged sword that Zimbabwe has to grapple with,” Ncube said. A shrinking private sector has hurt the government’s revenue stream and its ability to service debts, he said.

“The private sector can’t compete on the back of the dollar,” Ncube said. “It’s easier for Zimbabwean manufacturers to just import from South Africa because the rand is so weak. There was a moment when they could have pushed harder for the adoption of a weaker currency like the rand, that window is disappearing now.”

While the South African rand and Botswana pula are also legal tender in Zimbabwe, most transactions are done in dollars.

Companies such as Anglo American Platinum Ltd., Impala Platinum Holdings Ltd., Aquarius Platinum Ltd. and Sinosteel Corp.’s Zimasco are mining in Zimbabwe, which has the world’s largest deposits of platinum and chrome after South Africa.

“Eventually in the future, at some point, they can introduce the Zimbabwean dollar,” Ncube said. “I don’t know how long that will take, but sometime in the future it has to happen.”-Bloomberg

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