The Sunday Mail
Steps have already been taken to ensure that A1 (small scale) farmers should be given leasehold ownership as soon as possible. The new currency can be linked to this policy.
MANY leading economists and analysts have recently published their views on the strategies for the re-birth of the Zimbabwe Dollar. From a purely pragmatic point of view, it is clearly essential for Zimbabwe to revive its currency, but the key question is: will this be a repetition of the disastrous past (2003 – 2009) when the massive reliance on the printing press to alleviate the liquidity problem led to an inflation rate that could not even be measured – said to be over 230 million percent?
By 2009, civil servants were being paid over 20 trillion Zimbabwe dollars a month, but this was only enough for two loaves of bread, and not enough to include the bus fare to work!
A number of excellent ideas have been put forward, including some brilliant ideas offered by Clemence Machadu in his article entitled “The Zimbabwe dollar can work wonders” (Sunday Mail, 1 June 2014).
Machadu offers Zimbabwe the solution that Germany took in 1923 – 1937, that of having two currencies running side by side, the new currency being known as the Rentenmark and the old currency as the Papiermark. People were able to hold both currencies, but because the Rentenmark was linked to actual property such as houses and factories, people could pay for their mortgages in the Rentenmark but not in the Papiermark.
The amount of Rentenmark printed was equivalent to the actual real mortgages for property. People could change their Papiermark for Rentenmarks at banks. In the case of Zimbabwe, the US dollar, the SA Rand and other currencies would run side by side with the new Zimbabwe currency for some time, for example, five years.
This will help to stabilise the economy for at least five years, and indeed this much-needed stability is likely to continue: one of the most serious drawbacks to investments today continues to be the instability and unreliability of policies and currency rules. The adaptation to the Zimbabwean situation as outlined by Machadu is to link the new currency to “new stands, mining claims, agricultural land” to be sold to people “strictly in the new currency, on a five-year mortgage basis”.
This is a very sound adaptation, except for the area of mining. The majority of mining claims have been made by small-scale miners, known as Makorokoza, and by foreign investors. Given that the small-scale miners are not sufficiently capitalised and may not have a high level of technology and technical skills, they have often sold their mining claims to foreigners at sub-market prices. This has led to greater control of the mining sector by outsiders. Indeed, most of the investments made in Zimbabwe since the imposition of sanctions in 2002 have been into either mining or tobacco. Investors have continued to bring in forex for these two sectors.
It would therefore be wiser to limit the Zimbabwean equivalent of the Rentenmark to mortgages for houses, factories and farms.
The mining sector should continue to depend on forex, with some small exceptions specifically for Zimbabwean miners, particularly the small-scale miners who provide almost half the mineral production in the country.
Since the civil service (amounting to 285 000 people) and the armed forces are being paid by the State, amounting to 75 percent of the Budget, for example, about US$3 billion a year, the amount allocated to new housing and factory mortgages can initially be targeted at these two groups of people.
Mortgages will, of course, also be limited to the amount of land available as well as the capacity of the construction industries to cope with the envisaged building boom. Linking the new currency to the actual housing and construction demand would save Zimbabwe from the reckless and unwise use of the printing press when paper money was being produced according to political demand, and was totally de-linked from reality.
The Land Resettlement Programme has seen about 13 million hectares of land being distributed free of charge. This is one of the most popular programmes, and has provided land for over 200 000 farming families. However, because land was free, some people are now holding some land which they cannot utilise. Most are unable to obtain money to develop their land. Moreover, because land ownership is based mainly on Offer Letters which can be challenged and withdrawn, resettled farmers find it difficult to invest money into necessary infrastructure such as boreholes, dams, electrification, buildings, etcetera.
The solution to this dilemma has already been accepted by Zimbabwe with the Parliamentary consensus that agricultural land should be held as leasehold, with guaranteed ownership for 25 – 99 years. In order to implement this very sound consensus, based on worldwide practice both in Europe and in China, it will be necessary to establish a bankable system for agriculture; thus, allowing the State to develop infrastructure, for example, small and medium scale dams; electrification; roads.
Steps have already been taken to ensure that A1 (small scale) farmers should be given leasehold ownership as soon as possible.
The new currency can be linked to this policy. The establishment of a mortgage system for this transfer to leasehold ownership would enable present owners to obtain mortgages.
However, it is essential that the cost of land is affordable for the resettled farmers, rather than based on market prices.
It is even possible and realistic to provide five hectares free of charge to the over 200 000 farmers who have been resettled so far, coming to a total of one million hectares out of the 16 million hectares originally designated as Commercial Farming area.
The first five hectares could either be free for those who have already been resettled and at a low price for others, with the price being increased for additional land, the price being graded according to quality and amount. Such a system would enable the principle of equity to be satisfied, as this is now a cause of political dissatisfaction as some settlers get hundreds of hectares, some get five hectares, and some get nothing. Prices could vary from US$50 to US$200 per hectare, depending on soil quality and rainfall regions, as well as the financial capabilities of the target group.
The concept being promoted by Machadu is a sound one, as it will link the new currency to actual houses, factories, farms, and agricultural and construction inputs, at reasonable prices. Civil servants will continue to be paid in US dollars, but they can exchange this for the new currency if they wish to apply for housing, factory and farm mortgages through their banks.
The amount available for mortgages will be limited to the real and viable situation for construction and agricultural development.
Assuming that civil servants are willing to exchange 20 percent of their salaries to the new currency, this would mean some US$600 million will immediately be available to back the new currency.
It is likely that civil servants will be increasingly eager to exchange more of their salaries for the national currency as housing and factories are very much in demand. Farmers will also be able to utilise the new currency to finance their crops, as the new currency can be utilised for buying agricultural inputs and equipment, but not for luxury items such as motor cars.
The Grain Marketing Board could provide loans in the new currency: assuming that GMB is provided with at least the equivalent of US$100 million a year in the new currency, and this currency is only available for specified goods (agricultural and construction materials, mortgages, for example).
This will lead to a boom in agricultural production, particularly the production of food. Farming will indeed return to being a profitable operation, unlike the situation at present when only tobacco is proving to be marketable, as tobacco continues to be marketed overseas, bringing in invaluable forex.
Dr Fay Chung was the Minister of Education between 1988 and 1993
