Mangudya spills it

By IAfrica
In Zimbabwe
Aug 28th, 2014
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Dr Mangudya

Dr Mangudyamangud

Joram Nyathi Group Political Editor
THOSE who fret a lot about Government policy clarity should be very happy. Use of the multi-currency regime will continue for the foreseeable future. There is no chance of an immediate reintroduction of the Zimbabwe dollar.

This is the official position, very simple and clear.

It was stated by Finance and Economic Development Minister Patrick Chinamasa recently.

Reserve Bank Governor John Mangudya restated this position in his maiden monetary policy statement on Monday this week. But Dr Mangudya revealed more about private sector operations, much of it quite unsettling.

Zimbabwe is in desperate need of foreign currency and foreign direct investment. But that is the simpler part in this complex debate on the essence of our statehood. We can defer the currency, but certainly not the debate.

The big unanswered questions remain: technically, what are the definitive benchmarks needed before we can relaunch a local currency?
What is the role of Government in achieving them? What is the role of the private sector?

Does politics have a role to play in this?

For how long can we go on without our own currency?

Are there any security risks in this? What are the implications for our export competitiveness?

These are not frivolous questions, nor am I asking them because I have answers. I ask them because a local currency is as important to every independent state as a national flag and a national anthem.

I ask them because it is common these days to hear important people sneer at the slogan, “Zimbabwe shall never be a colony again” when it is completely dependent on the use of a foreign currency.

I ask them because there is a debilitating nebulousness about the “fundamentals” which have to be in place before we can be told, “now is the time. Let’s have a Zimbabwean currency.”

I ask them because Dr Mangudya threw down the gauntlet, declaring boldly in his introductory remarks, “We are in it together as a nation. We cannot be bystanders … This is our motherland where no one else is going to do it for us.”

So here we go. On the Zimbabwe dollar, Dr Mangudya was unambiguous.

We need huge reserves of foreign currency and higher productivity before we can reintroduce the local currency.

“It would, therefore, be economic suicide for Government to do so (reintroduce local currency) without foreign exchange reserves to anchor the local currency.” This is vital for investor confidence.

Backwards, forwards
But Dr Mangudya was also very clear about the effect and impact of our negative attitudes and perceptions, exhorting Zimbabweans “to move forward without looking backwards”.

Enter the Zimbabwe Bankers Association. It acknowledges the positive impact of dollarisation.

This is universally acknowledged. But that good impact seems to have put our bankers and economists in a comfort zone.

Nobody wants to upset the status quo, and the reservations appear to go beyond what Dr Mangudya seems to imply by the need first to increase foreign exchange reserves and industrial productivity before the Zimdollar returns.

Over time, says BAZ president Sam Malaba, the Zimbabwe dollar lost its value due to inflation, thus losing the very essence of a currency as a store of value and therefore a viable medium of exchange.

All very true.

“There are few cases where countries that had dollarised succeeded in reversing dollarisation,” Malaba was quoted saying last week.

“The notable success cases are Israel, Poland, Mexico and Pakistan.”

They achieved that feat by implementing, according to Malaba, “a broad range of macro-economic stabilisation measures, typically controlling inflation through inflation-targeting and adopting specific measures to project local usage.”

No doubt these “macroeconomic stabilisation measures” involve increased productivity and higher exports to create foreign exchange reserves.

Have our bankers read Zim-Asset? Are they in it together?

Does that mean Zimbabwe cannot produce?

Does it mean Zimbabwe cannot earn enough foreign exchange to stabilise the local currency?

Does it mean Zimbabwe cannot attract foreign investors?

Indiscipline, porous borders
Production figures for the previous cropping season show that Zimbabwe produced more than 1,4 million metric tonnes of maize. This is a record in recent years.

This was achieved through a deliberate policy by Government to give resettled farmers inputs such as seed and fertiliser on time, and that pays itself many times over in terms of savings on maize imports, which savings should go into foreign reserves!

Not in Zimbabwe where indiscipline and lawlessness are slowly becoming institutionalised.

What is saved from maize imports is used to import what we produce locally: bottled water, cooking oil, clothes, shoes, Mazoe orange crush, vehicle and vehicle tyres and to smuggle second hand clothes.

This is in pursuit of democracy, freedom of choice, human rights. The result is a staggering trade deficit of more than $3,4 million.

Tobacco production in the last season hit a new post-land reform record of 210 million kg, earning the country more than $615 million.

Not much is evident in the banking system.

Much of it is spent importing the same non-productive trinkets while local industry shrivels and collapses.

Industry is happy to reel out catalogues of company closures and job losses, all of it sanctimoniously blamed on the grievous sins of the land reform programme and Zanu-PF’s black economic empowerment policies.

Minerals, one doesn’t know where to begin.

We have gold, platinum, chrome, asbestos, etc.

It is not known who benefits from these natural resources besides meager salaries paid to the employees.

Government gets its token by way of tax royalties and depletion fees, nothing more.

Yet we are made to believe the only mineral we should scrutinise is diamonds; the rest is private investment.

Mangudya spills it
Zimbabwe has a lot of resources to create sufficient foreign exchange reserves, provided everybody takes it as their solemn duty to make Zimbabwe prosper.

Instead of which we all seem more inclined to indiscipline than play by the rules.

This is not restricted to your small man or woman smuggling a few goods for resale to pay rent and school fees and buy food.

There are big fish who allegedly bring in whole containers of clothes or textile materials but are loath to pay duty.

But Dr Mangudya revealed in his monetary policy statement that the rot involves even the same people in the private sector who make unctuous exhortations about economic fundamentals and the need to build up foreign exchange reserves to moor the volatile Zimbabwe dollar.

And he took the first tentative steps to rein in some of the offenders.

He gave firms keeping foreign currency in foreign accounts 90 days to reduce these holdings from 30 percent to 5 percent. Beware the indiscipline. Let’s see if he wins.

He reduced the amount of money an individual can take out of the country at a time to $5000.

Still too much if you ask me. But check the borders and airports if anybody listens.

What more with 51 illegal crossing points across the country.

The juicy part.

Dr Mangudya revealed that there were companies claiming they were paying for imports, which imports never materialise for duty purposes.

He said this implied that some companies were “making false payments”, implying in turn “illegal externalisation of foreign currency” by importers and general lack of discipline in the economy.

He demanded that in cases where there were “no imports being sourced” the funds be repatriated. Let’s see how many care to comply.

Dr Mangudya said there was rampant flouting of exchange control regulations under the guise of cross-border investments.

“In fact,” he said, “exchange control is inundated with requests for recapitalisation on the same non-performing unauthorised offshore investments. In some cases, offshore investors have falsely attributed the non-repatriation of dividends to the need to recapitalise their failing investments.”

He added, “The Reserve Bank is fully aware that some investors continue to externalise foreign currency earned from these offshore investments.”

How does a country accumulate foreign exchange reserves when the private sector, which should be earning forex, is illegally stashing it outside the country?

What a nice way to ensure the Zimbabwe dollar never returns.

We have no foreign exchange reserves of course!

It makes sense.

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