Renewed hope ends roller coaster ride

22 Dec, 2017 - 00:12 0 Views

eBusiness Weekly

Taurai Mangudhla
Some have referred to it as the New Political Dispensation while others preferred to call it the New Economic Order.

Whatever you decide, it’s no debate that the change in leadership at the highest office in the land has ushered in new hope that has been waning among citizens and investors, both local and foreign.

As we enter 2018, one cannot help but look in the rear view mirror and reflect on 2017.

With most being reminded of the 2008 hyper inflationary environment that was characterized by empty shelves and closed industry, 2017 had all the bad signs. Panic gripped the nation at one point or another and all hope was lost until mid-November when a change in leadership looked certain.

The year will undoubtedly go down in history for political changes that saw the inauguration of Zimbabwe’s second President, Emmerson Mnangagwa, since the country gained independence in 1980, but the economy remains critical.

Not detached from the politics, the economy of Zimbabwe has been a roller coaster ride, full of ups and downs, exhilarating and breath taking moments that have had different impacts on various sectors of the economy. While overall GDP growth of 4,5 percent in 2018 is anticipated, the journey was a tough one that saw companies continue to downsize, corporates struggling to retool due to lack of capital and access to foreign currency and cash shortages worsening. The biggest highlight of the year; one that remains a major challenge and an area the population watches closely as a key deliverable, is that of cash shortages and the need for foreign currency.

Evolution of the forex crisis

To many, it is a shortage of cash period. The real scenario though is that the economy is not exporting enough or earning enough foreign currency receipts through diaspora remittances and capital inflows.

Instead, most of the cash has been finding its way outside the economy through various means. Meanwhile, depositors want hard cash on their bank balances despite the need to import the currency from the United States. For time immemorial, the festive season has suffered cash shortages. Even when the country had its local currency, citizens queued for long at banks and struggled to withdraw their cash for the Christmas holidays largely due to pressure stemming from a huge surge in the demand for cash.

Civil servants, who constitute the bulk of the formal workforce, normally got their annual bonuses between late November and end of year, putting pressure on the financial services sector to provide cash.

Even as civil service bonuses were staggered into the New Year, the demand for cash around the festive season persisted and normal access to cash would be witnessed half way into January.

However, by the end of 2015, cash shortages slowly became a permanent feature. Slowly, hard cash, starting with larger denominations of the United States dollar, vanished from the market leaving the bond notes that were introduced late 2016.

By June 2017, even the bond notes became scarce despite having faced public ridicule. This left Zimbabweans with no choice but to adopt digital payments. According to the Reserve bank of Zimbabwe, more than 75 percent of all retail payments were on digital platform in the first half of 2017. The figure is believed to have gone up in recent months.

As the US dollar vanished, digital payments surged. This, however, did not cater for foreign payments mostly for non-priority imports. Being a net importer, basically importing anything from diapers to used vehicles, Zimbabweans need foreign currency.

This created a black market for foreign currency.

The premium was charged for US dollar against bond notes and RTGS transfers. It started at about 10 percent and grew gradually to about 95 percent before dropping sharply to around 40 percent when Operation Restore Legacy started in November. Since then, the parallel exchange rate has gone back up to 50-60 percent

Along came multi-tier pricing

Of cause, the black market exchange rate saw price increases as business cushioned themselves from the exchange rate risk so to speak. Some businesses introduced a multi-tier pricing system with goods being charged differently for US dollar payments, bond notes, transfer and Ecocash. For example, a spare headlamp for a Toyota Corolla selling at $200 cash at a local auto shop would be sold at $220 for bond notes and $240 Ecocash or RTGS.

Panic buying

September marked a major mark on the 2017 economic calendar for Zimbabwe. Panic buying towards the end of the month on basic commodities, in particular cooking oil, was witnessed across the country.

This pushed prices up heaving to a point a 2 liter bottle of cooking oil, that was selling at slightly below $3, went up threefold to $9.

Shelves ran empty of basic commodities like sugar and cooking oil as citizens stocked in anticipation of shortages. This behaviour was largely incited by social media messages. Prices of all goods went up marginally as a result.

The dawn of a new era

The Zimbabwe Defence Forces (ZDF) on November 15, moved in to weed out of Zanu-PF criminal elements surrounding President Mugabe, engaged in activities meant to destabilise the Government.

The process was to later result in President Mugabe’s retirement on November 21 and the return of the deposed and exiled former vice President Mnangagwa.

Efforts to cut recurrent expenditure have been made in the 2018 National Budget, renewing hope.

President Mnangagwa’s speech last week at the Zanu-PF extraordinary congress is also a source of renewed hope. He emphasized the need to stop focusing entirely on the politics and prioritise on economic reforms.

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