Unsound sentiment versus sound fundamentals

01 May, 2022 - 00:05 0 Views
Unsound sentiment versus sound fundamentals

President E.D. Mnangagwa

In 2021, our economy earned more than US$9,68 billion from exports. By contrast, the US$100 billion Kenyan economy earned US$6,74 billion for the same period.

Our economy is a quarter the size of the Kenyan economy.

We import far less than Kenya, while earning more from our exports than Kenya.

Our population is less than half that of Kenya.

Yet Kenya’s currency is more stable than ours.

We have already earned US$2,4 billion in the first quarter, up from USD2,04 billion we managed same time last year.

This is a 15 percent growth from last year, meaning our exports continue to grow.

Our imports have been severely compressed, with our auction system prioritising re-equipping our industry for greater capacity utilisation.

The impact has been telling, with more than 80 percent of goods on our shelves being locally manufactured, and our industry reaching over 66 percent capacity utilisation.

Together with our Special Drawing Rights, SDR, we hold US$1,1 billion in foreign currency reserves, much higher than at any time in the past 10 years, including under the Government of National Unity, GNU.

Foreign Currency Deposits have grown to US$1,8 billion, vindicating the reforms we instituted in the financial sector, which have improved the confidence of depositors, and brought greater stability in our banking sector.

It is a record figure we have not had in many years.

We have pursued a tight fiscal policy, which has translated into a surplus position we have not had since Independence.

Reserve money
Our reserve money has been kept at $28 billion.

We are not printing money and have ensured our currency is supported by our reserves.

The $28 billion in reserve money is equivalent to US$116 million at current interbank foreign exchange rate of between $225 and $280 per United States dollar.

Clearly, the financial fundamentals to support a stable domestic currency are in place.

Yet this is not so, with our domestic currency becoming unstable lately.

Fundamentals in the real economy buttress the above positive story.

Mining sector
Our mining sector is doing quite well; in fact, on a steady road to a US$12 billion target.

Gold deliveries have risen phenomenally, putting our target of 40 tonnes well in sight.

On the world market, prices of base metals have been firming, again putting us in very good space.

Old mines, which for a long time were closed, are reopening.

New mining projects are being developed and opened.

We continue to discover new mineral deposits, with greater prospecting activity registering in the country.

The mining sector gives much reason for buoyancy in the economy.

Power supply
Anxieties around power supply constraints have eased, with more power units under development in the country.

By year-end, Hwange 7 will come on stream, adding some 300 megawatts to our grid.
Hwange 8 is set to follow by March next year, to give us another 300 megawatts.

Smaller thermal stations in Bulawayo are being refurbished and upgraded. We also have several solar projects at different stages of development. Clearly our investments in energy match the expanding economic activity we continue to witness and envisage.

Besides, we have power import options we can always bring to bear should demand for power exceed installed supply capacity. Fears around power deficit are thus not a factor anymore.

After being jolted by the global Covid-19 pandemic, our tourism is beginning to rise again.
Arrivals are on the increase.

Zimbabwe continues to consolidate as a destination of choice, evidenced by the growing number of carriers which have started landing.

Our aggressive Covid-19 management strategy has made Zimbabwe a secure country for visitors.
Receipts from tourism thus bolster the buoyancy in our economy.

In two or so weeks’ time, we should be getting the final crop assessment, thereby knowing how badly hit we were by the mid-season drought. Whatever the out-turn from that assessment, our Strategic Grain Reserves are healthy, certainly enough to meet our cereal requirements until the next season.

Should we consider boosting those reserves, there is enough grain in the region to meet our import requirements.

Far from being food insecure, we continue to consolidate our national food security through expanded water development and irrigation projects around the country.

Currently, we are working on winter wheat, targeting over 85 000 hectares under this crop.

We anticipate reaching near self-sufficiency this year, thus reducing our wheat import bill and cushioning ourselves from disruptions related to the conflict situation in Eastern Europe.

We should be able to weather the storm of food inflation triggered by global anxieties and conflicts.

Upon realising the turbulence in the fuel market, I directed that duty on fuels be reduced by US13 cents.

As I write, diesel is now zero-rated, duty-wise. I did more.

President’s Strategic Reserves
From the President’s Strategic Reserves, I released 30 million litres of fuels to ensure the supply in the market remains stable and affordable. Everything is being done to keep the economy growing, and to cushion the consumer against swings.

More measures are set to be announced very soon as Government continues to review the global situation, and to respond appropriately.

In the wake of last week’s exchange rate turbulences and the resultant upward movement in prices, I met with my team of experts to analyse and review the current situation.

To assist the process, we benchmarked our economy against several economies in our region and on our continent.

Economies both larger and smaller than ours.

The results were quite baffling.

Economies which earn far less than us by way of exports; import more than us; have larger GDPs requiring more imports, and with bigger populations, are enjoying more stable national currency than we do. Kenya is a case in point.

We also looked at smaller economies earning far less than us and with even greater import dependency than we have.

They, too, enjoy more stable national currencies than we do.
As Zimbabweans, we have to ask ourselves why this is so.

Our economy, it would seem, runs more on sentiment than on actual fundamentals.

As shown above, all our fundamentals are comparatively stronger, both when measured against our past and against sister economies in our region and on our continent.

They point in the right direction of sustained and sustainable recovery and growth.

There is thus a stark contradiction between stable fundamentals and unstable, nay unhelpful sentiment.

Surely confidence, or lack of it, must have some basis in measurable fundamentals which shape the future of economic activity in the country. I concede that our experiences in the past are chequered.

In 2008 and more recently in 2019 when we carried out currency reforms, value was lost.

This experience, while residual, remains potent to levels of conditioning our behaviour as economic players.

Except the rise in foreign currency deposits in our banking sector suggests confidence is returning.

This confidence must be nurtured, as, too, should business confidence in the auction system as a source of foreign currency for vital imports that support production.

Equally, we must continue to set aside earnings from our exports so we boost our reserves until we reach a minimum of three months import cover.

This Government is determined to do, including continuing with a tight fiscal policy to maintain the current surplus.

As already indicated, a raft of measures will be announced shortly, including measures to increase confidence in the local unit.

De-dollarisation will be managed carefully to avert disruptions.
As they say, it takes two to tango.
While Government is doing all these things and a lot more, those in business must exhibit greater probity and show greater sense of responsibility.

No one, least of all business, benefits from macroeconomic instability. Speculative behaviour using currencies accessed from our auction system at official exchange rate stand to hurt all of us, business included. We must desist from such unhelpful behaviour.

Like I have already said, Government is committed to defending value in the economy so there is no return to the horrors of 2008 and 2019.

Going forward, we must put the bad past behind us, and chart a more hopeful future which is predicated on real fundamentals, not nebulous fears or sentiments.

It has come to our attention that some players are using many illicit avenues, including pretexts and subterfuges of grain imports to externalise our hard-earned foreign currency.

For instance, grain secured from our neighbours ends up being imported from Mauritius.
Yet we all know Mauritius is not famous for production of cereals!

Such behaviours are not helpful and must be stopped.

As, too, should attempting to weaponise the economy for preferred political outcomes.
Negative politics based on the-worse-it-gets-the-better opposition syndrome has no place in boardrooms.

Anyone keen to run for office should leave the boardroom and the market to join us in politics.
We will not countenance politicians in business suits.

The Zimbabwean economy is too important and meant for all citizens to be manipulated by undeclared princes seeking political power.

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