HomeAnalysisOf Gordhan and Zim interests

Of Gordhan and Zim interests

Depictions of South Africa’s Treasury boss, Pravin Gordhan, who was dismissed last week, smack of malice if not a grand plot.

By Christopher Mugaga

One then has to ponder whether South Africa’s recently sacked Finace minister Gordhan had become a larger-than-life character.

This is not to overlook the shortcomings, if any, of the man (President Jacob Zuma), who is at the helm of Africa’s most industrialised economy, as the public record has it that he needs at most a single weekend to try three Finance ministers for the same economy.

Whether Zuma made the right decision or not could be succinctly explained better within his government.
However, I strongly believe he can appoint and disappoint as he sees fit, given the democratic mandate he wields.
Zimbabwe has every reason to be concerned about events unfolding in South Africa given the close correlation between Pretoria and Harare.

Within the domestic market, calls for the need to switch to the rand have become louder. Even those in upper echelons of power are beginning to clear their ear-drums to get a better account of the pro-rand argument.

The outlook is not promising as I see South African markets taking a new but ugly turn; the rand might close the year losing at least 35% of its value with the elective congress scheduled for December becoming the Waterloo of Zuma’s successors and not him. Indeed, two clear candidates are leading the race to succeed him in the obvious Nkosazana Dlamini-Zuma, his ex-wife, pitted against the current deputy president Cyril Ramaphosa.

The rand will certainly not hold in the short- to medium-term, as both the trade account, as well as the confidence index will be under siege.

One is not expecting a self-styled paragon of probity to run the South African government; the rate at which rating agencies and self-elevated political analysts are becoming an unelected opposition in South Africa can only point to a nation in trouble. This could be an opportune time for us as Zimbabwe to continue applying targeted trade policies towards that nation given the laxity most of the authorities in that country are displaying.

No minister can stand up and brag about their strategic goals with tactical objectives taking precedence.
Adopting the rand in the midst of this confusion is akin to inviting United States President Donald Trump to an Arab League conference and expecting him to deliver a solidarity message; it does not work that way.

The Zimbabwean market continues proving to all and sundry that currency, like capital, remains a coward; the dominance of the greenback for the past 36 months is no accident, as market forces were allowed to pick the preferred currency; it is a result of market adjustments and corrections.

The rand remains an official currency in Zimbabwe and its shortage has nothing to do with policy interventions, but rather everything to do with market reflections.

The dollar-denominated domestic and external debt, coupled with the toxic assets most banks are sitting on, cannot be wished away by a currency dispensation. In fact, the volatility of the much-clamoured for rand, while there is no derivatives market to allow for forward contracts, will not necessarily help the situation.

Last week, a bigger crowd converged on the Union Buildings to march either in solidarity with Gordhan or against the cabinet reshuffle, depending on the position one occupies on the issue. A pharmacist-turned-treasury guru has been allowed to decide on market directions.

Surely how on earth can Standard and Poor’s, Moody’s or any other rating agency stampede to downgrade a nation basing on a single individual? Is that economy reliable enough even for us to trust its currency?

If the risks being spelt out by these agencies will stem from Gordhan’s removal, I am sure a well-meaning South African citizen will not count on such rating agencies.
The political fragility in South Africa means inflation is a reality, black unemployment will breach the 50% mark, not factoring in the official unemployment rate at 25%, which tends to centre on the narrower definition of unemployment.

It is a strange phenomenon which is being witnessed in South Africa, where opposition parties unite to fight Zuma, but see no reason in uniting to fight rabid racism, as evidenced by tweets from the past Democratic Alliance leader, Hellen Zille.

The South African rand cannot be tied to certain personalities and feel the pressure when calls for equity are echoed. The wave of populism is here to stay and if Trump rose to the Oval Office through his controversial tweets, what will stop Zuma from using the same model to defend his legacy, either positive or negative, by pushing for his candidate in the coming elections?

The trade relationship between Zimbabwe and South Africa points to an unfair balance. Adopting the rand without making structural reforms in a number of areas can only take us back to a disappearing currency scenario. Let us not forget that South Africa is our major trading partner, but to South Africa we are not a big player in their eyes. For them to set a monetary policy with Harare in mind might not be an easy task given the confrontational approach its technocrats are accustomed to.

As much as Zuma might warm up to the idea, the levers of economic management in that country rest with those sharing the British philosophy of negotiating political settlement before finding an economic solution.

As Zimbabwe, our laundry list is too lengthy to solve. We are not a nation with a currency crisis, but our challenge rests in what makes a currency sustain itself.

The level of exports being dominated by an average of three product lines which includes minerals, cotton and tobacco, is but a shadow of the almost 30 product lines we witnessed around 1997.

Without such an imbalanced trade relationship, adopting the rand might mean it will end up in the exporting nation as export receipts.

The recent dominance of bond notes in our currency mix is a reflection of confidence and liquidity. The Zimbabwean economy is proving allergic to two competing currencies. When the rand competed against the greenback since 2009, it lost ground and now as the greenback is pitted against bond notes, it might be too early for me to conclude that it will lose, but signs are clear that bond notes constitute almost 75% of currency in circulation. Which should therefore, send a message to all and sundry that currency is not an issue, but rather macro-economic factors which have to be in convergence.

In determining competitiveness, we should not narrow our analysis to currency impact. A number of factors also determine how competitive our products are. These include cost of funds, perception, quality dimension, level of infrastructure development, utilities reliability, as well as the risk profile of the country.

To assume that by adopting the rand we become competitive overnight is an overgeneralisation and underestimation of our current challenges as a country.

Mugaga is an economist. He can be contacted on: chamber1894@gmail.com or +263 772 340 353. New Perspectives articles are coordinated by Lovemore Kadenge, president of the Zimbabwe Economics Society. E-mail kadenge.zes@gmail.com and cell +263 772 382 852.

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