THE rushed re-introduction of the Zimbabwean dollar last year by desperate authorities is exacerbating the country’s economic crisis, analysts said this week.
This comes as both Finance minister Mthuli Ncube and Reserve Bank of Zimbabwe governor John Mangudya have vowed to prioritise currency stability this year, as the local unit continues to plunge vis-à-vis the greenback. On his part, President Emmerson Mnangagwa has also said the monocurrency regime will not be reversed.
Vince Musewe, an economist, called on the government to discard the local currency, saying it was causing “too much pain” to both companies and consumers.
“We don’t want an unstable currency which does not inspire confidence. The local currency has clearly been disruptive … hence nobody wants it,” he said.
Tapiwa Mashakada, a former Economic Planning minister, also told The Financial Gazette that it was a matter of time before the country completely re-dollarised, as the market had no confidence in the Zim dollar.
Reserve Bank of Zimbabwe, governor John Mangudya and Finance Minister Mthuli Ncube
“In my view, re-dollarisation is inevitable because the market has completely rejected the re-introduction of the Zimbabwe dollar,” he said.
“Indeed, and unsurprisingly, the market has continued to index prices of goods and services in United States dollars,” Mashakada said.
While global economist Steve Hanke has slated the Zimbabwe dollar return as responsible for the “economic collapse and ruin of nations” — as inflation has raced to nearly 600 percent — Imara Asset Management (Imara) chief executive John Legat says the local currency had also wiped out pensions and banking assets, and thereby increasing failure risks.
“The financial sector is shrinking by the day. The introduction of Zimbabwe’s own currency has been a disaster as many economists had predicted,” he said in a recent research paper.
“The effects of the decline in the value of the currency on Zimbabwe’s banking, insurance and pensions sectors have been devastating in real US dollar terms,” Legat said.
“In short, the local capital markets will find it hard to fund any meaningful investments as we start the next decade, implying that only foreign capital has that ability,” he said.
The leading executive and regular commentator also said there was now even a possibility that banks could fail — noting that bank capital and reserves were at $3,9 billion (about US$257 million) against liabilities of $4,6 billion (about US$300 million), most of which were associated with “foreign exchange-linked liabilities”.
“This is a scary number … as it might be highlighting the possibility of a bank or banks failing,” Legat said.
The Imara boss also pointed out that banks’ lending capacity had been dwindling as their balance sheets were “falling rapidly in real terms compared with their client base, as a result of bank assets largely being held in Zimbabwe dollar-denominated assets”.
“Put simply, banking sector borrowers have become far greater in balance sheet terms than the banks themselves,” Legat added.
On his part, economist John Robertson said there was need for the government to rebuild confidence in the local currency to ensure its stability.
“The main destabilising factor is the parallel market, which continues to flourish, with the authorities not doing anything about it,” he told The Financial Gazette.
“For instance, we have cases of some people who can still access foreign currency at the official interbank rate of one US dollar to $17 and then sell it on the streets at $23. These people need to be stopped as they are fuelling inflation,” Robertson said.
The veteran researcher also said the local currency, which has fallen from its initial value of 2,5 to the US dollar in February last year to about 17 on the official market, could only be stabilised by increasing exports and reducing imports.
Businessman, Tawanda Nyambirai
“We have to start new mines, restart factories and find ways of reducing imports by increasing local production, especially food,” he said.
“There’s no reason why we should continue importing food when we have the land and the farmers,” Robertson added.
However, the veteran commentator observed further that continued electricity and fuel shortages — coupled with the drought — would make it difficult for the country to reduce its spending, and ramp up production.
Zimbabwe National Chamber of Commerce (ZNCC) chief executive Chris Mugaga attributed the current chaos or malaise to the government’s heavy-handed approach or interventions in foreign exchange-management.
“The exchange rate is too managed. The problem is not so much the currency as it is its valuation,” he said.
“The gap between the official exchange rate and the parallel exchange rate is growing because of this and this is killing confidence in the currency,” Mugaga said.
The trained economist added that the country “now has too many corporate tombstones because of the exchange controls”.
“The authorities should allow movement of the exchange rate in line with the reality on the ground,” the ZNCC boss added.
However, Eddie Cross — a member of the monetary policy committee — believes that the local currency will stabilise in the long term, and thus help to revive the economy.
“The Zimbabwe dollar has actually made our economy more competitive, but unfortunately the pain of the adjustment is the erosion of incomes and asset values. The question now is how we can restore consumer buying power,” he said.
In the meantime, businessman Tawanda Nyambirai says authorities will most likely continue with their “futile interventionist polices meant to reverse the impact of market forces” in 2020.
“But in the long run, market forces will prevail, albeit with many casualties on the floor. Providers of labour will grow more… emboldened and the apparent strong bargaining power that the employer currently wields shall gradually erode, leading to a spectacular collapse of exploitative business models,” he said in a recent opinion.
Those employers who have effective communication with their employees … are thus more likely to survive than those who will seek to rely purely on the current strength of their bargaining positions,” Nyambirai said.
“Organised labour and SMEs and informal traders shall gradually become more powerful than political parties, and big business.
“Formal business shall continue to be suffocated by regulatory constraints such as high taxation, prohibitive forex surrender requirements… foreign currency bans, price controls..,” the TN Group founder said.
“The space occupied by formal business shall be invaded by the more agile informal sector, with the result that government revenues shall dwindle and government will be forced to resort to the printing press in the absence of a miracle that will create the necessary political will to undertake structural reforms,” Nyambirai added.
“To yield sustainable results, structural reforms will now have to include political reforms — something that was probably not the case in 2017 after the coup and during part of 2018,” he said.
“Business leaders shall spend more than 50 percent of their time navigating around the treacherous macro-economic environment and protecting their businesses against its harmful effects, and the other half will be spent on operations — the proper work of innovating, marketing, managing costs and managing other stakeholders such as employees,” the commercial lawyer and ex-banker said.
“These skewed priorities will diminish the global competitiveness of locally-produced products and services, resulting in the further collapse of our exports,” Nyambirai said.