INSIGHT: Buy Zimbabwe is a necessary evil

27 Mar, 2016 - 00:03 0 Views
INSIGHT: Buy Zimbabwe is a necessary evil Sunday Mail

The Sunday Mail

Howdy folks!
I trust I find you well on this day of our Lord. He is indeed risen from the dead!

The question uppermost in many critics’ minds following the cash problems experienced by banks not long ago was the central bank’s role as lender of last resort.
In early December, areas like Bulawayo experienced adverse cash shortages.
Reserve Bank of Zimbabwe Governor Dr John Mangudya explained then that it was a temporary cash challenge occasioned by some banks that had underestimated their cash requirements at a time when companies were paying salaries and, probably, bonuses.
He then gave an assurance that they had moved in to disburse cash to banks in those areas.
There was another cash squeeze at the end of February 2016 when some banks could not meet local demand.
The Central Bank explained that February was a short month, and demand for salary payments for both public and private sectors far exceeded available cash, assuring the nation that they had imported adequate cash to resolve the situation.
The US$200 million lender of last resort-type facility, which was said to be a game-changer in addressing financial stability through a liquidity support window for banks, has, of course, supported banks to the tune of US$178,8 million as at December 31, 2015.
But how come we have been having episodes of cash shortages? What cash volumes should be in our vaults to checkmate such unpropitious episodes? Enough to meet salary demand on the day of reckoning?
Why should a mere slip in dates result in cash shortages that are felt in the entire economy?
Isn’t it a sign that we are living from hand to mouth as an economy, with very spasmodic and ineffectual buffers to extricate us from unforeseen exigencies?
Since it is known that we have no currency of our own, which is why we have to import cash virtually whenever we need to balance the matrix, we have to play the game by the rules of nine referees — being the nine countries whose currencies we are using.
But those currencies are not just imported willy-nilly. We have to first earn that money somehow!
You see, we cannot print US dollars, for instance.
So, for us to catch the US dollars that we can transact with, we have to first find a long fishing rod that can fish them.
Then we can eat the kill.
But, while fishing, we have to put different baits on the hook. In our case, that bait is usually exports. When we export, the proceeds are processed through our local banks’ Nostro accounts.
These are accounts held in foreign countries by local banks, denominated in foreign currency and are used to facilitate settlement of foreign exchange and trade transactions.
This is some of the cash that is imported to buttress our liquidity situation in the country. And when we import goods, we are actually exporting liquidity in the process.
Cash withdrawals are a function of cash availability. Therefore, the cash shortages point to cash challenges plaguing our economy.
The central bank has already told us that broad money supply closed the year 2015 at US$4,76 billion, and that it averaged US$3,1 billion between 2009 and 2015, which clearly shows no money supply dynamism happening.
Otherwise, the levels of money supply are exactly where we don’t want them to be.
The trend will continue if we sit back and relax while leaving our sources of market liquidity on auto-pilot.
In our case, the factors that influence market liquidity are mainly composed of banked export receipts, international remittances, external loans, income receipts and foreign investments.
If we do not cultivate these factors and rejuvenate them, liquidity challenges will continue to be the order of the day.
Taking our external trade as a case in point, we will see that exports have not been performing impressively.
In 2014, exports worth US$2,8 billion and imports worth US$5,9 billion were realised, representing a trade deficit of US$3,1 billion.
It is tantamount to saying we exported liquidity worth US$3,1 billion in 2014.
In 2015, our exports deteriorated to US$2,5 billion with imports of US$5,5 billion being realised, subsequently resulting in liquidity worth US$3 billion being exported.
For the first two months of 2016, exports have again fallen.
Exports worth US$459 million were realised between January and February 2016, compared to US$528 million which was realised in the same period last year.
If we do not break this pattern, we will continue to export liquidity, much to the detriment of our economy.
Again folks, if we combine together all the five factors of market liquidity I have highlighted above, for analysis, we will get insightful deductions.
We will realise that these factors, combined, raked in US$2,48 billion in 2009, rising to a record high of US$7,6 billion in 2013.
What is now disheartening to note is that the figure has been falling since 2013, to US$6,5 billion in 2014 and US$5,7 billion in 2015.
This clearly points to tightening market liquidity conditions and calls for sustainable and effective measures.
Otherwise, if we just fold our hands, market liquidity will continue to deteriorate by a billion dollars per year — on average — and we will virtually not have market liquidity to talk about in the next half-decade.
The solution to the above lies in a cocktail of measures, all falling under two categories.
The first requires us to plug all the needless leakages of liquidity.
Looking at our import bill, for instance, we need to scrutinise every item on that catalogue and only allow what is indispensable to be imported — things like fuel, machinery, raw materials and others.
Otherwise, the rest of the stuff that has substitutes that should be weeded out through robust import substitution such as resuscitation of distressed manufacturing industries and those that went bust, while consolidating the existing ones to ramp up capacity.
It is saddening to note that industrial capacity utilisation has been falling, year in year out, for the past half-decade.
Too bad our industrial policy is finishing its course without a ribbon on its chest.
What industrial strategies do we have, beyond 2016, to foster industrial resurgence?
As long as local industrial capacity utilisation is down, people will continue to import more and there will be less to export, meaning trade deficits will be inevitable.
Re-industrialisation is not an end in itself but a means to an end.
It has to be accompanied by measures in the second category that are mainly earmarked to promote the growth of factors that stimulate market liquidity and vigorous strategies that encompass competitiveness and an immense promotion of the Buy Zimbabwe agenda.
Buy Zimbabwe is a necessary evil folks!
Given the status of our economy, it would be unpatriotic to “sabotage” local products at the expense of “cheaper” imports.
In any case, do folks know what they mean when they say “cheaper”?
In most scenarios, the surprising reality is that “cheap” does not actually refer to price but quality.
Buy Zimbabwe initiatives, therefore, need to be sustained by innovative researches that lay bare the merits of buying local, beyond the usual orotundity.
While the Central Bank is working on other measures to boost exports, they require the buy-in of all stakeholders for them to work.
Some of the measures include capacitating trade attaches at Zimbabwe’s embassies abroad and streamlining excess export documentation, among others.
We need to move with speed in implementing such reforms.
The National Financial Inclusion Strategy also needs to be implemented to fruition as it will improve domestic resource mobilisation through formal systems.
The year 2016 must be a year of action, folks, real action by Government, business, media, consumers, banks, workers and other stakeholders in the Republic.
We are tired of political headlines and look forward to seeing more economic headlines capturing the economic miracle we can perform when we all come to the party.
Otherwise, I swear today by the risen Lord that we won’t get anywhere.
I ride on to the country.
Later folks!

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