The Sunday Mail
Darlington Musarurwa Business Editor’s Brief
TODAY marks the fourth day after the new Reserve Bank of Zimbabwe (RBZ) Governor, Dr John Mangudya, settled into the comfy but rather lofty Samora Machel central bank headquarters.
He must quickly avoid the trappings of such a powerful office.
And he must also view the Reserve Bank tower — standing at 120 metres of 28 stories, and being the tallest building in Zimbabwe — not as a sign of influence, but as a sign of how great expectations weigh on that office.
He definitely needs the mojo that his team used in rehabilitating the Bank of Credit and Commerce International (BCCI), at one time cynically referred to as the Bank of Crooks and Criminals International, into CBZ.
So much needs to be done.
Local consumers are beginning to cut back on expenditure as disposable incomes shrink and uncertainty on the health of the local economy sets in.
This has naturally reflected on many company balance sheets.
Recent financial results from Innscor Africa, which is probably one of the biggest consumer-facing businesses, noted that volumes in some of its business units is declining.
In particular, volumes in the bread-making division fell 10 percent in the six months ending December 31.
Because of depressed volumes, the company has painfully decided to consolidate its operations at the Graniteside facility, while operations at its remaining site in Harare have been mothballed.
This is only a microcosm of what is happening in the economy.
Most of the companies are spooked by the prospect of a deflationary environment, where prices will continue retreating to the extent that businesses become unviable.
Equally, this cannot be good for the local economy.
The market desperately needs counsel and direction from the central bank, and Dr Mangudya has to provide it.
His task is made even more difficult because the multi-currency system, though it has been helpful in stabilising the economy, deprives the Governor of the essential tools he needs to intervene in the market.
Without any money-printing capabilities, this means the RBZ literally does not have the financial resources that it needs to help support the money.
Without supporting the market, it cannot set the prime rate, which is essential in providing a cue for the interbank rate and, by extension, the deposit and lending rates.
So, how he intends to tame the run-away local interest rates will need much innovation.
And this is at the core of some of the problems that companies and ordinary depositors have been experiencing: local money is just too expensive.
Ideally, in a normal market, the Reserve Bank would play a key role in influencing the market.
Banks used to submit statutory reserves, a portion of their deposits to the Reserve Bank as a normal market exercise to control liquidity in the market, but this function was discontinued recently after the apex bank “squandered” US$83 million from this facility.
Over the years, this has added another problem.
There has been mistrust between banks and the RBZ and Dr Mangudya needs to restore that.
Questions for the bank sector
The new Governor will again be confronted by the most stubborn question that has bothered monetary authorities for a long time: Does the size of our economy warrant so many banks?
With banks’ total assets estimated at more than US$5 billion last year, do local banks have ability to underwrite huge infrastructure projects that the country so desperately requires?
Of late, most of the local projects had to be sponsored by the Development Bank of Southern Africa (DBSA).
So, will he maintain the status quo, or will he actively continue encouraging for mergers?
A Reserve Bank without reserves
But one thing for certain, Dr Mangudya has to begin work to fill those vaults at the Reserve Bank because a situation where the central bank does not have the buffer stocks needed to defend the economy is clearly untenable.
Recent news by the Finance Minister, Mr Patrick Chinamasa, that the bank does not hold any gold reserves, only gold coins valued at US$501 309, is definitely disturbing, but his pledge that Government will begin to build stocks in both gold and diamonds is encouraging.
As one of the biggest producers of the yellow metal on the continent, Zimbabwe should capitalise on its mineral wealth.
However, the aberrations in the gold sector need to be corrected.
Much of the gold is leaking from the formal system not simply because the country’s borders are porous but because Fidelity Printers and Refiners (FPR), a subsidiary of the RBZ, has not been an able competitor in the market.
It has been worryingly unwitted and unflanked by cash-wielding gold mules that have been transporting our precious resources across the borders.
It cannot be disproved that some of the bullion stuffing the vaults of our sister countries can be traced to Zimbabwe.
Monetary authorities need to wisen up by upping the stakes.
It is logical for gold producers to sell a significant portion on the black market, which, at US$35 per gramme, is offering a price that is about 5 percent below the international market price.
This compares with FPR’s $31 per gramme offer.
I am not conversant with regulations governing how the authorities are supposed to conduct themselves in the market, but I should think they have the right to speculate if need be to ensure that they are the buyers of first resort, so to speak, rather than buyers of last resort.
It is undoubted that the RBZ is staffed by competent professionals who can definitely read the markets, including the future gold market.
They have professionals dedicated at monitoring market trends and forecasts and so they can have the leverage of speculating by buying gold at prices above market rates in order to capitalise when market gains.
This is the way stock market investors speculate with stocks.
I think, and this is just my own opinion, this speculation can not be a crime.
There are a lot of issues that need to be addressed, and if Dr Mangudya needs a “bible” on the economy, he should refer to Zim Asset.
The destiny of the economy, which in the short term will have to be determined by his office, is tied to that document that is supposed to guide the economy through to 2018.