It seems to be a generally accepted “fact” that Zimbabwe is “short of foreign currency”.
guest column: TAPIWA NYANDORO
No attempt is usually made to quantify what is adequate lest the assumptions betray a lack of ambition and retarded aspiration as regards national goals on eradication of poverty.
Boldly, however, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya has suggested that a monthly production of two tonnes of gold by artisanal miners worth a mere billion dollars per year could see the nation cover its forex needs. That belief may, however, be misplaced.
Zimbabwe has all the foreign currency it can account for from its exports, other inflows and off-shore earnings.
As the case with its government and Parliament, the poor country gets what it deserves.
In addition, it undervalues the foreign and hard currency badly. It also allocates and distributes it badly, killing the incentive to generate more.
Those able to bribe or talk their way, and the politically correct, but most of them undeserving, end up at the front of the queue.
- Chamisa under fire over US$120K donation
- Mavhunga puts DeMbare into Chibuku quarterfinals
- Pension funds bet on Cabora Bassa oilfields
- Councils defy govt fire tender directive
Keep Reading
In the process, the authorities engage in quixotic battles with the markets.
Under the circumstances, in the struggle against market forces, “victory is never certain”.
The resulting environment, characteristically autocratic, chaotic and corrupt, pays off handsomely for the idle and cunning elite, who externalise some of the ill-gotten hard currency, further distorting the markets and exaggerating the false perception of foreign currency shortages.
As a result, and during the circus, the level of demand for the commodity, though of a fake nature, is raised.
Undeniably, the need for hard currency is sky-high. But that is because of dismal production and a pathetic quantum of exports. At fault is the new ruling class.
According to Finance & Development [F&D, September 2015]: “Traditionally, corruption is defined in terms of individual public officials who abuse public office for private gain. But corruption has a wider reach. It is a costly symptom of institutional failure, often involving networks of politicians, organisations, companies, and private individuals colluding to benefit from access to power, public resources and policymaking at the expense of the public good.”
The wider definition of corruption aptly describes some monetary, financial and fiscal policies in Zimbabwe.
The so-called specialised maize import substitution programme, colloquially known as Command Agriculture, is a case in point.
Its books of audited accounts may never see the light of the day. The unreasonably high Grain Marketing Board buying price of maize, at twice the regional average, says the whole story.
The denial of cash to the masses is another example. The masses are sold an illusion. Zimbabwe’s ruling elite is now one of thieves.
Rajan and Zingales [Saving Capitalism from Capitalists, 2003] argue that “many countries have under-developed financial systems because of the political opposition of the elite, who fear losing their position if access to finance becomes freer and they face competition”.
The RBZ is well in the picture. In a NewsDay interview on August 11, 2017, Mangudya cited two reasons for the artificial shortage of hard, rather than foreign, currency.
Apart from dismal export earnings (and production as well), Mangudya put his finger on the pulse when he said: “The other sustainable way [of killing the black market for hard currency or husbanding hard currency] is to reduce government expenditure, which is the major source of demand [not need] for hard [not just foreign] currency within the economy.”
The observation bares the truth in black and white. Unpleasant, yes, but really very simple. The government barely earns foreign hard currency. But it spends it like there is no tomorrow.
It may be the only one in Africa that runs its payroll in hard currency. It also accrues a huge budget deficit in United States dollars and likes to see its increasing domestic and external debts denominated in the hard currency. It is a recipe for catastrophe.
By a stroke of good luck for the nation, Mangudya was not shy to propose a solution to the country’s dilemma.
“Thus, working both on the demand side and supply side is critical to move the economy forward,” he suggested. “We need,” he emphasised, “to work closely together.”
Easier said than done, may be the response from [part of?] the executive branch of government, whose eyes are always fixed on elections, especially on how to take advantage of an ignorant electorate.
The bank also, however, believes “in the exports generating strategy for the well-being of the economy”.
Well spoken, but the government has failed to get its act together. It has no exports generating strategy at all.
Mangudya also blamed indiscipline [read corruption] for the cash crisis and/or the so-called foreign currency shortage.
He noted that the hard currency and cash originate from banks and end up on the informal and black markets, where it is “spun” endlessly without going back to the formal banking sector.
It would help though if the RBZ acknowledges that hard currency is a commodity and a valuable asset in this country. Like land, it must be “titled”.
Otherwise, as we know, it will fall into the wrong hands, lose value (to those with easy access to it) and be abused.
This outcome prevails at the moment and is a shared RBZ and Treasury creation. The RBZ should have kept its bond notes, however strong or good, outside US dollar accounts.
The greenback, naturally and wisely, fled its nest at the sight of the unpredictable stranger and pretender of dubious parentage wishing to share the nest.
As long as the position remains the same, the genuine US dollar will feel safer in the so-called informal market, where at least, it is respected.
The move by the RBZ may have cost the country dearly. It is still doing harm.
It only serves the elite [government included], who had borrowed heavily in hard currency on the local market, in the process externalising some of it.
It also says to the greenback, you are not welcome. It repels foreign direct investments. Most probably, the other motive for what may be behind the rather dumb move was most likely to cover up the [legalised?] theft of some bank clients’ hard currency from their accounts. That hard currency can now not be paid on demand.
The second problem, or rather the first, is politics. On the monetary policy front, Raghuram Rajan, the youngest ever International Monetary Fund chief economist and former professor of finance at the famed University of Chicago, could have a few suggestions for the authorities in Harare.
Upon taking his new job as the governor of the Reserve Bank of India , he told Finance & Development [March 2015] that: “It is not just economics, but the political layer that is imposed over it that determines outcomes — and the political layer is much less well understood than the economics. So when you combine the two, it’s a process of navigation [in uncharted waters]. How do I make sure [he asked] that sensible economics prevails [over politics]?” It is politics that seems behind President Robert Mugabe disdain for long overdue reforms.
Politics — the pursuit of power — is all that matters to the ruling party right down to the factions.
It is visible in the RBZ’s actions. It even drives toxic agriculture policies and programmes.
Incorrectly, it seems at the heart of Treasury operations. Dirty, cheap, misguided, but profitable politics is behind the myth of a foreign currency crisis.
Tapiwa Nyandoro writes in his personal capacity
