The Sunday Mail
Zimbabwe has a legendary penchant to miscarry or shoot itself in the foot at the most inconvenient of times.
The current mayhem in the foreign currency market is not helpful at all and threatens to undo much of the economic gains registered so far. But this should not be allowed to happen.
We need to guard our achievements jealously. It has taken a lot of sacrifices to get to where we are.
It is only two months to the close of the year as we anticipate at least a 7,8 percent economic growth rate. Everything has been pointing in that direction until recently when the local currency received a bashing, the parallel market rate has been on a wild roll.
There are too many divergent views as regards the cause of the mayhem with the central bank blaming irresponsible business actors for stroking the parallel market rate while the latter is pointing a figure at the Government. All this is time-consuming and energy usurping. What is needed is a quick diagnosis of the problem and implementation of a solution that puts a stop to the spiral.
In fact, we cannot afford to retire to bed while the situation continues to deteriorate. We need more action and quite expeditiously too.
We note efforts by the central bank, the Government and business to reason together, but the tug-of-war playing out presently can only make things worse. We need to be brutally honest with each other in search of solutions.
All parties must sit down and find quick solutions. The National Sports Stadium is big enough to host representatives of all stakeholders if it must come to that.
It is no longer about who gives the most eloquent arguments, but sleeves must be rolled up to come up with a workable solution.
That the black market rate has risen to between $180 and $200 to the dollar against the auction rate of $90 to the dollar is a gross anomaly that creates room for arbitrage and the shenanigans that have begun to resurface in the market.
Last Monday’s meeting between the RBZ governor Dr John Mangudya, officials from the Ministries of finance and industry and business sector representations gave a headstart to the processes to redress the current situation. The commitment by business to tame the behaviour of some of its members are most welcome while the central bank promised to meet its end of the bargain by ensuring a shorter time for allotments of bids and the tightening of money supply under its monetary targeting strategies, among others things.
The comradeship at the meeting should reflect in the market. As of yesterday, the volatility was not relenting.
Prosecutor-General Mr Kumbirai Hodzi said he would not back down on his efforts to bring to book errant business executives, companies and other individuals transacting illegally on the foreign exchange black market. The RBZ’s financial intelligence unit has come out guns blazing saying it will continue to name and shame, and bring to book those caught on the wrong side of the law.
The idea is to instil discipline in the market and allow descent operations.
But on the other hand, the business sector has appealed to the Government and its relevant arms to desist from arresting executives as this, as they say, will further destabilise the market.
What we can decipher from this is the need to strike a balance. The parties involved need to hear each other out so that more lasting solutions can be sought. Making commitments merely on paper will not work. Real and practical solutions must be sought and implemented urgently to stem the spiral of the black market.
Prices of most goods and services have been going up significantly, threatening to upset efforts that have seen inflation dropping significantly over the past year. Consumers have been left stranded.
An economist with an extensive knowledge on Africa’s financial systems Dr Tim Rainhard last month issued a paper that seemed to put more blame on errant behaviour than anything else.
He noted that some large corporates were funding third party institutions to access foreign currency on the auction market on their behalf while suggesting that big contractors were fuelling the parallel market as they offloaded large amounts of their payments onto that market in search of the dollar. He suggested that the need to hedge against inflation, reminiscent of the 2007-2009 behaviour had increased demand for the dollar on the parallel market.
“The naming and shaming of abusers of foreign currency by the RBZ should be widened to include the offending contractors and the big corporates that are being fronted by their surrogates because their shenanigans are a cancer to society. Participation on both auctions as well as tendering for infrastructural projects should be restricted to law-abiding corporate citizens, with banks religiously sticking to the ‘Know Your Customer’ principle in allocating foreign currency and monitoring suspicious transactions,’’ he said.
“Having said that, it is up to us, the citizens of Zimbabwe, to shun unhelpful, negative behaviours that are not informed by evidence; we can cure such negativity by first and foremost believing in ourselves and taking heed of 2 Corinthians 5 verse 7, which says ‘for we walk by faith, not by sight’.
“Most importantly, there has to be categorical efforts to produce for local consumption and exports to arrest the haemorrhage of foreign currency through imports of trinkets that could otherwise be produced locally.”
But the Confederation of Zimbabwe Industries, in its update on the currency situation implored the Government to desist from naming and shaming.
“The greatest risk facing the economy right now is an inappropriate policy response to the rising parallel market premium. Clamping down on informal foreign exchange trading in the absence of a viable formal market will have catastrophic consequences for the economy,” said its paper.
The industry representative body suggests that the backlog in allocations be cleared while on the available foreign currency should be cleared.
It proposes a tightening of the foreign currency auction market to ensure settling of bids within 48 to 72 hours, among other measures.
On its part, the central bank has promised faster allotment and tightening of any loose ends. The current mayhem in the market is definitely not beyond redemption. It just requires total commitment by all parties in finding a lasting solution.
The economy has rebound in the last 12 months or so with exciting statistics in terms of inflations, economic growth, production capacity and a recovery of such sectors as agriculture, mining, manufacturing etc.
Greediness cannot be allowed to reverse these gains. On their part, the Government and the central bank should give ear to genuine industry concerns, tweak the auction system and ensure the market trades well.
For most of this year there has been a near convergence of the parallel and auction market rates. All the factors that have destabilised this must be addressed.
Demand and supply issues are a factor. The Reserve Bank should timeously meet genuine forex demand for greater confidence while we need to increase exports to stabilise the dollar. The import bill must continuously come down.
Zimbabwe can ill-afford any economic regression. If anything we anticipate even better performance next year given measures being put in place to create a more enabling environment.
Prices of goods and services need to come down and the value of local currency restored. It can be done
In God I Trust!