How to End Zimbabwe’s Worsening Economic Crisis

We do not need a rocket scientist to tell us that market and public confidence collapsed in the post election period, writes Zimbabwe's former Investment Promotion Minister Tapiwa Mashakada.

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Zimbabwe Capital, Harare.

This article will be brief and straight to the point. There is no need to continue to pontificate on the political-economy of the country because we all know that after the 30th July elections the economic situation deteriorated fast instead of improving. We do not need a rocket scientist to tell us that market and public confidence collapsed in the post election period. I will address these legitimacy issues elsewhere. For now please allow me to proffer Solutions to the current economic challenges.



1. Solution to price increases, commodity shortages:

(a*) Gvt should should suspend duty on all food stuffs. This will allow retailers and individuals to fill up empty supermarket shelves at competitive prices. Please let us drop the infant industry protectionist mantra. Import substitution is for long term. Here we are looking at emergency measures.

(b*) All prices must be denominated in Rands because they are purchased in Rands. Retailers have been converting rand prices to usd prices on parity. For example a product bought for R60 is sold in Zim for $60 usd. This is arbitrage. What is bought in rands should be sold in rands. Then the country can use USDs to import fuel , electricity and other imports that require forex.

2. SOLUTION TO THE LIQUIDITY CRISIS



(a*) The bond note must be de-commissioned as it is a surrogate currency. Bad money is chasing good money. The existence of the bond note on parity basis with the USD is driving parallel market rates. This bond is a feeding trough for inflation. It creates inflationary pressures. If gvt still wants to retain the bond i think its better to admit that it is the local currency of the day. In that case, it gvt must come to Parliament to have the bond adopted as the official currency with a floating official exchange rate. In that case the bond note should be availed in the banking system.

(b*) De-dollarize and replace the dollar with the Rand as the dominant currency in the multiple currency basket. In other words make the USD a foreign currency unit not a day to day medium of exchange. The wide usage of the Rand can be done de facto or dejure. Joining the Rand Monetary Union would make it de jure. Promoting its wide circulation would make the Rand a de facto currency.

(*d) The usd should be used as foreign currency because the economy does not have the capacity to generate usd money supply. Our major sources of forex are tobacco, gold, diamond, platinum, chrome, horticulture, diaspora, international organizations, foreign direct investment and private commercial loans. But with a debt overhang of usd $17 billion the foreign currency is just not enough to meet domestic and foreign obligations.

(*e) reintroduce foreign exchange bureaus which accept forex trading on a no question basis.

3. NOSTRO FCA ACCOUNTS AND INDIVIDUAL NOSTRO



As long as there is no externalization gvt must continue to promote retention of export earnings to levels that will not compromise the national interests. But for individual FCAs these must liberalized and individuala should be free to withdraw or deposit.

4. REINTRODUCTION OF THE DOMESTIC CURRENCY



should be done on conditions that
– no printing of money and this must be gazetted
– building of reserves for one year import cover
-stopping RBZ overdraft and domestic borrowing
-addressing the budget deficit and trade deficit ( the twin deficit).

It is one thing identifying these preconditions but another to address them. So far all Zimbabweans have chosen to defer implementation of these preconditions hence since 2009 economists have been talking about right fundamentals without doing anything. Zimbabwe must at some stage have its own currency whether we like it or not. But there must be a Covenant against re-igniting hyperinflation by resorting to inflationary financing of the deficit. So the first order of business is to totally get rid of the budget deficit in the first place. Can Zim successfully reintroduce its own currency? The answer is yes we can but it depends. Which leads me to touch on reducing Govt expenditure. Fiscal consolidation is a political issue that requires Leadership. This is where the ruling party has to smell the coffee. Again corruption is a political issue which needs political will and Leadership. The 2 are the babies of the ruling party which should address them head on.



(5) ADDRESSING PRODUCTIVITY requires new Capital injection and re-engineering of the Manufacturing sector. The agro-processing value chain must be reestablished, esp food processing. The agro-industrial value chain must restored esp engineering, iron, steel, mining. New technologies required. And so are lines of credit for retooling, innovation and adaptation.

(6) Investment Facilitation. This is key and requires no elaboration. Zimbabwe must be the choice for investors. We must improve our incentives and investment climate. Ease of doing business must be expedited. Practical reforms are required beyond rhetoric.

7. Re-engagement is necessary to clear our debts and unlock new money. But the language must change. In the gvt there are spoilers who should not be allowed to open their mouths. They are spoilers.

CONCLUSION

I bet you if this government listens and adopt even half of these measures, Zimbabwe can stop the current free fall and start to recover provided economic reforms are accompanied by the deepening of democracy and good governance.


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