The Sunday Mail
Edmore Ndudzo
The drive for Zimbabwe to have its own currency is understandably gaining traction, particularly given the aberrations of price increases, multi-tier pricing and foreign currency shortages on the local market.
The country demonetised its local unit in 2009 after an unhealthy bout of hyperinflation, which was largely driven by illegal sanctions imposed on Zimbabwe by the United States and the European Union (EU).
It might be important to note that Zanu-PF — at its 17th National Annual Peoples Conference held between December 11 to December 16 in Esigodini, Matabeleland South province resolved that “Government intervenes expeditiously to eradicate the three-tier pricing distortions in the market”.
The ruling party also pushed for Government to decisively deal with economic malpractices.
Essentially, the resolutions stemmed from a Central Committee report, which noted that “the contentious issue that must be resolved centres on the exchange rate disparities, between and among, bond notes, RTGS (Real Time Gross Settlement) and the US dollar”.
Most importantly, the report also observed that “without resolving these disparities, arbitrage opportunities remain abound, not just in fuel alone, but across all goods and services”.
Finance and Economic Development Minister Prof Mthuli Ncube has since indicated that the introduction of a new currency will be done within the next 12 months.
Treasury believes that the introduction of a new currency will help give locally produced goods a competitive edge, while also removing price distortions in the economy.
According to the Treasury chief, the value of the mooted currency, which will only be introduced when the right triggers are in place, is something that we would have to protect once it is introduced.
Basically, the right triggers that Government is referring to include the reduction of the fiscal and current account deficits through improved fiscal discipline, cutting Government expenditure and improving tax collection.
Happily, Government has a game plan, which is already underway.
As expected, where any progress is being made, headwinds are bound to follow.
There seems to be a concerted effort by some groups, particularly the opposition, to derail efforts meant to stabilise the economy.
In his article titled “We are building Zim, block by block” in The Sunday Mail on February 3 this year, Information, Publicity and Broadcasting Services Permanent Secretary Mr Nick Mangwana couldn’t have put it any better when he said that one “does not sabotage an economy characterised by inertia or regression; one can only sabotage a progressing economy”.
In one of my recent articles, I made four key observations that had to be part of the country’s monetary policy going forward:
- I suggested that the successor policy to Zim-Asset (2013-2018) had to have a 10-year tenure. I also counselled that its monitoring, evaluation and review should be conducted half-yearly, and not quarterly, as was the case for Zim-Asset.
- I noted that during the 10-year period, the nation should target double-digit economic growth rates, and not the rather low and modest 6 percent growth rate that was envisioned in Zim-Asset.
- Further, I also opined that the country should strive for an unemployment rate of 5 percent or below, including a single-digit annual inflation rate.
- One of the cornerstones of any monetary policy, I suggested at the time, was to reintroduce a local currency.
At the time, I reasoned that it would be ideal to change the name of the new currency as a confidence buffer to protect the perceived value of the new Zimbabwe dollar.
Some people are still haunted by the precipitous loss of value and subsequent crash of the previous local currency.
There are various options that can be explored in naming a currency: it might assume the name of a founding father, or, alternatively, the name of one of our precious minerals.
It is exactly what South Africa did when it named its unit after the mineral-rich Rand Reef.
However, whatever name we might have settled for the new currency, its introduction doesn’t have to be delayed, and its value can be easily secured by precious minerals such as gold, diamonds and platinum.
In my view, this is feasible considering the current dynamics, where production, especially in minerals such as gold, platinum and chrome, is rising.
I believe that the country is unwisely and unnecessarily constraining and restricting itself on the currency issue.
The country is blessed with bountiful minerals, which can be a bedrock for the country’s envisaged currency.
There are also fertile soils than can be worked to produce commodities for both food security and foreign currency generation.
Tourism is also a low-hanging fruit that can be leveraged on to create value for the economy. Most notably, the number of visitors to Zimbabwe soared to 4 million last year, compared to about 2,5 million a year earlier.
But economists say the ideal macro-economic conditions that must precede the local currency include: three-months import cover, high capacity utilisation in the manufacturing sector, high employment levels, reasonable inflation levels, desirable annual economic growth rates and fiscal discipline to contain both budget and trade deficits.
After considering all these propositions, I still maintain my previous conviction that we need to come up with a name for the new currency.
Gold reserves & natural resources
Should it be deemed necessary to support the mooted currency with physical gold reserves in the Reserve Bank of Zimbabwe (RBZ)’s vaults, the process of accumulating the bullion should begin forthwith.
The marked increase in production, which resulted in last year’s gold haul topping 33 tonnes, is quite encouraging and makes this suggestion feasible.
The country plans to produce 40 tonnes of gold this year.
Further, the proposition is even made more feasible by the recovery of the diamond sector, where output is forecast to double to more than 4-million carats.
Progress is even more notable in the platinum sector, where two major projects — the $4,2 billion Karo Platinum project and the $3 billion Darwendale venture — are expected to come on stream.
We mustn’t also ignore developments in the lithium, or “white petroleum”, sector. The discovery of potential oil and gas reserves in the Muzarabani Basin, Mashonaland Central province, is also a game-changer.
What makes the prospect of achieving the much-needed macro-economic stability tenable is the telling recovery in agriculture, where tobacco production reached a record-breaking 255-million kilogrammes last year.
Experts in the sector say local farmers have the potential to produce more than 400-million kilogrammes of the cash crop.
Discipline
But authorities need to ensure strict discipline in the prudential management of fiscal policy in order to support any new currency.
The resort to the printing press should be discouraged by all means.
As and when the new currency is rolled out, there is also need to ensure a soft landing for bond notes, including an orderly exit from the multi-currency system.
In addition, when the bond notes are subsequently withdrawn, the country might renegotiate for new facilities to, in part, guarantee the newly introduced local currency.
Government has to proceed with haste to introduce a new currency within the time period it has set for itself — hopefully before the expiry of the Transitional Stabilisation Programme (TSP) in December 2020.
That done and achieved, we will definitely be on our way to become an Upper Middle-Income economy by 2030.
Edmore Ndudzo is the first black treasurer of the City of Harare. He was the lead consultant in the compilation and crafting of the Public Finance Management Act of Zimbabwe, which was promulgated in 2009. He writes in his personal capacity.
