eBusiness Weekly
It is a great pity that when the new Minister of Finance and Economic Development, Prof Mthuli Ncube, made some quite interesting remarks in an interview shortly after his appointment, his academic and consultant style of expressing options was grabbed as a set of statements on radical change in Government policy.
As a result a necessary culture of encouraging debate and discussion on fundamentally important issues might well be hampered.
Prof Ncube gave a brief set of options that needed to be considered, although with a general fiscal discipline and enhanced tax collection to minimise or even eliminate the deficit budgeting he inherited, although that core role he must play never made the headlines.
What did made the headlines was an unexceptional set of options the Government may face on currency. These are, as everyone knows, either to retain the US dollar as the main unit of account, switch to the South African rand or re-introduce a local currency. All the Minister did was mention these were the options, along with a little bit of background and conditions, just as he might have done in opening remarks in a seminar or the introduction to a consultancy report.
He also noted that the bond notes, introduced as a convenient medium of exchange for small transactions that would prevent foreign currency smuggling over the borders, had not performed as expected, hardly a revolutionary statement, and pointed out that there was an option to redeem them. That was interpreted as a done decision to abolish bond notes.
We assume he expected any reaction to be taking the debate and discussion several steps forward. It is not a bad idea for a Finance Minister to involve others in his planning and to try and get as much consensus as possible.
We also assume he was startled at the misreading of his statements and the priorities that so many journalists, few of whom understand the first basics of economics, seem to have.
It was if he made some general and sensible remarks about selecting a motor vehicle and found the reports indicated that everyone wanted a red car, regardless of type or make; most reaction was as off the mark as that.
We hope that the press battering he received will not him off continuing in his open style of speaking, although we would understand if he wished to limit this to more structured and private occasions and meetings.
Since those remarks Government policy has had to be firmed up.
For a start we will retain, for the time being, the US dollar. This does make sense. The overwhelming bulk of our exports – gold tobacco, platinum, diamonds, cotton, metals — are denominated in international trade in US dollars, as are our critical imports – fuel, wheat and soya, and quite a lot of raw materials for industry. To bring in another currency between export and import seems unnecessarily complicated as well as risking the wide boys trying to arbitrage.
The rand option has its adherents, mainly in some industrial sections and among some commercial importers. For countries in the rand area it does make sense, since they are all in a customs union. We doubt that denominating our potential industrial exports in rands will do much to help sales in South Africa without that same single market access, something which is not on the cards at present. Even if it was we would need some steps; the effective single market we had at the start of the multi-currency regime a decade ago was for many Zimbabwean industrialists the final nail in their coffin. We need to continue building brands, quality and productivity in our home markets with competition from pricier imports before we move into a single SADC market.
The Zimbabwe dollar, as Prof Ncube and President Mnangagwa have carefully explained, is a nonstarter until we have adequate export cover, that is we have sorted out the balance of payments deficit, and have a stable fiscal situation, that is we have sorted out the budget deficit. Added to those fundamentals is the distrust of the general population who still remember the hyperinflation.
We need to stop harping on the secondary issues, banknotes in ATM machines and the like, and start recognising that there is no magic wand that will fix things by Christmas.
But we can be a great deal better off by 2023. As we and every serious economist, plus our new Government, have continued to repeat we have to sort out the fiscal and balance of payments deficits and get Zimbabwean incomes rising significantly, whether with more formal jobs or far more rewarding self-employment that selling tomatoes on the pavement.
Five years of sustained growth, and thus of growing tax revenues, coupled with fiscal discipline sorts out the budget problems. The same five years of growth, with large investment in the export sectors and infrastructure and more import substitution, solves many of the balance of payments problems. All this is possible but it requires us to concentrate on the fundamentals and stop seeking magic wands.
The President and Minister are looking at the longer-term, rather than the gimmicks, and at removing restraints to proper growth. We should at least respond to their willingness to listen and debate how we accelerate growth and accelerate it in the right directions by showing similar seriousness.
