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Economic prospects of SI 64 in a bond notes and smuggling economy

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The businesspeople that I have spoken with, particularly the generation of formal players that benefited from the buoyancy of the 1980s economy, invariably expressed hopes and expectations of improved economic forecasts in the beginning of the year.

Opinion: Tinashe Nyamunda

Although initially sceptical of bond notes and the effects of Statutory Instrument (SI) 64, which listed goods that would attract a tarrif in order to protect local industry, many were quick to conclude that these initiatives had stimulated the production of local food stuffs such as cooking oil, detergents, soaps etc.

Although importers would be hard hit, so they thought, at least it will be a step in the right direction towards resuscitating the economy. But this confidence has been short-lived as the symptoms of chronic economic crisis quickly resurfaced.

The main worry surrounding the introduction of bond notes was that the Reserve Bank of Zimbabwe would not have the discipline to avoid running the printing press into overdrive and thus rapidly drive inflation.

This did not happen as RBZ governor John Mangudya appears to have maintained strict discipline by supplying the pseudo-currency on a drip feed basis thus avoiding a repetition of Gono era of hyperinflation.

This is despite the pressure emanating from worsening illiquidity. The accompanying SI 64, instead of resulting in shortages of basic commodities, helped to stimulate some form of import substitution industrialisation, albeit to a limited extent.

All these initial gains helped to convince some in business that an opportunity existed to truly begin a process of economic revival.

No sooner had these benefits been consolidated that signs of regress began to show. Firstly, although the RBZ still hopes to resolve the cash crisis by going plastic, the major segment of the economy remains informal.

Although such initiatives, as Ecocash have helped to promote inclusive banking and promote cashless transactions, they still remain inadequate. The pressure for cash is stretching the market to the extent of charging a premium of up to 10% on plastic transactions in many instances. Moreover, the steadily declining confidence in bollars (bond notes) has pushed other traders to demand a 5-10% premium on products bought in the pseudo currency.

Indicative of the hard/soft currency spectrum whereby the US dollar is trusted to retain value, especially as it is an international key currency used in global transaction versus the “bollars” whose use is limited to Zimbabwe and whose value is viewed as unsustainable, an exchange rate is between the two currencies that are used interchangeable in ordinary transactions is developing.

Many traders and ordinary people are choosing to withhold their foreign exchange while preferring to use bond notes in ordinary everyday transactions. Although the RBZ decreed that the currencies should be exchanged at par, the violation of this directive is hidden in the plain view.

Although the circumstances of currency instability are different from the hyperinflation of the Gono era, these emerging dynamics are making many people uncertain and anxious.

SI 64 has also attracted a lot of negative sentiment. Although initially effective in reducing the amount of imports on listed products, a quick walk around the so called “tuckshops”, informal wholesalers will reveal the extent to which these goods are being smuggled into the country.

Many businesspeople, although arguing that they support economic recovery, argue that they still purchase these products because of their superior demand and competitive pricing on the market.

Their business is to supply products irrespective of their origins. Although the retail business is marginally affected by these developments, the economy’s recovery continues to be curtailed. As these “tuckshops” supply goods, they demand payment in US dollars or South African rands in order to earn foreign exchange through which they can purchase more goods. Where dollars are accepted, it is of course at the 1% premium to make up for the difference demanded by foreign exchange traders who are fast resurfacing.

The planning behind the “bollars” and SI 64 was only unpopular because of the people’s lack of confidence in the government’s ability to properly and sustainably implement these policies. Their anxieties were not incorrect. Despite the RBZ’s regulations that currency be changed at par, little has been done to reinforce this.

There has been insignificant action to prosecute perpetrators. Listed goods continue to be smuggled unabated and openly sold at the many tuckshops in downtown Harare. These activities were supposed to have been tackled through policing, but this has not happened.

This lack of action has given the strong impression that whatever government plans lacks a concrete backing through action. The illegal actions of traders and currency speculators are hidden in the plain view of a government that seems unmoved beyond rhetoric and a population anxiously pushed to continue operating in survival kukiya kiya mode.

But the problem is not an RBZ problem. It is one that emanates, in my view, from two things. Firstly is a strong and misplaced reliance on RBZ quasi-fiscal capabilities. Although clearly using the authority vested in it from the highest authority to make key monetary decisions without necessarily consulting parliament, it cannot then enforce the policing of its own regulations as it lacks the capacity to influence law enforcement.

The second problem, related to the first, is a glaring lack of economic coordination. Zimbabwe has been faced with many policy inconsistencies emanating from the autonomous operations of ministries and parastatals.

This is despite the existence of the Ministry of Economic Coordination. If some form of coordination really existed, SI 64 would effective if the Ministry of Trace, Industry and Commerce, the RBZ and Revenue authorities worked together to curb smuggling. The same applies to the policing of financial transactions and enforcement of regulations.

If at least this coordination existed, the debate would take on a different character, particularly whether the RBZ is best suited to lead efforts at economic revival.

But at present, we can’t even consider that given the dampening confidents in the immediate future prospects of the economy.

Tinashe Nyamunda is a post-doctoral fellow at the International Studies Group, University of the Free State, Bloemfontein, South Africa

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