Combined forces key to resolve crisis

The Financial Intelligence Unit (FIU) on Tuesday met retailers and business leaders as it sought to investigate why some products are being exclusively priced in foreign currency.

The meeting came barely a week after finance minister Mthuli Ncube warned that the government would withdraw licenses of businesses that are only selling in foreign currency.

It came barely a day after Ncube said the FIU would investigate government suppliers amid revelations that they were offloading the local currency on the parallel market whenever they are paid.

Ncube warned that those found on the wrong side of the law will have their accounts frozen and assets bought from the proceeds forfeited to the State.

It is not the first that there have been meetings on the state of the economy. There will be more of these as long as more effort is put in addressing the symptoms and not the problems.

When cornered, the government issues threats as its last line of defence.

How did we get there? One may ask. The answer lies in the refusal by the government to accept that the local currency has lost the bulk of its functions as a currency.

Early this year, economists and analysts projected the return to full dollarisation by June saying the environment was not conducive for the local currency.

The economists told the government to stop paying contractors in local currency as they would raid the parallel market in search of the greenback thereby putting pressure on the Zimbabwe dollar.

That advice was ignored until recently when the government said it would pay contractors half of their dues in foreign currency.

The brisk business enjoyed in the informal sector should have jolted the government into action.

However, bureaucrats have been under the illusion that ‘zvakarongeka ‘ (it’s all in order) to use Ncube’s favourite parlance.

The answer also lies in the inability of the foreign currency auction system to allot the foreign currency with a backlog of over 10 weeks. Businesses have to survive and they are forced to go on the parallel market for recourse.

Manufacturers will be left with no option other than to charge in foreign currency for their goods. They will give anyone who pays in hard currency and abandon formal businesses that pay after 30 days at a time inflation is eroding the local currency.

Retailers that had found a way of getting the greenback by offering huge discounts on foreign currency sales were left in a lurch after the central bank decreed that they can sell at a price which is 10% above the auction rate.

The informalisation of the economy should be a cause for concern for the Treasury.  It is the formal sector which pays taxes. As we reported in this e-paper, retailers are on the edge as manufacturers are reluctant to supply as long as they pay in local currency. This means that formal retailers will record low sales which will affect taxes.

The Zimbabwe dollar has few takers outside the formal businesses despite claims by the government to the contrary. With inflation on the rampage, it means the local currency will continue losing trust.