Local currency comeback most welcome

05 May, 2019 - 00:05 0 Views
Local currency comeback most welcome

The Sunday Mail

Garikai Mazara

The madness seems relentless across all platforms.

One school of thought is that  sooner than later, the RTGS rate to the US dollar will reach its full elasticity, beyond which it will not advance.

The reasoning being that when it reaches full elasticity, then that becomes the official rate of the local currency to the United States dollar, and with other economic fundamentals falling into place, the atmosphere would be ripe for the introduction of a local currency.

That is only conjecture. But what is not conjecture is there is need for urgent intervention at the moment, especially given that the parallel market rates are in a constant state of a flux and businesses, in a bid to cushion themselves, are adjusting prices almost on a daily basis.

The overall impact of the weekly price adjustments are many-fold but the most glaring being that this has the most adverse effects on the man in the street.

For example, schools open this week and many schools had adjusted fees in the middle of last term. And most of these adjusted fees make no sense presently given the manner with which commodity prices went up in the past three weeks.

For boarding schools, probably the most affected, the price of bread in mid-term, is at a big variance with what they will be paying for the same loaf when schools open on Tuesday. Who picks up the variance? Schools? From where? Parents? With almost stagnant incomes?

Whilst some are sympathising with business for re-aligning prices to reflect the changes obtaining on the parallel market, a closer analysis will show that there is a measure of insincerity from the same business community.

For instance, labour costs, which constitute the majority of production costs, have remained largely unchanged in the past five years. If anything, labour costs have actually gone down, in US dollar terms.

Where an employee used to earn US$500 five years ago, the same worker is earning, at most RTGS$700 now. Which translates to about US$140.

The same goes for utility bills, which have remained largely unchanged as the transition was made from US dollars to RTGS dollars.

In essence, business is forking out much less than what they were paying for labour, utility bills and other costs, compared to five years ago.

There is the argument for raw materials, which are always argued to be imported.

But in any economy which is suffocating like ours, why haven’t there been attempts to find import substitutes? And even if a sector uses raw materials that are wholly available locally, there has always been the argument for imported raw materials.

Whilst the reasoning might be good, to leave the RTGS to find its true parallel market value, knowing the behaviour and disposition of Harare businesspeople, once a local currency is introduced, whose value is hinged on the value that the RTGS dollar would have attained, chances are the new currency will also take another battering from the same speculative and profiteering behaviour.

Zimbabwean business, spurred mostly by Harare traders, have given little regard to basic trading fundamentals, but rather thrives on speculation, profiteering and to an extent an element of sabotage.

Whilst what is happening to the economy today, in reality, is in sympathy with the parallel market rate of the United States dollar to the RTGS, what should the Government do to put a stop to all the speculative trading that is commonplace?

Part of the answer lies in how far we have gone with the austerity measures. For instance, did we really produce 32 tonnes of gold last year? If we really did, shouldn’t that be part of our solutions? Can’t we use part of that gold to back up our currency?

Did we really contain our fiscal expenditure as recently announced? If we really did, we should be on our way to containing Government expenditure and the future looks good.

The gold production, which is set to increase tonnage again this production year, should be a pointer that our recovery is on course.

The gold production, combined with other high-yielding crops like tobacco (and cotton, which unfortunately has been affected by a bad season) plus a surplus of maize, should ensure that we limit what we import.

If the success that has been scored in Command Agriculture in maize is transferred to soyabean and wheat, then the country’s import bill will drastically be reduced.

But all this is to digress from my main argument.

Whilst the Government is keen to show that market-determined economics works, ours is a completely different ball game and might need “command economics”.

The command economics has somehow worked with the “managed” bond rate against the US dollar, which for a considerable time managed to keep our prices stable. The moment we let the markets to determine themselves, we left the vulnerable open to economic abuse.

Then against all this, what should be done?  The Minister of Finance, Professor Mthuli Ncube, should take the bull by its horns and introduce a local currency. All the arbitrage that is commonplace today will easily be wiped off.

That is my two cents.

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