Finance

Behold, Zimbabwe’s new economic sheriff in town

TAWANDA KAROMBO


There is a new sheriff in town; and he comes neither with handcuffs
nor wailing sirens.

His job is simple, or so it appeared at first; whip the market into line, restore confidence in business operations and probably deal with inflation.


And so we welcomed the United States Dollar back into the economy on the premise and good hope that it would wave the magic wand and all
of Zimbabwe’s economic problems would disappear.

But wait, there appear to be birth pangs along the way and it remains to be seen whether this will be a still birth or it will be a long birthing process.


So much has been said about the political situation and its impact on Zimbabwe’s economy.

The Zimdollar has crashed markedly and most of the economy has started to dollarise and pricing and access to goods has become much easier for others and much more difficult for those who cannot access the greenback.


Such is the divisive nature of our new economic sheriff. And even though the sheriff comes clothed in various robes, cash is still proving to be king and the mobile money prince charming we all thought would be heir apparent is having succession problems of his own, not only in Zimbabwe but across the world.

Initially the government said businesses and retail outlets would be allowed to institute a double tier pricing mechanism but this is not so on the market.


It has actually become punitive for shoppers to use US Dollar in the formal shops that have foreign currency Point of Sale Machines as the retailers
have to convert the local currency equivalent into the US Dollar equivalent and herein lies the problem.

Local retailers like Pick n Pay and OK Zimbabwe will use the auction rate for the week which is much welcome and the way to go but then this rate continues to lag the rate acceptable by other retailers and the incentive for those holding foreign currency to use it in the formal sector disappears.

Clearly this points to arbitration, with the street rates still a bit high although authorities are praying for convergence sooner than later.


So for now there is still no value for individual shoppers to use their foreign currency in the formal market. Here our sheriff is limited in how much
he or she can do; the magic wand is limited. This brings us to the issue of consistency; have we suddenly abandoned the directive for retailers to institute double tier pricing.


The effect of pricing remains heavy; for example a kilogram of beef or pork still costs about US$7 if you are using foreign currency after conversion
from local currency and this is much more expensive compared to the maximum US$4 at butcheries that accept US dollar without converting.

This means that we still have segments in the market and cash US dollar is reigning supreme.


Another point worth mentioning is that yes authorities are touting US$1 billion deposits in the Foreign Currency Accounts (FCA) but unless we
instill discipline the value of FCA money that is not cash remains much lower and this gives the usual suspects opportunities for arbitrage.

The modus operandi is simple—find cash for the electronic FCA, burn it for cash and pocket the difference.

Well-rehearsed there and the usual suspects probably apply.

There is one service station that started to accept local FCA and international cards. I gleefully visited it on Saturday and behold they
only have one Point of Sale machine which is very selective in the cards it accepts.

A manager at another filling station said they were waiting for the
POS machines which would take a few more days.


As things stand, there is every incentive for businesses to take foreign currency cash and sideline FCA electronic money.

This means that the values will be different and as ong as this remains some people will seek arbitrage opportunities. For companies that have a double tier pricing system in place such as Simbisa Brands, their pricing in US dollar has been less volatile as compared to businesses that have to use the interbank rate for conversion. Of course it could be early days yet but these are some of the issues that are negating the efforts of our new sheriff in town.


Some people have suggested that there will be no evening out in the economy as long as production remains low in the economy. It’s a fair value viewpoint but there are things such as consistency that we can do
as a country to help sort out issues in the economy.

Production of exports is very key, especially at this point where remittances are predicted to fall on the back of the impact of Covid-19 as hardest hit economies bleed jobs and earnings fall, ultimately impacting the disposable incomes of our friends and relatives in the diaspora.


This is why I think smaller producers now need to participate on the foreign exchange auction and Treasury has said that these can approach banks or bureaux de change to bundle their bids together and participate at the forex auctions.


It is important that we capacitate our producers and suppliers for big business as this will be a long winter under which sources of foreign
currency for the country will be constrained, especially with confidence in investing on markets such as the currently suspended Zimbabwe Stock
Exchange still low.


The Confederation of Zimbabwe Industries believes the forex auctions are a step in the right direction and has emphasised that it is key for Zimbabwe’s economy to work on a “market determined exchange rate” which will give birth to a “stable exchange rate” that will treat foreign currency cash and
FCA electronic the same to do away with arbitrage opportunities which have been one of the bigger challenges for the economy.


But ultimately the CZI, as custodians of production excluding mining, believes that demand for ZWL in the market should increase, with stimulated production also a major aim pivoted around “constant
and consistent policy communication and debriefs” to ensure all economic players are on the same wavelength.

These are key points for the government to consider and the manufacturers and their banks could also do better to improve the situation by ensuring that they help oil liquidity on the forex auction market.

Of course they need incentives to do this and I believe it is about time the government started to incentivise local producers in various ways at the state’s disposal.


So it appears to be a long haul for our new sheriff and as everyone adopts a wait and see attitude it is important to point out that dollarisation
remains a necessary evil and for now it may just give us the much needed respite if the right consistency in terms of policy direction and commitment from business and other actors. Of course along the way there will be issues that will be a pain such as pricing distortions and arbitrage opportunities by the usual suspects.


All the best sheriff US dollar as you whip us into line; and please remember not to stay for too long.


Tawanda Karombo is a finance and tech journalist.

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