THE ushering in of multi-currencies brought significant relief for the ordinary man as in the previous era consumers were left holding loads of cash with no place to transact nor goods to exchange for their voluminous notes.
Report by Byron Manhuwa
As the multi-currency regime slowly gained momentum, consumers quickly built confidence within the banking system, financial sector and economy at large as proceeds from the “burning” era were quickly and more often than not, carelessly spent in the hope of jump-starting a new multi-billion dollar economy.
Reliance of the economy on first world currencies has imported currency risks with snowball effects of the global downturn being felt in the country.
These increased liquidity constraints were further exacerbated by the need to import goods and services as de-industrialisation takes a toll on the productive sectors.
Liquidity constraints have limited expansion projects in industry, which in turn have a knock-on effect on the employees’ remuneration packages as revenues are limited due to poor consumptive behaviour by consumers.
In turn, consumptive patterns have been adversely affected as employees have less physical cash to circulate and, or trade in exchange of goods and services, hence the vicious cycle. With most employees earning below the poverty datum line, there really is less hope for improved earnings.
On the other hand, the limited fiscal space has meant that there are but a few “prioritised” capitalisation projects that will take place hence further diming the prospects of the government to mitigate the increasing unemployment rate, which is currently believed to be above 85%.
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With the financial intermediates receiving pressure from the productive sectors to recapitalise, banks mobilise deposits for on-lending at high premiums, which ultimately the industry cannot afford.
Further, bank charges become a major deterrent for the ordinary man to open a decent bank account, hence they are forced indirectly to join unregistered and often unregulated clubs through which they can perform some sort of savings. These clubs are commonly referred to as “rounds”.
The employees, needing to complement money in order to pay for basics such as school fees and utility bills, are then vulnerable to loan sharks who operate in shady ways, demand return on principal of at least 50%, and often having mafia-like style of recollection of debt. In all this, the employees are left poorer as they cannot approach the bank or employer for financial mediation.
The liquidity situation has burgeoned the informal sector as many employees are forced to look at alternative means of survival, with some performing white collar jobs during the week, and being cross border traders during weekends.
As goods are traded, most are offered on credit terms, however, with increasing defaulters, these employees accumulate a lot of bad debt; no wonder our courts are now full of cases to do with non-payment of debt and fraud.
Although the country celebrates low inflation currently at 2,91%, there is risk of negative inflation which may mean that the economy will eventually shrink, hence turning the entire economy into an informal sector.
In essence, although dollarisation brought about change and relief, the depressed liquidity has brought about fundamental shift in socio-economic behaviours in the country.
