RBZ measures are short-term at best

RBZ measures are short-term at best

It was a disheartening sight at the end of April as urban streets were congested with citizens desperately wondering whether they would access their hard-earned cash or not.
Their angst was worsened by the pressing household obligations that fall every monthend, which this time coincided with obligations attached to schools opening for the second term.
Undeservingly, citizens were squeezed, not through any fault of their own, but due to an otherwise commendable trust in our monetary systems to place their money in formal banking channels.
Too often, economic disappointments occur in our economy which could be averted.
Regrettably, a pattern of short-term solutions appear to be put in place, as was the case on Wednesday, and many are left to worry that waiting in the future will be yet another moment of uncertainty or shock due to fundamental problems not being dealt with effectively.
Indeed, while preferable, optimism is a virtue of faith, but any retained cynicism by citizens has been from recurring lessons of physical experience.
Of course, attractive analysis narratives this week were about the RBZ’s capital controls, bond notes, currency conversion, amongst a long list of other measures to ease the cash crisis.
But perhaps, more important is to focus on the people.
Policy is not an existence in itself, but a result of governance’s efforts to improve the people’s economic condition.
Thus, at its most fundamental analysis, policy should always be critiqued from a context that is, “is it the best that governance can do for its people?”
The measures announced by the RBZ on last week score low in this context. By emphasising expedience, the RBZ proffers short-term solutions.
The central bank needs to keep its eyes on the economic condition of the people. Daily cash withdrawal limits, currency conversion, and such are all secondary. Some of these measures may not even be necessary if the economic condition of the people was to be fixed.
So, what is going on with the people? The people are unemployed or are not doing work of significant value. The people are unproductive; not due to a lack of effort on their part, but there are few efficient value chains for them to join into. In a balance of payment context, the people are accruing payments to far superior productive foreigners who are providing us almost all our living. The people are not accumulating adequate wealth for themselves to be represented as assets that guarantee widespread real time settlement.
These conditions mean that the Zimbabwean people are not in an economic condition to sustain a robust monetary system, regardless of what medium of exchange that system may pivot to transact in.
This starts to indict the measures announced by the RBZ as futile and misaimed attempts to revitalise the monetary system. The RBZ’s measures are of a wrong context.
This does not mean the measures will not be seen to work in the near-term. They certainly will; perhaps better than what many skeptics predict.
For instance, just like bond coins bond notes have increased currency in circulation for some time.
However, it does nothing to fix the cause of why currency is leaving the country at the people’s present standard of productivity competitiveness.
Without improving that standard of competitiveness, inevitably money in circulation will continue to shrink.
Similarly, assuming that is indeed the purpose, currency conversion of deposits will help shore up United States dollar reserves for banks or the central bank, but long term the rate of accumulation of those reserves will be superseded by the invoices due without attending to productivity.
Governor Mangudya can argue that he has put in place measures that do attend to enhancing people’s productivity, but such a proposition would stand extremely weak to possible alternatives that he has at his disposal.
For instance, Dr Mangudya proffers putting in place a five percent incentive to reward successful exportation of goods.
However, that support should start at production level and not shipping level for potential exporters. This is a subtle sign of the Governor’s underutilisation of his capital allocation powers.
In fact, just a few weeks ago, Dr. Mangudya withdrew himself from the Indigenisation credit and rebate structure that he had set for banking sector.
In so doing, he effectively closed off his only realistic capital allocation instrument. It was the central bank’s only instrument for targeted lending.
The RBZ’s Press release mentions drought as a significant cause for capital outflows. However, there are up to 179 irrigation schemes across the country. Drought is not an excuse but instead evidence of poor capital allocation by the banking sector.
Governor Mangudya cannot enforce allocation of finance to agriculture anymore as he drew back on the 20 percent quota he had outlined as indigenisation thresholds.
Thus, the RBZ erased its own bank lending channel of monetary transmission to small scale farmers who form the majority of the nation’s workforce.
We should be the least affected country in the region by El Nino and climate change, yet we are importing produce.
Likewise, Governor Mangudya had the capacity to strengthen our local value chains. He could have directed capital towards incentivized, but non-protectionist local procurement laws. Local value chains could have been strengthened through intentional targeted lending towards companies that produce local.
This is how you narrow the balance of payments deficit.
In 2007, what saved the US motor industry from foreign Asian imports was the implementation of local procurement laws which made American auto companiespurchase parts and services from local suppliers and service providers.
This strengthened local production value chains. More importantly, it created jobs for people as strong value chains assimilate workers.
Most of our people in the informal economy are basically excluded from production value chains.
Interestingly, local procurement laws are a precursor to FDI attraction, and for two reasons at that.
By strengthening local value chains and production efficiency, FDI follows because distortions in the value chain are reduced. Moreover, arbitrage opportunities are removed. Zimbabwe is not appealing because of pervasive arbitrage. Secondly, as exhibited by countries that surrounded Japan in the 1970s, and more recently the production of the Airbus in Europe, international division of labour, where work processes are segmented across countries is the most attractive scenario for FDI. For instance, due to low economies of scale Zimbabwe cannot compete regionally in motor assembly, but instead if we improve our specialisation of work processes, we canintegrate into the auto-production processes in South Africa.
This applies in numerous manufacturing sectors, and creates abundant opportunities for much needed technology transfer. As jobs in the future are to be inherited off technology infrastructure, this will be crucial for wealth creation. The RBZ missed the context of what is overwhelming our monetary system. The Zimbabwean people are not in an economic condition to sustain it. The RBZ needs potent capital allocation and distribution of money. As a central bank, it should improve its bank lending transmission channels to go to the majority of the populace.
It must revitalise production value chains. These are things that improve the economic well-being of the people, and in turn will halt the decline in the monetary system.
Without doing these things, the cynicism with which the measures released by the RBZ were received by the public will prove to be justified. The fundamental problems are not being dealt with effectively.

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  • Kachasu

    A good read. We need to address the fundamentals. If the crunch we are experiencing now revisit us again in the near future even with introduction of bond notes, what then is the next plan of action. this country needs to be productive now now. We need to produce value added goods and export to get out of this quagmire. Otherwise we are chasing our tails.