THE war on currency stability is definitely not over. Those who are conversant with the economy often know exactly what I mean. Of course, in the first instance, the expectation of instant stability from just the mere establishment of a mono-currency regime of RTGS$ or Zimbabwe dollar (Zimdollar or ZWL), after a few months of fiscal consolidation, initiated in October 2018 to deal with more than two decades of fiscal, production and productivity challenges, is myopic as it is unrealistic.
There is still a huge constituency of those especially in the informal sector who have totally ignored the law, Statutory Instrument (SI) 142 of 2019, SI 212/2019 and SI 213/2019, and continue to transact locally in foreign currency, which is now illegal. Even those who complied are largely referencing or indexing their prices to the United States dollar, all of which deny the country the opportunity to benefit from using a sovereign currency.
A normally functioning economy should reference its prices to itself. In this economy, prices are a function of its demand and supply factors, not just US dollar exchange rate movements. This is what makes such an economy produce and sell its products cheaper, both locally and internationally, which is the main argument advanced in favour of a sovereign currency. Our regional peers like South Africa, Zambia and Botswana are currently enjoying the highlighted benefits of using their sovereign currencies and that is where we want our country to go.
As I was tracking how the monocurrency system is faring so far, I made some interesting observations. In a number of cases it is actually the customers who offer to pay in US dollars, ostensibly because it is cheaper to do so, but also because they have the US dollar. If you doubt this, just visit some prominent restaurants and boutiques in town. It is common knowledge that every household in Zimbabwe receives an average of no less than US$50 from their relatives and friends in the diaspora, which take them far in meeting their requirements for necessities.
Just like employees of exporting companies, who recently requested and were granted special dispensation to receive salaries in foreign currency by the Reserve Bank of Zimbabwe (RBZ), beneficiaries of free funds prefer to hold their money in foreign currency to hedge against RTGS$ depreciation. They normally convert only the amounts they need to use at a time and in some cases prefer to buy in US dollars and enjoy the discounts offered. It is always important to understand that every US dollar discount implies RTGS$ depreciation and therefore higher RTGS$ prices, with the concomitant effect of speeding redollarisation.
All this says is a currency is only a “messager”. Its value largely reflects the fundamentals on the ground and I think you all agree with me that Zimbabwe’s are currently not yet right. Just mere fiscal consolidation is not enough to usher in currency stability in a country that faces permanent and structural challenges.
At the core of our long-term and structural challenges are low levels of production and productivity as well as high levels of unemployment. The first two challenges resulted in high import dependency at more than 40% of GDP, which has seen high demand for foreign currency to the detriment of currency stability.
High levels of unemployment hovering around 90% drove most of the affected into illegal currency trading, which makes it difficult to end this nefarious activity. The current situation where between 300 000 and 350 000 school leavers are churned out by our education system every year at a time when the ecomomy is only creating about 50 000 jobs per year has seen a significant number of school leavers venturing into the money trading business.
But, let us agree. You cannot sort a country’s permanent and structural challenges in a day, a month or even a year. While it is understood that these challenges cannot be sorted overnight, what the people are currently most concerned about are prospects of a better economy ahead, which calls for confidence building measures.
However, confidence building by its very nature is action-oriented and result-driven. People can only rally behind the government’s efforts when they see traction on the economy. That is why I always argue for the need to improve utilities provision of electricity and water as well as essentials such as fuel and social services like health and education, which have more visible impact on a society’s well-being. It is very difficult to convince anyone that the economy is improving or primed for that when we are evidently failing to deliver on the above-highlighted economic goods.
Rebooting production in Zimbabwe requires increased flow of capital, both domestic and external. Before we talk about external capital, let us talk about harnessing local capital, by firstly understanding why it is running away and addressing the identified challenges.
The mere fact that we have huge investment spilling into millions of dollars going into real estate amply demonstrates the availability of local capital. It also shows that our environment needs to be significantly improved to attract this capital. Important to understand is that improving the country’s investment environment is within our control and the call is really on leadership to set the tone of where we want to go in this regard as an economy.
Externals will naturally be attracted by what we do to our country as indigenous people. If we do not invest, they also do not. If we shun our country, they also shun it. If we plunder our resources, they also take a cue and do the same. Really, who are they to love and invest in a country whose owners are not?
One of the environmental issues that continue to hinder investment in Zimbabwe is corruption. Let us deal with this vice of graft decisively, once and for all. As recently exposed by the Auditor-General, our economy is losing billions of dollars from these nefarious activities, which make it very difficult to attain currency stability as well as to build confidence about our commitment to this imperative.
Clearly, the war on currency stability is far from over. The battle is bigger than most of us can imagine and needs to be fought from all angles. Leadership should weigh and set the tone of economic rebuilding by firstly and decisively dealing with housekeeping issues that are hindering production.
As an economy, we need to build on the progress made so far especially on fiscal stability and drive our economy towards production, which is the permanent solution to our currency crisis.
Gwanyanya is a chartered banker, economist and trade finance specialist who also founded the Bullion Group.— firstname.lastname@example.org or WhatsApp +263 773 030 691. These weekly New Perspectives articles are co-ordinated by Lovemore Kadenge, immediate past-president of the Zimbabwe Economics Society — email@example.com and mobile: +263 772 382 852.