THE appointment of a leaner Cabinet by President Emmerson Mnangagwa is not only welcome, but also goes a long way in demonstrating that the President listened to the people, mindful of the need to managing costs and turning around the economy which has been in comatose for several years.
Guest column: Daniel Ngwira
Perhaps the most exciting of all the appointments of members of the Cabinet is that of renowned academic, founder of Barbican Bank, Mthuli Ncube. While there are some who have drawn comparison with the appointment of former Finance ministers Bernard Chidzero and Ariston Chambati (both late), who had good reputations in their field of expertise, it should be noted that Ncube is in a class of his own.
Chidzero left his high-paying job as United Nations Conference on Trade and Development deputy secretary-general to become Finance minister much as Ncube left his post as managing director of the Quantum Research Group in Switzerland to take charge of Treasury.
While Chambati’s resume was impressive, as among other things, he was a businessman and scored a first in being the first Zimbabwean to hold membership to the boards of Barclays and Munich Reinsurance, his tenure as Finance minister was brief, barely lasting six months due to death. He is well known for introducing the stop payment system which essentially meant that no expenditure could be allowed beyond budget. Years down the line, former Finance minister Tendai Biti came with an adage “we eat what we kill.”
It should be stated that of the three Ministers of Finance, no one had qualifications and finance skills and experience as Ncube who has specifically studied economics and finance and has gone on to make a mark in the field globally. He has written several finance articles and books as well as writing on derivatives, an area widely regarded as the apex of finance in both the academic and real trading world.
So why am I excited about Ncube whose CV was nearly dented by the fall of Barbican? Based on his qualifications and work experience in various countries both developing and developed, I am confident that he will modernise the financial system which has become so archaic since an aggressive system which became characteristic after 2004.
As a player in the financial sector, he had been a vital cog in derivatives trading. The modern financial system is now premised on chocolate and caramel (derivatives) as opposed to the current vanilla which we are experiencing in this country.
With Ncube’s background, I see a situation where market forces will dominate our economy. Markets allocate resources more efficiently when compared to command economies. Though no economy is purely market driven, successful economies tend to be predominantly market oriented.
The current situation in the foreign currency markets in our country is depictive of the failure of command economics. Whereas officially the bond note is pegged at par to the greenback, the market has rejected that and decided to price them at levels where the bond note is significantly depreciated.
This is the failure of systems that are far from market driven. In achieving a market economy, I am hopeful that the Treasury chief will make sure we have a balanced mix of monetary and fiscal policies. Over the last 20 years, we have operated with either of the two instead of both. This situation is unsustainable.
We need both the fiscal and monetary policies to complement each other. We do not want a situation where the central bank overlaps into the fiscal side of the economy, neither do we want the Treasury chief, despite being the boss, to dabble in monetary affairs.
Yet, it should be noted that the previous Finance minister, Patrick Chinamasa, despite being a lawyer, had a good grasp of the area. On many occasions he had suggested the right policies to take the country out of the woods, including proposing austerity measures.
The new minister will be seized with the burning issue of the currency and cash crisis. While it is proven in economics that bad money drives out good money, the minister should note that bond notes are not the main problem, but rather fiscal discipline is. He will be faced with the challenge of reigning in government expenditure and promoting confidence in the economy. He will need to make use of all the tools he has used in teaching students and writing books and articles over the years. He should weigh the benefits of joining the Rand Monetary Area (RMA) at a time South Africa is seized with a land reform which promises to stir stable waters.
To get maximum benefits of joining the RMA, there will be need to shift the accounting of the economy from US dollars to rand; it should lead to downward price adjustments from a malpractice where a good that costs ZAR50 in South Africa ends up being priced at $500 all in the name of trying to cushion oneself from exchange losses.
He should be honest that the introduction of the Zimbabwe dollar does not need a timeline to say by December, but rather is dependent on the achievement of certain economic fundamentals, especially in the absence of market confidence.
In addition, the minister should educate Zimbabweans, especially politicians, that what matters is exchange rate stability rather than trying to peg the local currency at one is to one with a supreme currency such as the dollar against weak domestic production such as we have.
Thus while at this point in time our local currency is stronger than the Rand (14.9350), the Pula (10.8000), the Chinese Remnibi (6.8589), the Japanese Yen (112) etc, it is less viable than all these currencies. What matters is that the currency level must be appropriate. At the moment it is not, that is why it is coming under speculative pressure in the alternative markets.
I am excited about the arrival of Ncube because I believe he will run our economy based on methodology which it has lacked over the years, yet so deserved. While I am mindful that the fundamentals to get the country to produce and export cannot be corrected over night, I am quite confident that the cash situation can be resolved through use of methodology.
He will need to make sure that the institutions that fall under his purview can be relied upon. We have the national statistical office which is reporting unemployment figures and inflation data which are disputed.
Over a period of two years, prices have gone up substantially and the electronic balances or Zimbabwe dollar, if one wishes to call them that way, have lost value by nearly 100%, but we still have inflation data not responding. This does not sound credible. The national statistical office needs to be beefed up by competent staff and needs to be well resourced so that business and government can make informed policy and business decisions. That is a missing link at the moment. He will also need to consider rebasing our economy so that the true Gross Domestic Product is properly reflected in the statistics.
In addition, we have a financial system which is not lending, but relying heavily on non-funded income for survival due to the risks inherent in lending under the current environment. When government borrowing soars only to finance consumption, then you need a sharp shooter of a minister of Finance to contain that.
It is of paramount importance that the minister will be transparent with agreements government enters into as they will impact the taxpayers and future generations. He will also need to make sure that the market is well informed of the amount of treasury bills issued and their tenure for transparency and public accountability.
Treasury Bills (TB’s) represent national debt and as such information regarding them needs to be transparent to avoid the market speculating the economy into deeper waters. There is sparse interbank trading among banks. We have a central bank coming to play in the same market being played by banks it regulates. That tells you that things could be better.
We need to go by the international markets rule-book from which most traders in the country have learnt.
Let us go back to the tender system for TBs and allow banks to play their intermediary role rather than have these TBs issued directly to the banks’ customers. There is a lot that needs to be improved regarding the pricing of our instruments when one takes into account the macroeconomic outlook of the country. Above all, there is need for the minister to promote financial intermediation.
When we have a tax system that serves the sole purpose of collecting revenue rather than stimulating the economy through lower taxes, then something is amiss. The minister must be ready to use the fiscal policy including the tax code to stimulate production of capital goods. This is the major way he will be able to curtail the foreign currency bill.
Above all, I trust that the minister will put a policy framework in place to formalise all trading of financial instruments and foreign currency. This will make it easier for him to implement policy and in addition, it will serve to protect all the economic players.
Let me give an example. As businesses are going onto the parallel or illegal market in pursuit of the illusive foreign exchange, they are faced with a conundrum in that both US dollar payments and electronic payments are recorded as dollars. When a business buys foreign currency to buy goods for resale at a rate of 1:1.80, $1 800 RTGS will buy $1000 real dollars. This immediately creates an artificial profit of $800. On the other hand, if the businesses were buying capital assets, it can only record in its books that the goods cost $1 000 and thus can claim capital allowances on that cost instead of the $1 800. The business cannot prove that it has bought the asset for $1800 because no one issues documentary evidence for illegal activities; the parallel market.
The issues I have raised in the foregoing need to be resolved by a qualified and competent Finance minister such as Ncube. He has the international credibility and finesse to deal with these matters and with the support of everyone; he can take us out of the mud and be a game changer. He understands economics and international capital. I trust his decisions will be based on scientific research as opposed to emotions. It is natural for a professor to promote research in decision making. Yet, I am mindful of the fact that the system and the environment are bigger than an individual. He will need the team at New Government Complex to help him navigate the system for better results. In all the policies he will implement, he should remember Ziscosteel. The viability of this company could help the country build a modern industry. Houses can be built more cost effectively than with brick and mortar thereby accelerating home ownership in the country.
Daniel Ngwira is a doctoral student.