HomeAnalysisCash crisis needs workable remedy

Cash crisis needs workable remedy

The tobacco marketing season is in full swing and the massive sales volumes we have witnessed so far are pointing to a record-breaking performance.

Zimind Comment

By day 60 this week and with only a few weeks to go before the end of the current selling season, a total of 200,3 million kg of the golden leaf had been sold, eclipsing the 186 million kg sold in the whole of 2017.

Through extrapolation, we can easily project this season’s total volume to surpass the government’s 200 million kg estimate by a wide margin. Some informed estimates place this season’s final tally to reach 210 or 220 million kg. This is nothing short of a sterling performance by Zimbabwe’s tobacco producers who — together with gold and platinum miners — are among the country’s top three export earners. If the golden leaf’s production trajectory continues on this path, it will be the third time that Zimbabwe’s new farmers will have shattered the psychological barrier since 2010 and probably the highest output since the post-dollarisation peak of 216 million kg recorded in 2014. Although the quantity is still way below 1965’s all-time record of 325 million kg, there is no escaping the self-evident truth that tobacco farming has become the flagship crop after Zimbabwe’s often violent and chaotic agrarian reforms.

While the volume of tobacco sales has been remarkable, the earnings are even more impressive. The crop has generated US$551 million in the first 56 days of the marketing season, up from US$440 million last year.

However, the benefits of tobacco’s solid performance to the economy have been marginally felt. The country’s devastating liquidity crunch and cash shortages have in many ways worsened, despite the half-a-billion dollars generated by the golden leaf. It must worry every Zimbabwean that in the middle of a superb tobacco marketing season the liquidity crisis is actually worsening instead of subsiding, at least among ordinary people. The fact that the liquidity problem is getting amplified rather than being alleviated shows without doubt that there are deep-seated structural challenges and huge liquidity hole at the core of Zimbabwe’s economic crisis. Piecemeal solutions will clearly not resolve the problem.

Money is indeed flowing in, but the hole at the bottom of the purse is just too big. The long-term, sustainable solution can only come from a massive ramping up of economic productivity in an environment characterised by policy consistency, adherence to the rule of law and respect for property rights, as well as genuine fight against corruption. Investor confidence plays an important role; it is trite economics that owners of capital will tend to invest their money into an economy that is stable, organised, well-managed and promising in its prospects of delivering a healthy return on investment, not a hostile environment. The government, to its credit, has done well in prioritising economic diplomacy over cheap political rhetoric which was the hallmark of Robert Mugabe’s corrupt and incompetent regime.

But instead of tinkering with the symptoms of the liquidity crunch, the government should seek long-term solutions. This will entail addressing country risk, public and investor confidence, the illegal externalisation of funds, illicit financial flows and corruption.

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