The Sunday Mail
Golden Sibanda
Many economic analysts subscribe to the school of thought that Zimbabwe has a “production” rather than “currency problem”, and there is demonstrable movement by Government to resolve this.
Economists say because of the constrained production capacity, which Government is now resolving through interventions across key sectors of agriculture, mining, tourism and industry, Zimbabwe imports up to US$2,5 billion of goods it can produce locally.
Due to dependence on imports, Zimbabwe has battled currency volatility since exiting the multi-currency system and reintroducing its domestic currency.
Since this had to be done under the heavy burden of crippling western sanctions, limited foreign investment, low production, a high cost base and constrained productivity among others, there was an impact on inflation.
Government has since struck the right chord after the successful introduction of the foreign exchange auction on June 23, 2020, which has resulted in exponential growth in stability of the Zimbabwe dollar, further translating into stability of prices of goods.
Economists believe that the biggest issues undermining the stability of the local
currency, for which authorities have had to introduce multiple interventions with various degrees of success, has been the absence of strong production across key sectors.
Illegal western sanctions imposed on Zimbabwe by the US and Britain, decimated more than half of the country’s Gross Domestic Product and left most key economic sectors underperforming.
Economist Professor Gift Mugano, said there was strong positive correlation between the level of production in an economy and the strength and stability of a currency, which may then be supported by other factors such as the level of money supply and interest rates.
“We have a production crisis, not a currency crisis. A currency crisis is as a result of a production crisis. It is a symptom of an underlying cause, which is production. Why? Because in economics the strength of a currency is reflected in productive capacity.
“The strength of currency reflects the production capabilities of the economy. So, to answer the question that where are we lacking, we need to look at the question that ‘What are we importing? When we import those things, it means we are losing money.
“Our industry has not seen that demand and policy makers need to craft policies to direct that demand to the domestic economy.
“We are spending half a billion dollars on cereals; when we talk of cereals we are not talking robotics; it’s simply grains.
“That explains the capacity issues that are lacking and that are now causing a currency crisis. We are spending about US$200 million dollars on fruit and vegetable from Polokwane (South Africa). That is (unbelievable) and US$200 million on soyabean imports.
“We are importing fertiliser spending between US$150-$200 million, yet we have capacity at Sable Chemicals.
We are spending almost US$200 million annually on pharmaceuticals, yet we are ranked number two in Africa in terms of generic nature, quality and number of drugs we produce,” he said.
Prof Mugano said the country was losing foreign currency importing a range of non-essential items such as chewing gum, baby diapers and tooth picks, which the country could produce.
“From the study that I have done, we are importing goods to the tune of US$2,3-US$2,5 billion every year, spending on things that can be domesticated.
“We just need to work on a strategy of production enhancement,” Prof Mugano said.
He added that there was need by the Ministry of Industry and Commerce to
make as much noise as possible and come up with similar interventions like what is currently being done in the Ministry of Agriculture, Mechanisation and Irrigation Development.
The agriculture ministry is working on a programme to drive productivity among smallholder farmers under a programme known as Pfumvudza, while Government has developed a strategy to transform Agribank from a commercial to land bank, with the sole view of driving production in agriculture.
The late former Lands, Agriculture, Water and Rural Resettlement Minister Perrance Shiri said if the new concept was applied by smallholder farmers, it would ensure
household food security, while large-scale farmers would produce for the Strategic Grain Reserve.
Further, President Mnangagwa, while launching the Agriculture Recovery Plan in Harare recently, said the Government will turn Agribank into a land bank capacitated to offer technical and financial support to farmers in order to promote agriculture and end food insecurity in Zimbabwe.
Economist Eddie Cross, a member of the RBZ monetary policy committee, said the assumption that Zimbabwe had production crisis was partially correct, insisting the country had a currency crisis, which is now being addressed by the central bank through a series of interventions, including the auction system.
He, however, concurred with Prof Mugano that measures to cut on imports and boost local production were critical as, in the long run, this would result in the domestic currency gaining strength against
global currencies, more importantly, the US dollar.
The RBZ governor has on record on several occasions, stressed that Zimbabwe was going through a production crisis, which he also reiterated at a meeting of Polad members on Friday, saying this had been the force behind domestic inflation due to shortages.
