Re-dollarisation to weigh on AfCFTA’s competitiveness

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THE Treasury says the complete re-dollarisation of the economy will make it difficult for local businesses to join the Africa Continental Free Trade Area (AfCFTA) and remain competitive.
The Zimbabwe dollar’s depreciation against major currencies has led to fears of re-dollarisation, as confidence in the domestic unit has reached new lows with some formal retailers insisting on payment of some goods in foreign currency only.
In the informal economy, transactions are almost entirely in US dollars while the loss of value has created uncertainty for the country’s de-dollarisation plan.
Speaking during the Matrix Tax School’s seventh annual tax conference in Victoria Falls recently, deputy minister of Finance, Clemence Chiduwa, said Zimbabwe is returning to a mono-currency.

“In as much as the economy has somewhat dollarised, you will see that in terms of competitiveness, we are not going to be competitive; we are not going to be able to enter the AfCFTA with a strong currency.
“What is needed is a stable currency and that stable currency comes from production,” Chiduwa said.
“Business should brace up; we are going back to mono currency. What is left now is the official position to say this is official, but we are going back to mono currency. That’s what I can say for now.”
Chiduwa said the increased use of a strong currency like the US dollar in the economy is not sustainable in the long term.
The AfCFTA — which was operationalised in January 2021 — is expected to open up the country to a market with a combined Gross Domestic Product (GDP) of circa US$3,4 trillion.
The regional bloc is set to offer high-potential opportunities in Africa in the automotive industry, agriculture and agro-processing, pharmaceuticals, and transportation and logistics.
Last week, the Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya, warned that the use of the US dollar would be detrimental to the country’s prospects under the AfCFTA.
“The country cannot sustain itself by using foreign currency. So we need to embrace our own currency. The African Continental Free Trade Area needs us to be very competitive and we cannot be competitive using the US dollar and want to export,” Mangudya said. He also told the same meeting that rising inflation was being driven by behavioural factors more than money supply growth, saying it was due to people’s negative expectations based on previous experiences with hyperinflation.
Mangudya recently told the Chamber of Mines of Zimbabwe’s annual mining conference in Victoria Falls that Zimbabwe had no capacity to re-dollarise.