Business sees light at end of the tunnel

BUSINESS is hopeful that things will get better in the medium to long-term after authorities recently announced new policy measures to stabilise the country’s economy.

This comes after the Reserve Bank of Zimbabwe’s (RBZ) monetary policy committee overhauled the country’s foreign currency auction system last week, among other interventions, with the aim of achieving a market-determined exchange rate.

Speaking to The Financial Gazette this week, the chief executive of the Zimbabwe National Chamber of Commerce, Chris Mugaga, said there was a market appreciation that the exchange rate would not stabilise in the short-term “until it discovers its correct value”.

In this light, Mugaga added, authorities needed to hold the line and give the new policy measures a chance — even as inflation, prices and wage demands would remain problematic in the meantime. He also said business was grateful that authorities had taken on board a number of their long-standing proposals in the new policy pronouncements.

“It might appear to be a bit late, but in reality it is never too late to do the right thing. Yes, things dragged on for a long time, but finally they took note of what we had been pushing for, as we consistently argued that we had an overvalued exchange rate,” he said.

Mugaga then expressed the hope that “electioneering will now not overtake economic sense” as the country approaches the 2023 general elections to be held on August 23.

“The only fear we have is on the continuing liberalisation of the exchange rate when we are faced with an election. We can’t expect the exchange rate to stabilise in less than three months. It will keep falling until it discovers its correct value.
“So, to what extent can the free market be allowed to prevail when the electorate is confronted by inflation, because once you liberalise the exchange rate the chances of hyper-inflation in the short-term will be high.
“It could thus, be a very long winter where we expect short to medium term shocks,” Mugaga told The Financial Gazette, the country’s number one business publication.
“Among the first challenges will be salary depreciation and militant labour unions, which will come out of their holes. Prices in Zimbabwe dollars will also continue to go up.

“If this step had been taken in January, for example, we would have been able to absorb the shocks without the pressure of dealing with an election or a restive population,” he added.
Mugaga warned that any government interference in the current attempts to stabilise the economy would shatter the fragile confidence in the market.
“We need to guard against market failure because the chances are that in the next three or four weeks a number of accusations might be levelled on market failure, where people lose confidence after the liberalisation of the exchange rate.
“So, what we should guard against is somehow to try to control the exchange rate, because this would nullify the new measures and place a final nail on the Zimbabwe dollar.
“So, let us tread with caution. Don’t guide the market, especially at this juncture, with the confidence levels that are in the market,” Mugaga said.
The president of the Confederation of Zimbabwe Industries (CZI), Kurai Matsheza, also said the new policy measures by authorities were welcome and long overdue.
“The pronouncements made are broadly in line with what CZI has been pushing for. These measures should have been implemented a long time ago as per our input and advice.
“But as the saying goes, better late than never. Indeed, it is never too late to correct the wrongs of the past.
“We applaud the authorities for taking these bold measures. We hope they will be implemented wholeheartedly, as anything less than that may not give the desired results,” Matsheza said.
Economist Trust Chikohora also said the new monetary policy measures were “headed in the right direction”.
“They are in the right direction, just as we have been pushing for in some of the key areas. For example, we have been saying the auction should reflect market realities.
“The second issue is that interest rates have been hiked (from 140 percent to 150 percent) in line with inflation’s upward movements. This is a policy that we have been pushing for, that interest rates should always be above inflation.
“Whether the 150 percent is adequate for the Zimbabwe dollar inflation at the moment is another issue. The fact that they have raised the rate shows that they are going in the right policy direction,” Chikohora said.

“The other issue is the sale of foreign currency on the interbank market, which is positive. They are saying it will be on a willing-seller and willing-buyer basis. But we are not clear on the source of the foreign currency. That needs to be clarified,” he added.
Prosper Chitambara, another economist, also described the new policy pronouncements as an important step going forward.
“We have seen a further tightening of the monetary policy and the foreign exchange regime has also been liberalised. On the monetary policy front, I think we are good.
“Where we need more tightening is on the fiscal policy front, because that’s an area where, because of government payments either to contractors or to civil servants, there has been an increase in liquidity … and because of the lack of confidence in the local currency, that liquidity is then converted into US dollars.
“That then perpetuates the depreciation of the local currency. Loss of confidence is driving the depreciation of the Zimbabwe dollar,” Chitambara said.
“Over and above fiscal and monetary policy reforms, strengthening key institutions such as the central bank itself and some parastatals, will also be critical.
“I think a long-term solution is dependent on our willingness and ability to implement comprehensive monetary, fiscal and institutional reforms.
“Without institutional reforms, it is difficult to engender confidence because ultimately confidence is a function of reforms, and a willingness and ability to implement fiscal, monetary and institutional reforms,” Chitambara added.
Economist Tinashe Kaduwo argued that the economy had in fact already re-dollarised. He described the new policy steps as a “soft way” of acknowledging that Zimbabwe was back to a US dollar economy.
“Scrapping the 90-day forex surrender requirements and increasing the interbank limit implies that business can now freely trade in US dollars and keep their US dollars.

“This is the end of the Zim dollar and probably we might see the rise of gold backed tokens. We are facing an institutional and behavioural crisis.
“Money cannot be forced onto an individual. There is this saying that it is money that makes the world go round. But that is not true. It is actually trust that makes the world go around.
“We have a serious trust deficiency in the country as a result of weak institutions. That is why I am saying our problem is institutional and behavioural,” Kaduwo said.
“My fear is that we will again create fake US dollars through the bank lending channel. So, if we don’t fix our institutions and solve the trust deficiency, nothing will work out. Trust can back money more than gold,” he added.
All this comes after the RBZ said last week that it would now sell foreign currency at the market-determined exchange rate through banks, to support and strengthen the foreign exchange interbank market. Banks would, in turn, sell the foreign currency to their customers.
This followed the Zimbabwe dollar’s continued depreciation against major currencies, which had led to fears of re-dollarisation, as confidence in the domestic unit reached new lows — with some retailers insisting on the payment of some of their goods in foreign currency only.
In the informal economy, transactions are now almost entirely in US dollars.
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