Whilst the statement had several positive policy shifts the Economy is
unlikely to improve due to the unresolved political crisis arising from the
contentious March 29,2008 election and the run-off in June. In the absence
of an undisputed political settlement Zimbabwe will remain with the crisis
of confidence and as such investment, production and International support
will remain at undesirably low levels.
The currency reforms are welcome in as far as they address the strain on IT
systems and the general burden to the public of traveling with huge amounts
of currency even for simple shopping trips. The public will obviously be
relieved that instead of carrying suitcases to go shopping, now a wallet can
in fact do the trick. Banks which had now been forced to develop various
sub-accounts for clients will now have to re-adjust to normal practices.
These are the immediate and likely only benefits.
The Zimbabwe dollar will however remain weak and under speculative pressure
due to the depleted (non-existent) foreign currency reserves. In addition
the inflation differential between Zimbabwe and its major trading partners
is so high that the Zimbabwe dollar can not sustain its newly acquired value
for any foreseeable future. The Global inflation forecast is approximately
4.8% for 2008.And Zimbabwe’s current inflation is 2.2 million % and
forecasts indicate it could easily hit 100 million % before year end. The
Zimbabwe dollar is therefore likely to depreciate by a margin that mirrors
the inflation differential between Zimbabwe’s inflation and that of its
trading partners and that difference is running into millions.
The removal of Zeroes would have been a perfect measure if supported by
significant balance of payment of support from various sources including
IMF, Africa Development Bank, PTA Bank and the wider international
community. In addition other measures would be required such as building
import cover for 6 to 18 months. The lack of import cover means the nation’s
reserves are basically operating on a hand to mouth basis and as such the
currency can not stabilize just by the removal of zeroes.
The currency reforms in the absence of political settlement which is
required for Zimbabwe to be re-admitted into the Global financial system
means the measure would be a wasted effort in as far as stabilizing the
currency and inflation. The political settlement is key in that the various
targeted sanctions that have been announced are now going beyond individuals
and the latest addition included various listed corporates and numerous
parastatals. The effect of this is to limit the counterparties these
entities can trade with and will in the long run entangle most companies
listed on the Zimbabwe stock exchange. This will further worsen capital
flight and dampen one of the few viable investment destinations that remain
for most Zimbabweans.
The other side is some of the targeted sanctions come with a stick and
carrot approach and upon being lifted Zimbabwe will qualify for various
specific programmes to help rebuild the Economy.
The Mid-Term Monetary Policy mentioned the need to invite private sector
participation in various parastatals. This is a positive measure but needs
to go further and in fact pursue an aggressive privatization programme which
will free State resources only to those areas which the private sector has
no capacity. It is clear most of the recent Quasi-Fiscal activities have
been necessitated by the need to keep parastatals on their feet. This can be
avoided by privatizing most of these institutions many of which have ready
buyers and at attractive prices should this be accompanied by political
settlement.
In the absence of political settlement Privatization may not realize optimal
values as assets are likely to remain depressed due to political
uncertainty. Zimbabwe has attractive assets in mining, telecommunications;
transport, food processing and these assets could be disposed of in foreign
currency and help build stable import cover capacity. Simulteously the
disposal will save the public purse from the now routine rescue missions of
RBZ hand outs to the parastatals.
In addition to export incentives the authorities need a clear plan to
encourage Non-Resident remittals to come through the official systems. Many
nations including Mexico, Cuba, India, Pakistan, Philippines, and Nigeria
have developed channels and institutions to help and encourage their
non-resident citizens to remit more funds back home. This needs to be a
genuine effort which is normally accompanied by the right of these
non-resident citizens being allowed to vote. This is critical to build a
sense of nation-hood and nation building after all remittals with no right
to vote is similar taxation without representation.
Gilbert Muponda is a Zimbabwe-born entrepreneur.
Post published in: Opinions