eBusiness Weekly
Clive Mphambela
Last week, a local business paper carried what I would think is a very curious headline on one of its stories. DELTA Engages RBZ Over Forex, the banner read.
Reading the story, which was factually correct, I was left a little perturbed. DELTA Corporation (Delta), one the country’s largest companies by many measures, was reportedly continuously engaging with Government and the financial sector (read RBZ) to find ways of addressing foreign currency shortages that are affecting production.
This admission by Delta to me is a reflection of how the corporate sector in Zimbabwe has since dollarisation in 2009, “GOTTEN IT ALL WRONG”
The Government, banks and the RBZ are NOT sources of foreign currency. It is the private sector exporters that should be leading in foreign currency generation, not the other way round. We have a fundamental challenge and there is need for a dramatic mindset shift.
Following the adoption of dollarisation in February 2009, which brought the hyperinflation era to an abrupt end, every citizen and corporate entity in Zimbabwe gained easy and lawful access to foreign currency, because it became legal tender.
As a result, various stashes of currency which had been “externalised” to foreign bank accounts, as well as the smaller caches of US dollars that lay hidden under people’s mattresses and in their pillows suddenly became accessible and available as the money rapidly filtered into commercial transactions and was absorbed into the formal multi-currency regime. Within a few months, the banking system was awash with dollars, and under the liberalised foreign currency framework, banks offered very generous daily cash withdrawal limits. It was a US dollar Utopia right there!!.
There was celebration as dollarisation was viewed to have saved the economy from descending into unmanageable chaos.
Even those few amongst us who often pretended to have a pathologically patriotic bone, and would have wanted to cling onto the symbols of Zimbabwe’s sovereignty — the now defunct Zimbabwe dollar —we had no choice but to embrace foreign currencies for our own and the nation’s survival.
However, whilst on the surface, everything was blissful; the tragic development enveloped our corporate sector is now here to haunt us.
Whilst Zimbabweans adjusted to the formal use of foreign currencies, which foreign currency they could simply “request from the bank”, our local companies also went into an import overdrive and all manner of goods which were once scarce, flooded the market.
Prices stabilised and even started falling rapidly as competition amongst retailers flourished. Inflation went into negative territory. Consumers were blessed. It was blissfull!!!
However, this era (read “error”) of perceived plenty also brought along with it the unfavorable circumstances and pain that our business sector finds itself in today. Certain unpleasant realities about our Zimbabwean manufacturers have quickly come to the fore.
With the US dollar, which literally became readily available “down the street”, virtually replacing the liquidated Zimbabwean dollar as the national currency, very few companies saw the need to export, build foreign currency reserves or even develop export markets.
A new and dangerous culture emerged where if a business needed foreign exchange, they simply called on the bank.
Everyone forgot a simple fact that US dollars earned from trading goods locally cannot strictly be considered as foreign currency. The dollars circulating in the economy were merely a medium of exchange since Zimbabwe had adopted foreign currencies as a trading media, with the US dollar dominating the basket.
The economy was blindsided by the “abundance of foreign exchange and we all forgot that the country needed to generate money from outside in order for wealth to grow.
The country is now desperate for exporters. We need every business to have an export focus and at the very least an import substitution drive.
The tragedy is that our businesses suddenly lost the urge to innovate and develop export markets and offshore operations which are now an imperative for long-term survival.
Foreign currency generation strategies have long disappeared from boardroom conversations and day-to-day meetings. The real tragedy in all this is that many Zimbabwean businesses began to assume that it was the next guy’s problem to export and earn “foreign currency”, whilst for their own needs, they simply resort to the bank. Now that is no longer working.
To be fair however, it is not all Zimbabwean companies that shelved export programmes due to the fact that foreign currency became “available locally”.
Some entities found themselves seriously undercapitalised because their entire capital bases were eroded during the hyperinflationary era when plant and equipment depreciated and could not be replaced.
These businesses did not have the funding they needed to retool so that their production could reach levels at which they can compete effectively against foreign firms.
Volumes remained low and there were no economies of scale to talk about.
It is logical therefore that in order to regain our export competitiveness, the country needs a combination of “smart import controls” through a sound mix of measures that do not violate trade agreements, whilst exports should be aggressively promoted via appropriate incentives.
We therefore need realistic export incentives such as at the 15 percent export retention scheme that we used to have. For example, China gives back 180 percent of wage costs to some of its exporters as an incentive as soon as they dispatch goods.
These exporters virtually have zero labour costs. Zimbabwe has to offer export incentives within the scope and realm of agreements such as the WTO (World Trade Organisation).
Local goods should be promoted especially via local content rules so that people can still have access to imported substitutes. The measures being implemented to make the economy more liquid, by attracting more foreign investment are good, but they are slow.
Under dollarisation companies no longer have the luxury of a depreciating depreciating Zimbabwe dollar to give them an edge in export markets or to price imports out of the market. The RBZ export incentive seems to offer relief to exporters, but this is not enough.
Resorting to import controls in an attempt to bridge the trade deficit gap and balance of payments imbalances has always been a bad idea. Import controls are also unsustainable because of the treaty obligations under trade agreements with Sadc, Comesa and the WTO.
Import controls, ultimately breed uncompetitive firms with high costs whilst they also foster corruption and impose an administrative burden on an already over-stretched public service.
Export promotion remains the best strategic option for the country notwithstanding that the government is operating under very tight budget constraints, which make it rather difficult to suggest incentives that do not cost the fiscus, either in terms of reduced revenues or increased spending. Banks can only facilitate trade, but it is exporters that should bring foreign currency to the table.
It follows therefore that we need to make Zimbabwe an attractive low cost investment destination, so as to boost exports and inward revenue flows in the medium to long term.
The writer is an economist. The views expressed in this article are his personal opinions and should in no way be interpreted to represent the views of any organizations that the he is associated or connected with.
