The Sunday Mail
A stable currency is needed to support the mantra to open Zimbabwe for business. A single local currency regime with no pricing distortions, like those under the current multiple currency system, would be an attraction for investors, both local and foreign. As a country in dire need of investment, Zimbabwe should start working on a permanent currency solution with the said and other desired characteristics.
Important to note is that a stable currency solution cannot be divorced from the broader macro-economic solution. Therefore, as we start to think seriously about the currency, we are also compelled to start thinking seriously about the economy as a whole. It’s critical to point out from the onset that the current circumstances of Zimbabwe would dictate that the country should leverage on its natural resources, which run into multiple trillions of dollars, to support a stable local currency as well as a growing economy. This why the approach by RBZ to base the new currency on the Currency Board (CB) or the Gold Standard (GS) systems should be supported.
Zimbabwe has always been an attractive investment destination due to its rich natural and human capital resources. The investment approvals which ran into billions of dollars every year bear testimony to this assertion. Worryingly, however, these investment approvals would hardly materialise due to our poor investment and businesses policies. Out of investment approvals of more than US$1,52 billion and US$2,3 billion in 2016 and 2017 only US$343 million and US$235,4 million were realised as net Foreign Direct Investment respectively. This poor performance is despite the efforts to improve the ease of doing business in Zimbabwe and thus is partly attributable to the complex and unstable currency system in Zimbabwe.
While it is agreeable among many that the multiple currency system has been helpful in stabilising the currency under hyperinflation, it may not be the best to drive the economy into sustainable growth phase. Zimbabwe requires significant amount of capital to rebuild and, given the domestic financial constraints, this amount is largely expected from the external sources.
The Ministry of Finance and Economic Development has already indicated that the country requires an estimated amount of US$30 billion for infrastructure development alone, most of which will come from external sources through Public Private Partnerships (PPP), Build Operate Transfer (BOT) as well as loan structures.
However, with the current forex shortages, proceeds from business ventures financed through BOT/BOOT and PPP will be difficult to remit while meeting loan commitments will not be easy. Whilst RBZ has been trying hard to come up with facilities to assist investors meet their remittance requirements such as the Portfolio Investment Fund, which is currently at US$5 million, these have always been inadequate to meet the investors’ requirements. Even the Afreximbank Nostro Stabilisation facility of US$600 million (being replenished at a lower level of US$400m) will be insufficient to meet the required remittances to foreign funding sources and other competing needs for foreign currency.
Due to the foreign currency shortages and the use of priority list to allocate this scarce resource foreign remittances to external funders is not guaranteed.
Even the US$1 billion investment guarantees to be provided under Afreximbank facility will not be enough to provide reasonable comfort to investors in the face of the current cash challenges. This underscore the need for a credible currency solution with clear implementation timetable to boost investor confidence.
As highlighted earlier, it’s our responsibility to leverage on the resources commanded to its care by God to rebuild its economy as well as reintroduce our own currency. The country should think outside the box and prescribe feasible ways to raise the US$30 billion or so that is required to rebuild our infrastructure and catch up with the rest of the world. One such solution is to forward sell of our commodities, mainly gold and tobacco.
To successfully do this, the country should improve the financing and marketing structures of our commodities. Importantly Zimbabwe should expedite rejoining the London Bullion Market Association (LBMA) for better prices and structures rather than those achieved from the Rand Refinery (SA).
Similarly, Zimbabwe should seek ways to sell its tobacco directly to China, which buys 60 percent of the country’s tobacco production by exploiting the One Belt One Road Initiative that seeks to improve the trade between China and the rest of the world. If China is surely our all-weather friend, this should be an easy task.
Clearly Zimbabwe is not realising its full potential from its natural resources through suboptimal financing and marketing structures of these resources.
Thus, it’s only sensible to suggest that given country’s rich resource endowments a new currency supported by these resources will be stable. This together with simplicity of a single local currency regime will be the major attraction to investors as it improves the ease of doing business in the country.
Persistence Gwanyanya is the founder and Futurist of Percycon Global Fund Managers (SA). The company specialises in sovereign funding structures for Central Banks and Governments. It also provides finding solutions to the private sector. Persistence is also the founder of Bullion Leaf Zimbabwe, which is a recently licenced Class “A” tobacco buyer. For feedback email [email protected] or whatsApp +263 773 030 691.