The Sunday Mail
Persistence Gwanyanya
IT appears the Reserve Bank of Zimbabwe (RBZ) believes the cash situation has improved, ostensibly basing on their statistics on money supply developments over the past few months.
However, the central bank’s proclamation about the cash scenario does not seem to tally with the ordinary man’s experience on the ground. This divergence of views could have been a result of a structural shift in the demand function for cash, noting that the central bank is quite aware of its seasonal nature and would have ordinarily factored this variable in its proclamations.
It also appears that the most visible interventions are invariably short term, which would not provide a permanent solution to the cash crunch. Admittedly so, because the country’s cash crisis is rooted in the deep-seated structural challenges, which ordinarily take time and sacrifice to address.
Importantly, it now seems the generality of the population is beginning to appreciate that any effort short of addressing these structural challenges, even the adoption of the rand, would not offer a permanent solution to the cash crisis. The recent clarification by the Confederation of Zimbabwe Industries (CZI) — touted as one of the major protagonist for rand adoption — that they advocate for increased usage of rand rather than its outright adoption, shines light to this proposition.
Regrettably, however, whilst there is consensus among all stakeholders that corruption is a cancer that will weigh down all economic recovery efforts, there seem to be little precious action to address this economic scourge. RBZ reports that the cash deposits within the banking system have been increasing at an encouraging pace, attributable to the invocation of the Bank Use Promotion Act [Chapter 24:24], which compels retailers to bank their excess cash collections within 48 hours.
Efforts by the Confederation of Zimbabwe Retailers (CZR) to instil market discipline in its members have also been helpful. Bank deposits have risen to $6,4 billion in March 2017 from around $6 billion at year end. International best practice would require the country to maintain cash and NOSTRO balances of $960 million, being 15 percent of total deposits for ease of transactions.
However, the country is currently maintaining $613 million being physical cash and Nostro balances of $450million, bond notes and coins of $140 million and $23 million, respectively. As such, the market is currently experiencing cash shortage of $347 million at any one given time, which is an improvement from an average of $450 million experienced during the greater part of last year.
Thus, the persistence of the cash crisis could well be due to seasonal demand factors, from payments for maize under the Command Agriculture programme, tobacco and cotton farmers, as well as school fees. But the central bank seems to have assumed this would be smoothened by the increased acceptance of electronic money.
It’s quite possible that the traction on electronic money is waning and therefore there might be need to strengthen this platform. Otherwise, continued shortages of cash might have created increased demand for it as the economy has remained highly consumptive and import dependent.
This dependence could well be the reason why it is proving to be difficult to end the three-tier pricing system currently obtaining in the economy. Quite clearly, the electronic payment platforms are failing to cope with increased demand for transactions, at least judging from the growth in the system down time and transactional errors.
The transacting public is increasingly getting rattled by transaction duplications and reversals, which exposes them to significant risk.
The increased down time has also compromised the convenience of electronic payment systems, including Point of Sale (PoS), internet banking as well as mobile money. Whilst strengthening the electronic payment system seems to be a low-hanging fruit, it appears Bankers Association of Zimbabwe (BAZ) and even the RBZ do not see the same, at least judging from their efforts.
We have reiterated the need for infrastructure sharing among banks, but it seems the two entities are not sold to the idea. One wonders how they intend to achieve their set target of 90 percent in respect of electronic transactions from the current level 70 percent.
It’s advisable for BAZ to start pushing the agenda of strengthening the electronic payment systems among its members rather than tout for the adoption of rand, which is a long-term solution and therefore not a viable option for policy makers today.
Importantly, BAZ is also advised to push for the implementation of measures announced by RBZ to restore the multiple-currency system and reduce the dominance of the US dollar in the basket of currencies. These include the reconfiguration of Automated Teller Machines (ATMs) and the RTGS (Real Time Gross Settlement) platform into multiple-currency system.
These efforts are quite necessary to instil confidence in the transacting public in times of crisis. People naturally get agitated by increasing regulatory requirements as if they are solely responsible for the crisis. Whilst measures by RBZ and CZR to nurture market discipline could be necessary, there is real danger that they may be viewed as micro managing the economy whilst skirting the real issues.
A case in point is the imposition of the cash back limit of $20 per day, as well as the blitz on errant retailers for not banking cash. As they say, in coming up with regulations, policy makers should be prepared to accommodate their judgements; there is real danger of causing market panic which will be difficult to control.
Normally, a solution to one crisis breeds seeds for another crisis, which underscores the need to be tactful and timely in policy interventions. I should hasten to say that market discipline of all forms should not be tolerated, but efforts to fight these nefarious activities should be balanced by efforts to achieve permanent solutions to the cash situation.
This underscores the notion that economic rebuilding is a two-way street which achieves best results if all participants do what they are supposed to do. It’s only when efforts to fight corruption and improve the investment environment begin to assume top priority among policy makers that the general public would feel compelled to cooperate.
There is therefore need to ensure that we don’t lose focus on the real problem. Importantly, Zimbabwe’s economic challenges lie in the unbalanced state of the economy, typically characterised by elevated levels of consumption which is funded through imports as production is currently low.
All efforts to grow the economy should be focused on rebalancing the economy towards increased production, whilst efforts to address economic hygiene factors, together with some cosmetic issues, should play a complementary role.
- Persistence Gwanyanya is a founder and CEO of Percycon Advisory, heads the Advisory portfolio of Zimbabwe Business and Arts Hub (ZIBAH) as well as a member of the Zimbabwe Economic Society. For feedback: email: [email protected] or Whatsapp +263 773 030 691.
