The Sunday Mail
Howdy folks!
It is Independence Day tomorrow. And again, President Mugabe will light the Eternal Flame of Independence as we celebrate our long walk to freedom.
It is indeed a season of remembrance as we pay tribute to gallant sons and daughters, many of whom fought to death, to win this Independence upon us.
We remember them all, including heroines, Cdes Victoria Chitepo and Vivian Mwashita, whom the national flag bowed to a few days ago.
It is the same flag we shall be hoisting with pride on the morrow, with the red stripe reminding us of the blood shed during the First and Second Chimurenga.
But let me not steal tomorrow’s thunder.
Today, let’s just review a couple of global and national developments that I think should be soberly addressed before they escalate into something beyond our control.
Globally, the IMF has given the heads-up on a looming financial crisis.
In its latest Global Financial Stability Report, the IMF highlights that persistent market volatility may lead to “economic and financial stagnation” by creating a “pernicious feedback loop of fragile confidence, weaker growth, tighter financial conditions, and rising debt burdens”.
This is not good at all.
It reminds me of the global crisis of 2007-8 when our Zimbabwean friends and relatives abroad lost their jobs.
As a result, they could not send money back home as their friends and relatives here also faced tough challenges during that same period as stratospheric inflation wreaked havoc. Diaspora remittances play a major role in our economy, folks.
The end of the 2008 global financial crisis saw Zimbabwean Diasporans starting to steadily increase remittances, rising from US$301 million in 2009 to US$944 million last year.
This year, they are projected to touch US$944 million. So you can see, remittances play a very important role in this economy.
They contribute more than the entire tobacco sector, if I can put it that way.
In fact, remittances presently surpass total FDI inflows. For instance, in 2015 we received aggregate FDI worth US$591 million against remittances of US$944 million.
Most of this money is received in small amounts of, maybe, US$100, £50, R1 000, you name it.
The marginal propensity to consume for such amounts of money is very high, which means that it is the very money that also comes to promote local demand, thereby supporting our productive sectors.
Most Zimbabwean folks in South Africa, which is the main contributor to remittances, have in recent months been discouraged from remitting because of the falling rand.
Back in the day, one would send, say, R1 000 and it would be received as US$100 here. Now only about US$65 can be received for the same amount.
In light of the above, I think we have to lend an ear to the IMF managing director’s Global Policy Agenda Spring 2016 message that: “Countries must reinforce their commitment to durable global growth and employ a more potent policy.”
She suggested a three-pronged approach with monetary, fiscal and structural actions to lift actual and potential growth, averting risks and enhancing financial stability.
Coming back home, our financial sector’s stability is being threatened.
We have two buzzwords that have been gaining popularity by the passing of each day — “cash crisis”.
While the “crisis” is somehow a reflection of our economic challenges, as I alluded to in my piece of March 27, 2016 (“Buy Zimbabwe is a necessary evil”) — I also enrol to the school of thought that says it’s a confidence issue.
But why is this an issue after all the confidence-building measures since dollarisation?
I strongly argue that the media have been playing, and continue to play, a catalyst role that has worsened our cash situation.
The whole situation escalated when our local media started to run with headlines like: “Cash crunch hits banks”, “Zimbabwe is facing a cash crisis”, “Cash crisis hits banks, shops”, “Panic as banks run out of cash”, and “Cash crisis worsens”.
Our newspapers are competing to come up with sensational headlines on how the cash situation is “deteriorating” by the day.
And when a sensible saver is daily bombarded with such messages, left, right and centre; savers who still have 2008 at the back of their minds — they would be definitely stupid to keep their money where they can’t see it.
They would want it closer to them, even when they don’t really want to use it today. Just to be sure, you know.
The minds of folks is now saturated with “what ifs”.
What the above eventually does is grow anxiety among folk who have their hard-earned money in banks. They are provoked to lose confidence and so we now find them joining those long queues at the banks.
And that increases demand for cash beyond normal levels.
All savers cannot demand their cash at the same time, it’s not sustainable!
It’s like when we have the giant National Sports Stadium filled to the brim with fanatics watching Dembare and Highlanders, then suddenly a fire-cracker loudly bursts in the vicinity and people mistake it for a real bomb.
There will obviously be a stampede as people flee for their dear lives — and some might be hurt while infrastructure might be destroyed in the process.
The false alarm causes needless pressure. Let’s try to bring a certain perspective to this assertion, to give it credibility.
You see, central bank Governor Dr John Mangudya has given us a breakdown of the cash that has been imported until recently.
Banks imported US$118 million between January 1 and April 6. The Reserve Bank of Zimbabwe imported US$145 million between January 1 and March 31. That totals US$263 million.
And from Dr Mangudya’s perspective, it is a quantum “which under normal circumstances is supposed to be sufficient for this economy . . . That’s why we believe money is there but it’s not circulating”.
We can deduce that there is something abnormal going on here. The RBZ chief obviously looked at past trends and compared them to the present madness.
Now people are discouraged from making deposits, while those who have deposited are stampeding to get it out — all of it.
That leaves the level of loanable funds diminished, and when that happens, even the interest rates that we were trying to cap at 15 percent will shoot up.
And now, as it worsens, some local companies are reported to be failing to pay their international suppliers. Banks are failing to send through payment requests.
They make the transfers, but banks cannot honour the payments due to the cash shortage.
We need to start acting responsibly. There is no need for despondency.
The public should be encouraged not to panic. Yes, there are challenges, but we must not amplify them through reckless predispositions.
In the same vein, I was equally disturbed when our pundits in Government were communicating contrasting messages on the subject of indigenisation.
I think this is an issue that is very sensitive to foreign investors and there should be coherence and like-mindedness in the manner we communicate.
We are in a drive to promote FDI that surpasses the average levels being received by our regional peers. The 2016 National Budget sets the tone on the need to attract foreign investment.
The budget’s theme says it all: “Building a conducive environment that attracts Foreign Direct Investment”.
Our ministers should, therefore, agree behind the scenes, consult with their superiors where they are not clear, and then come to the public singing one tune.
It was refreshing when President Mugabe clarified matters, further explaining that conflicting interpretations “caused confusion among Zimbabweans, the business community, current and potential investors, thereby undermining market confidence. This situation has also led to the increase in the cost of doing business, thus further weakening the country’s economic competitiveness”.
It is hoped that this will bring finality to the issue of indigenisation and set everyone on one road with a clear understanding of where we are going.
You see, many investment projects embarked on by foreign investors take years before they even start to break even.
In planning for such projects, investors heavily depend on assumptions that they draw from the status quo policy environment.
And once the policy environment starts to be marked by certain contrasts and tensions, investors become uncertain about the long term consequence of their investment.
They will simply shy away from Zimbabwe as an investment destination.
Happy Independence Day to you all!
Later folks!
