Export incentives to ease cash crisis — Mangudya

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Reserve Bank of Zimbabwe John Mangudya addressing delegates on the new measures taken by the central bank on cash shortages

ZIMBABWE could soon boost its exports driven by a cocktail of measures announced by the Reserve Bank of Zimbabwe recently.

ZNCC COLUMN

Reserve Bank of Zimbabwe John Mangudya addressing delegates on the new measures taken by the central bank on cash shortages

Reserve Bank of Zimbabwe John Mangudya addressing delegates on the new measures taken by the central bank on cash shortages

The Reserve Bank Governor John Mangudya told a breakfast meeting hosted by the Zimbabwe National Chamber of Commerce (ZNCC) two weeks ago that incentivising exporters could help ease the liquidity problems in the economy.

He mentioned that gold, diamond, tobacco, ferrochrome and tobacco accounted for the greatest percentage of exports.

The US$ 200 million from Afreximbank scheme focuses on the output level as opposed to the input level which is open to abuse.

Mangudya implored citizens to embrace the export incentive scheme which will help to replenish nostro balances.

He assured delegates that the bond notes have the same features as bond coins and they appear as US dollar balances in the exporters’ accounts.

The central bank chief further encouraged citizens to accept the rands and euros (other currencies) when banks do not have the US dollar. He advised delegates that high levels of cash imports were not sustainable as there are limits which guard against money laundering, which has serious consequences. There is need to exercise discipline and not just withdraw for the sake of keeping it at home.

President of the Bankers Association of Zimbabwe (BAZ) Charity Jinya said bankers support measures announced by the central bank.

The bankers association said it would continue to engage the RBZ on administrative aspects. Jinya advised delegates to deal with the cash shortages, adding that every bank will look at its position and rationalise accordingly basing on the know your customer principle.

On telegraphic transfers delays, she said the delays in export receipts were also affecting the liquidity situation. Alluding to what the governor had said, she reiterated the fact that high cash imports would raise money-laundering concerns and this will affect Zimbabwe’s position with international partners.

Renowned economist Ashok Chakravarti said a 3-5% import tax across the board can better finance the export incentive scheme as opposed to bond notes. He said this is akin to fiscal devaluation and has the two-fold effect of reducing imports and earning government some revenue. The bond notes will not be necessary in that regard.

He said the bulk of the externalisation of funds was through the banking system as people were taking free funds out, legally though. Over-liberalisation is to blame; new regulations on free funds will address this anomaly and liquidity will gradually improve.

High imports are due to excess demand in the economy. Import demand is being fuelled by over-expenditure by the government backed by the printing of treasury bills. There is need to control government expenditure.

On the 3-5% import tax proposal, Mangudya said it would not work since the country is not raising enough revenue from the current tax regime. Furthermore, he doubted business was ready for extra import tax given their high import content (40-50%).

The initiative would make local goods less competitive due to increased production costs. He further said he preferred bond notes, an instrument over which the central bank has a mandate and leverage, as opposed to an import tax collected by a third party

Brains Muchemwa, an economist, said with regards to promoting the use of multiple currencies to reduce concentration risk (dominance of the US dollar), currencies have to compete for relevancy. Bond notes have to be accepted by the market, which seems not ready.

He said while export promotion is key to replenishing nostros, there is need for import substitution and value addition incentives.

Controls have never worked in Zimbabwe hence the central Bank needs to exercise restraint and work with other stakeholders as partners.

Lovemore Mukono, owner of Mukonitronics, said there was need for an agreement/consensus before the country prints bond notes. The US dollar is over-valued making goods internationally uncompetitive. “We have to intensify marketing which implies more costs. There is need to consider protecting our products but in a clever way. We must stop containers from coming,” he said.

Minister of Industry and Commerce Mike Bimha said the National Competitiveness Commission (NCC) Bill was recently adopted by cabinet and is now ready for tabling in Parliament.

Policy measures enunciated by Mangudya to deal with cash shortages at the breakfast meeting include:

Promoting the use of other currencies (Rand, Euro, etc) within the multi-currency basket in order to reduce concentration risk on the use a single currency, the US dollar.

Limiting cash withdrawal limits to US$1 000 from the banking hall and/or ATM and to be taken outside the country.
This is in line with international best practice.

Promoting the use of plastic money by all business and public utilities to reduce the demand for cash.

Importing US dollar, rand and euro cash to deal decisively with the queues. The queues recur after each Government pay day.

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