HomeOpinionRepositioning the Zim economy

Repositioning the Zim economy

Taisa Tshuma
THE economic difficulties in Zimbabwe have been at their regular worst for over two decades now. The best available minds, in government and the private sector, even political opposition structures that came to the table during the Government of National Unity (GNU) have not come up with a sustainable solution.

 

The reasons why orthodox and academic plans for fixing the Zimbabwe economy have been unsuccessful are varied and may possibly feed off each other, creating a vicious cycle.

Accurate diagnosis, as important as it is, remains a subject of intense debate as those who hold competing narratives and interests seek to apportion blame to others while absolving themselves.

We can probably only find consensus in the fact that today we have a Zimbabwe economy that is off centre and needs to be repositioned back onto the foundation it was built on.

Is the rand our silver bullet?
Currency is the basic unit necessary for modern commerce to take place. Commerce is the very ground on which the foundations of an economy are laid. Therein is the main source of economic dysfunction in Zimbabwe, where the domestic Zimbabwean dollar (Zimdollar) cannot withstand the onslaught of negative sentiment, which is also tied to colonial legacy issues, such as land ownership.

The United States dollar (US$), which has been used as the alternative to the faltering Zimdollar is too strong for the size and structure of the Zimbabwe economy.

Beyond that, the US$  is a logistical nightmare, with primary functions of banks such as the repatriation of soiled notes and the provision of mint notes and coins being unsustainably expensive for daily operations.

The US$ makes our pricing very expensive and consequently uncompetitive, especially in service sectors such as tourism, which has been identified as a low hanging fruit. That low hanging fruit is supposed to help inject the needed stimulus to economic activity.

Another down side of the US$ is that there is an unquenchable global demand for “clandestinely” acquired US$ and Zimbabwe being largely an informal economy becomes a fertile primary source of this kind of US$. Once the Zimdollar is left to float in that environment, inflation quickly goes hyper.

For Zimbabwe to turn the corner, the monetary authorities must remove both the US$ and Zimdollar from the pricing and accounting matrix, adopt or establish a negotiated working relationship with the South Africarand.

Historical context
The modern economy of this territory known as Zimbabwe began around 1890 and was built on the exploits of the British South Africa Company (BSAC).

The leadership of the colony of Rhodesia was invested more in the Cape region of South Africa. The wealth and power trail leads us to the undeniable fact that there was economic interdependence from Cape Town to beyond Salisbury (now Harare).

The Rhodesian dollar (Rh$), in use from 1970, was pegged to the South African rand  (ZAR) in August the following year. In 1972, the (Rh$) was floated at the same time with the British pound (GBP) and later in 1973 it was revalued with the rand.

In 1980, the (Rh$) was pegged to a flexible basket of currencies including USD, GBP, ZAR and the deutsche mark before being replaced a month later by the Zimdollar and then demonetised under SI 378 in 1981.

Prior to the Rh$, there was the Rhodesian Pound which was pegged to the (GBP) at par.

The Rhodesian dollar was never really a fully convertible currency meaning that its use was largely by faith in its relationship with its backers.

This brief history illustrates that external currency support for Zimbabwe is a necessity. Most economies need that support.

In more modern times, when the Italian and Spanish currencies were struggling, the euro was launched and it rescued those economies.

At independence, external currency support diminished, not only in Zimbabwe but across the continent. This resulted in fragmented former colonies with no capacity to occupy global economic spaces. Gradually this led to failing currencies and economies on the continent.

Failure by post-colonial administrations to replicate or establish new strategic economic ties among themselves is a serious indictment on the native people and leadership of Africa. Whatever one’s definition of geo-economics is, it is clearly missing in Africa.

A permanent solution for Zim
The solution must reposition the economy firmly back on its foundations, and only then can sustainable rebuilding happen.

The government has through several Statutory Instruments (SI) and Monetary Policy Statements (MPS) tried, unsuccessfully, to balance a dysfunctional and off centre structure.

Some of the leading causes of the dysfunction, like the prevailing negative geopolitical sentiment cannot be addressed using “surface” MPS and SIs. Perhaps it is time for a new strategy.

A brief look at the global economy shows that the better performers run some form of (a) Empire, (b) Federation or (c ) Strategic Alliances. In the case of dysfunctional and fragmented African economies, talk of territorial sovereignty is instead more prominent.

For meaningful and stable economic growth in Zimbabwe and Africa to manifest, at least one of the three scenarios listed above must exist but for obvious reasons, we will not dwell on option (a).

Option (b), federalism, is a political consequence of the desire to build capacity and expand the domestic market to bring diversity to economic activity. It can come peacefully through lengthy negotiated treaties and referendums or through the old and ugly way of conquest and military annexation.

This leaves us with option C. In the case of Zimbabwe and her neighbours, the most obvious and logical plan of action must involve Pretoria.

There are several negotiable options available for consideration to deliver a win-win solution for the citizens of both countries, the politicians, but most importantly business in the entire Southern Africa region where the rand must squeeze out USD influence.

Additional peculiarities
The causes of Zimbabwe’s economic problems are clearly not purely economic. Knowing this, and that its modern-day economy is inextricably hinged to South Africa, any attempts to fix it must consider the following realities.

  •  80-90% of our imports come from or through SA.
  • Under normal circumstances, over 15 000 daily travellers cross the borders to buy and sell.
  • Global business and overseas tourists who largely arrive via Johannesburg and Cape Town view the region’s currency value through rand lenses.
  •  Banking modalities are multiple times easier and cheaper between Harare and Pretoria than Harare and Washington.
  •   South Africa absorbs the best and largest chunk of Zimbabwe’s skilled and educated manpower. Many of our top and prestigious high school luminaries enrol in South African universities and consequently find employment there.

We can add culture, language, geography, media and entertainment consumed. There is not much room for separation.

Lessons learned
Academically sound arguments such as the need to be productive and imports substitution have largely been fronted as solutions to Zimbabwe’s economic misfortunes, but if you carefully examine them, you find that the early objective is to simply save and earn “enough” forex.

This was basically the situation at the turn of the century when the US$ was officially pegged at about 1:56, and commercial banks had the luxury to sell foreign notes and travellers cheques even to non-account holders.

The only requirement was a valid passport, yet the larger economy was still in meltdown with all that foreign exchange available.

Caution and conclusion
Going forward, perhaps most important to address are the frustration levels that are gripping Zimbabweans. Their anxiety is kept at boiling point by everyday inconveniences and difficulty in basic transacting. The primary problem is currency and its offshoot impediments.

The primary purpose of a currency is to be a store of value and a means of exchange. These two basic functions which can be summed up as “business or transactional convenience” have proved to be more and more difficult to attain.

The knee-jerk reactions to this scenario include premiums on cash, price distortions, artificial shortages and increased speculative economic behaviour. Over and above this, are economic losses, general stagnation, regression and ultimately poverty and despondency.

Adopting the rand will give the country a realistic chance of fixing whatever else needs attention, including dealing with under-production, corruption and maintaining social services while embarking on key infrastructural investments.

The toxic and fluid one way relationship between the Zimdollar and US$ makes it difficult for both currencies to coexist. Current multiple efforts to make it work such as the currency auction, allocations and retentions donot amount to much more than just tinkering.

Prior to his appointment as Finance minister, Mthuli Ncube spoke of a drastic but pragmatic and sensible way needed to rescue the Zimbabwe economy.

He preferred a “big bang” approach to the financial sector reforms instead of the somewhat lethargic and lukewarm processes we have seen.

This points to possible political reservations somewhere in the hierarchy, which is understandable, but unnecessary. Political posturing shouldnot be a reason to endure decades of currency and economic failures.

One of Zimbabwe’s most prominent business leaders, a billionaire and global entrepreneur, also once suggested that Zimbabwe should price goods and services in rand in order to counter price volatility.

One hopes that the responsible authorities will keep an open mind, renew their resolve and have the courage to explore the rand as both a bridging and repositioning solution for Zimbabwe’s economy.

  • Tshuma is an entrepreneur from Bulawayo, a former retail banking professional with a customs clearance and freight logistics background.  twitter  @TaisaPT

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