Taking stock, 100 days on!

Exchange rates between bond notes and USD cash fell to between 10 percent and 20 percent from a high of close to 50 percent

Clive Mphambela
One hundred days of what? That has been the major question under discussion this week. Memes and jokes are currently flying around of these key days. But perhaps we need to be fair and really do an overview of what has transpired since President Emmerson Mnangagwa’s inauguration.

In my view, the last hundred days, which are President Mnangagwa’s first 100 days in office, have been — if we are to be fair judges — perhaps some of the most eventful days in our economy in recent memory.

There are indeed many mixed feelings with some people, and it is well within their rights. Some have expressed dissatisfaction at the pace of progress and even more have alluded to the lack of visible or tangible progress in the economy.

However, when looked at more objectively, quite a lot has happened and to support my arguments, I will state a few economic observations. For obvious reasons, I am not a political analyst, so I will stick to the matters around the economy and not delve much outside that arena.

Market correction on the Foreign Exchange and Zimbabwe Stock Exchange

The new dispensation was received almost immediately by a massive correction in the markets. We recall that the Zimbabwe Stock Exchange had endured (I dare not say enjoyed!!) a massive bull run from about April/ May which had resulted in an over-valuation of shares.

This affected particularly dually listed counters such as Old Mutual, which were trading at up to five times exchange parity value in dollar terms on the ZSE compared to listings elsewhere.

In addition, the premium on Old Mutual shares was recorded at much higher levels than other premiums observed in the foreign exchange market. We cannot ignore the fact that the immediate collapse of the Old Mutual Implied (Exchange) Rate (OMIR) in late November 2017 reflected the positive sentiment related to the ushering in of the new Government.

The stock market has stabilised and the massive speculative premiums on share prices were wiped off the market.

The ZSE Industrials Index, which shot up from 143 in May 2017 to 522 at the end of October 2017 before peaking at close to 600 points has retreated to 294 points as of February 26, 2018.

The market capitalisation of the ZSE has also come down dramatically from close to $16 billion in mid November 2017 to just over $8,3 billion this week.

Concomitantly, those of us who closely follow developments on the “real foreign exchange markets”, which officially are not supposed to exist, also observed that the premium between local US dollars (RTGS) and USD hard cash and NOSTRO dollars fell from levels upwards of 85 percent on average and stabilised between 35 percent and 50 percent almost immediately on the installation of new order.

Exchange rates between bond notes and USD cash also fell to between 10 percent and 20 percent from a high of close to 50 percent just before the new dispensation. These to me, are pretty significant economic events.

Stabilisation of prices of basic consumer goods

It is without question that prices of basic consumer goods, even those that are outside the direct control or monitoring matrix of the government were shooting through the roof. There has been notable price stability and indeed some observable downward revision on prices of some items. Price surveys conducted by independent research houses even indicate that the consumer basket came down in price by some 1.4 percent between November 2017 and January 2018.

Increased investor Interest

There is no doubt that there is increased investor interest in the country. Not only has it been announced that upwards of $3 billion dollars in new investment commitments have been made, but enquiries continue to grow.

There has also been an IMF mission to Zimbabwe as well as a World Bank mission, which while these were routine missions, have been different in the sense that there is a stronger sense of optimism.

Naturally the argument is always that actual deal flow takes a much longer road. The undeniable fact is that there is a great deal interest in the new economy.

Cash shortages, the Multi-tier Pricing and the Third Economy

Whilst there have been major adjustments in the pricing of goods, there has been nothing to stem the proliferation of the Multi-Tier Pricing model, which is predicated on the shortage of foreign exchange. There still exists a third economy, where cash is king and prices of consumer goods are significantly lower than in conventional stores. Just to put it into context, a 2kg bag of detergent washing powder which sells in the cash-based stores for $3.50 is retailing for between $5.50 and $8.50 in the conventional shops, where the payment method are predominantly based on electronic money, Swipe and Mobile Money. There is therefore a real need for government to address the cash shortages in the economy.

Beyond the 100 days

Having accepted that economic changes do take time to implement and some policies have a longer response lag than others, I posit that what the new government should do is not to lose the economic momentum. At the policy level, government must continue to send the correct signals to the market. So far the Government has managed to do a good job by setting the right expectations.

The Government has even been accused of being all talk and no action, but we must accept that to get a train moving, there is a lot of inertia to overcome as the engines heat up. So let give it a little bit more time.

However, care should be taken so that the market does not lose patience and government doesn’t lose its credibility. To achieve this, I suggest a few things

Firstly, there must be demonstrable evidence given to the market about the performance of the fiscus as soon as is practicable. Government committed itself to improving fiscal discipline when the 2018 budget was announced.

The outturn of expenditures (versus revenue) for the first three months of the year will be critical. So in the next thirty to sixty days we must get some kind of update from the market in terms of budgetary performance.

These numbers will offer the strongest signals to the market as to whether the Government is sticking to its new principles and priorities.

In short, the Government must do the needful to make the market understand that finally we now have a Government that is committed to respecting its own laws, such as the fiscal anchors enshrined in the Reserve Bank Act for example.

The Government must also show an unwavering commitment to respecting the laws of economics. In this regard, we must begin to have an honest and serious engagement about the need to deal with all the proverbial elephants in the room. One of the issues we must immediately confront is the issue of currency reforms. Perhaps the subject of my next article.

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 organisations that the writer is associated with.


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