HomeAnalysisForex improves, NRZ is on track

Forex improves, NRZ is on track

THREE economic issues surfaced this week:

Forex premiums dropping

Ever since tanks rolled into the capital in November last year, economically speaking, it has been all thunder and no rain. Patchy economic showers fell this week.

The Brett Chulu Column

For a long time now, the floor of premiums for the United States dollar over our quasi-currencies, the bond notes and electronic balances, has been 25% and 40% respectively. This week the floor of the premiums lowered, the US dollar premium over bond notes dropping by five percentage points to 20%. As for the sellers of RTGS balances, there is reluctance to buy US dollars as RTGS balances are appreciating. They are adopting a wait-and-see attitude, hoping to see how low the floor of premiums for the sister quasi-currency will fall.

This is a significant development, especially coming right at the death of the first 100 days of President Emmerson Mnangagwa’s white horse of victory careering into town last November. The falling premiums for the US dollar are without a doubt signalling that significant inflows of foreign currency into the formal market are coming through. The appreciation of our self-styled currencies cannot be due to an anticipation of the tobacco marketing season that is officially starting on March 21. The forex market clearing price, balancing the demand for and supply of the greenback is not a forward price.

It is interesting that last week Mnangagwa, in an interview with a foreign paper, revealed that of the US$3 billion that was externalised mostly by companies between 2015 and 2017, US$815 million was still outstanding. The window for owning up to externalisation closed early this week. However, the president extended the grace period by two more weeks.

In the interview with the foreign paper, he vowed to make good on his word that a name-and-shame cavalcade at the close of the probationary period, instituting criminal proceedings for the recalcitrant, will be done.

Based on the sudden appreciation of our wannabe-currencies, it is most likely that the externalised dollars have begun finding their way into the nostro accounts of the Reserve Bank of Zimbabwe (RBZ). The RBZ has stated that any returning funds will be housed as a 7% savings bond. This is a new borrowing source for government; that is what the term bond implies.

With the tobacco marketing season roaring into life in two weeks’ time, it will coincide with the closure of the externalised funds repatriation window. The fear factor will most likely jolt into action the externalisers to repatriate back the funds in a bid to avoid the promised public lynching of reputation as the roll call of economic “malefactors” is read to the public, followed by criminalisation. We will have a confluence of two big forex streams, tobacco exports and repatriated funds. This will, in all likelihood, see US dollar premiums shedding as much as 10% points.

Expect the externalised funds to be “drip-fed” into the economy so that forex premiums fall gradually to create an image of a sustained forex improvement trajectory. Government will predictably go to town about the falling premiums, crowing that its economic revival strategies are bearing fruit. All this will be part of the grand election strategy to make sure the current regime wins the forthcoming elections.

NRZ dig uninformed

One prominent citizen, a leader of an opposition party in Zimbabwe, took a dig at the commissioning of diesel-powered locomotives leased from South Africa’s Transnet as part of the National Railways of Zimbabwe (NRZ) US$400 million recapitalisation plan. The 13 locomotives, 200 wagons and 34 coaches will arrive in phases.

It is a no-brainer that our nation needs a vibrant and reliable rail transport system for the sake of lowering the cost of doing business. It is straightforward junior secondary education that the hierarchy of low costs per tonne over increasing distances for transportation is sea, rail and road, in that order.

The currency of thought in transport economics is the combination of rail and road transport, the intermodal solution, accounting for both economic costs and externalities (social costs such as pollution, social strain, for example), treating the two as complementary in order to achieve competitiveness.

With the entire Zimbabwean rail electric infrastructure vandalised due to lawlessness, it is unfair to expect the government to re-electrify the rail in a short space of time. Pragmatism, in order to get quick wins through the reduced cost of transportation to producers, makes dieselising our rail desirable. In any case, these diesel solutions are leased.

A transport economics model based on hard data, comparing rail and transport in selected European countries, published in the European Journal of Business and Social Sciences (2014), shows in some instances rail being cheaper than road by as much as 53% in terms of cost per tonne and cheaper than a rail-road combo by as much as 41%. The figures for Zimbabwe may not map onto the European scenarios one-to-one, but the trend is largely similar.

As a result of our moribund rail system, industry and commerce are incurring unnecessary input costs which are absorbed into goods and services and recovered as high retail prices. There is no way Zimbabwean companies can compete with international enterprises that have a 41%-53% transport cost advantage. Dieselising the rail as a stop-gap measure is a wise move from a cost of doing business angle. Bullet trains can come later. Let us bring down the cost of transportation and lend a hand in contributing towards giving our locally produced goods a fighting chance in the cut-throat international markets.

Education wasting resources

I learned with gloom that the feeding programme introduced as part of the new education curriculum is creating inefficiencies in many instances as well as perpetuating a wrong mind-set from which we should be weaned. There are schools that do not have a challenge of children getting inadequate food at home. What is the point of requiring such schools to have a feeding scheme?

Surely, the maize that government is donating to schools to help with the feeding scheme is a good thing for schools with needy children. For schools without needy children, requiring them to get the maize is pure economic efficiency. Why create a solution for a non-existent problem? It is economic malpractice. This maize that some schools do not need is better used elsewhere.

We are training our tendrils of children to coil the wrong way, training them to glory in the dependence syndrome, the very ill donors are chastised for. Government must, instead, work towards teaching self-reliance to our children so that when they leave school they have self-reliance skills by which, if need be, they can earn a living.

The Hebrew culture prides itself in imparting self-reliance skills to its young people. I have had the priviledge of consulting to an organisation that runs a group of schools. As part of its strategy, it wants to capacitate its schools to professionally run self-reliance projects to enable fees to come down as well as inculcate in its students a culture of self-reliance. That is the way to go.

Let us hope the children government is feeding today upon coming of age will be able to stand on their own, live in a forex shortage, bond note-less economy, with bullet trains promised by the opposition leader tearing through our land as our once plush farmlands wave gloriously at the tear-away sleepers.

Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer reviewed international journal. — brettchuluconsultant@gmail.com

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