Policy uncertainty disrupts investors

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President Emmerson Mnangagwa

THAT President Emmerson Mnangagwa and his Finance minister Mthuli Ncube are trying and well-meaning is not in doubt. Even their trenchant critics and cynics would agree they are making the right noises and moves.

Zimind Comment

Since this government came into power, authorities, led by Mnangagwa from the start and later joined by Ncube, have shown willingness to change and have been doing a lot to try to achieve that — from some right pronouncements on the economy to some necessary reforms, particularly ease of doing business measures; they have been trying.

Generally, their attitude and tone are so different from that of former president Robert Mugabe and his regime.
However, the truth is also that fundamentally they have not reformed the system of governance and institutions. It remains unreconstructed. Mugabeism — the political philosophy and culture, as well as its policies and programmes — still remains entrenched. The politics remain toxic and divisive, hence the continued economic turmoil. Politics is the underlying problem, not economic problems per se.

Which brings us to the subject matter here. Mnangagwa and Ncube’s rationale for abolishing the multi-currency system and re-introducing the demonitised Zimbabwean dollar, through the Real-Time Gross Settlement system, electronic transactions and bond notes, is sound: every country needs to have its own country.

There is no doubt that every nation needs its own sovereign currency. This enables it to have monetary sovereignty, the power of the state to exercise exclusive legal control over its currency, broadly defined, by exercise of the following powers: legal tender — the exclusive authority to designate its own forms of payment.

With your own currency, you have control over monetary policy and its instruments to influence economic activity.

You can also properly defend the value of the currency and control inflation. You also get the benefits seigniorage — profit made by a government by issuing currency.

But then again, the re-introduction of the Zimdollar was ill-timed. The macro-economic fundamentals, starting with the environment itself, inflation, interest rates and fiscal and monetary issues, among other critical indicators, are not right. This was the worst possible time to bring back the Zimdollar, but government was in a fix and had no other option.

Bringing back of the Zimdollar was not a policy decision taken by government voluntarily and happily; it was due to emergency circumstances. Government feared the scope and pace of re-dollarisation which would have allowed the economy to spin out of control and further fueled stratospheric inflation, possibly triggering social unrest and protests. So it had to intervene urgently with desperate measures for desperate times, not well-thought-out policy measures. In so doing, the currency issue dramatised government’s policy inconsistencies and uncertainty. Policy uncertainty — when and how policies may change and how the changes may impact the business environment — disrupts business and keeps investors at bay.

This and other problems have intensified in the face of rising political polarisation and economic deterioration. The currency reform move simply worsened policy uncertainty and disruption of investment. This is the cost of poor and chaotic governance.

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