Why can’t we fix these things?

Up to now I have not commented on the issue of our new local currency, the  ZIG. The reason is that I have so many friends who are directly associated with this new effort to stabilise our local currency and they have put everything they have behind it. However, there is absolutely no confidence in our monetary authorities and under these circumstances it is almost impossible to predict success.

A paper currency is only a means of exchange. The only value attributed to it is the value printed on each note and the market behind it which determines how much it is worth in real terms. If we look back on our monetary history it is quite a story. At Independence in 1980 our currency was worth 2 US dollars to every local dollar. It more or less held its value till 1997 when it crashed under the weight of unsustainable debt and excess State spending. Up to this point the local dollar was the sole means of domestic exchange.

It remained like that until 2009 when the local dollar was effectively abandoned. The reason at that time was the printing of local currency to cover a fiscal deficit in the midst of a collapse of the economy. In early 2009, Zimbabwe was essentially a failed State.

Since that time, we have tried on several occasions to issue a new local currency to augment the use of other currencies, in particular the US dollar. None of these experiments have worked and we have just witnessed the collapse of our local currency in similar circumstances to 2009. Now the ZIG. I have no idea how they came up with this name but if it was in an attempt to pretend that somehow it is backed by gold, it is bound to fail.

The only good thing about this exercise is the clear understanding that we have to have our own currency in order to secure the growth on a sustainable basis of our economy. As all other States that face what we face today, have experienced, is that; we need a local currency under our own control and management and that it must be undervalued to boost exports, lower costs and create jobs.

All our neighbours have achieved this with their own currency – the Kwacha in Zambia, the Pula in Botswana and the Meticais in Mozambique. What is wrong with us? If I analyse the situation I would argue the following: –

1. We have done what it takes to stabilise our own currency. We have fixed our fiscal deficit with a mix of fiscal discipline and tax increases.
2. Our economy is growing and our export earnings rising rapidly so that today we have a significant balance of payments surplus.
3. Our informal economy, which is as big as our formal economy, has a considerable balance of payments surplus when you factor in gold sales and remittances from the millions living abroad.

If the above is true then there is no reason why our currency should not be the strongest in the region. So, what is wrong?

My position is well known but viewed as being too radical. If I was in charge I would have carefully planned a new currency, printed enough to be useable on the street as a means of exchange and then introduced it as the sole means of local exchange. I would ban the use of foreign currency for local transactions. 100 per cent of hard currency earnings would be automatically converted into local currency on receipt.

To support this, I would do what our Minister of Finance did in early 2009 – abandon exchange control, fully liberalise gold trading and lift all attempts to manage prices throughout the economy. We did that in February 2009 and in 24 hours this was a different country, without any external support or reserves. I still have to hear an explanation of how that happened!

I can tell you that if we did that, our local currency (call it what you will) would very soon be too strong for our growth prospects. The Reserve Bank would find itself printing local currency to buy in hard currency which we could put into our reserves. It would make sense to spend some of this money to buy gold to preserve its value. Our inflation would fall to regional and global levels. If we did that I can guarantee our formal markets would expand rapidly, our industry base would expand and we would be creating jobs on a scale never seen in this country of ours.

But for this to happen the ZIG must be freely convertible in formal markets and there must be no attempts to hold it value against market pressures. Any attempt to do so will automatically create a parallel market for the stuff and quickly destroy its value. That would leave us with the US dollar, massive growth in our informal economy, money laundering and smuggling. Back to square one. It’s really quite simple.

Then there is the issue of our roads. I do not know how many vehicles are on our roads but in Harare if you want to get to work at 08.00hrs then you have to leave home before six. You will not get home until after 20.00hrs if you do not leave work early. In addition, regional economies are growing strongly and Zimbabwe as a transit State sees thousands of trucks transiting the country every day. Our national roads are a real mess, even dangerous. In rural areas, roads are almost impossible while in urban areas you sometimes need a four wheel drive to get to where you want to go.

There are many reasons – the collapse of our railways, our inability to borrow long term funding for infrastructure, the misuse of local resources. But before we blame sanctions for this problem or our inability to restructure our debt and resume borrowing, lets put our own house in order.

Some years ago, we created the Zimbabwe National Road Authority (ZINARA) and gave it the right to collect licence fees, the carbon tax and a fuel levy, we also said that it must not spend more than a few per cent on itself. It has been a disaster – its costs rose to over a quarter of its income, ridiculous expenses and overheads and it has been guilty of corruption in procurement – 80 graders from China at a cost double what we could have spent regionally, no field support and they arrived with snow ploughs on the front! Now we try to make car radio licence payments compulsory and have given them the right to insure all vehicles for third party cover.

ZINARA now has the capacity to raise at least US$500 million in revenue per annum and if this was spent properly it would make a huge difference. Instead, we find them contracting work without proper tender procedures or professional oversight. Right now, we are tearing up good roads in the Harare City centre and building boulevards to the new Parliament when our main access roads for the City are totally congested.

We need to do two things to fix this problem. First we need to hand over all 4000 kilometres of national transit routes to a private company that will fund this process supported by the traffic volumes. Then we ned to instruct ZINARA to allocate all its funds to the local authorities responsible for urban and rural roads.

Can we fix these problems? Sure, we can.

Eddie Cross

Harare 4^th of May 2024