eBusiness Weekly
Taurai Mangudhla
Central bank Governor Dr John Mangudya, last week announced the country had imported $400 million worth of hard cash between January and April to ease the cash crisis, raising hopes for improved transactions to Zimbabweans especially those who largely depend on cash.
Zimbabwe adopted a multiple currency regime that is dominated by the US dollar in 2009 after a decade of hyperinflation and economic stagnation.
While the move is a show of commitment to improve the livelihoods of citizens, questions remain whether or not importing more US dollars is Zimbabwean’s way out of the cash crisis, described by Dr Mangudya as a foreign currency crisis, and how much of an impact the $400 million had in terms of the achieving the intended goal. There is also, among other things need to close the current account deficit.
According to statistics, Zimbabwe’s trade deficit is almost $900 million for the period between February and April 2018. Zimbabwe recorded a $1,6 billion trade deficit in the first 10 months of 2017. This is just not sustainable for an economy and that gap needs to be closed.
In as much as Government needs to import cash, given that we use foreign currencies, increasing the amounts that are being imported will not solve cash problems without solving fundamentals such as increasing export production by improving the export infrastructure both hard and soft.
The $400 million works out to an average of $23,5 million per week and $100 million per month which is about double the amounts of between $10 and $15 million according to the Reserve bank of Zimbabwe (RBZ) that were being imported when the cash shortages grew to a permanent problem early 2016. Dr Mangudya announced in July 2016 the country had imported $240 million between March and July.
However, a highly placed official in the RBZ said in 2016 Zimbabwe needed to import $320 million monthly, averaging $80 million per week to meet its demands.
Pumping in cash
Other things being constant, the $400 million imported in four months is just $80 million above one month’s cash import requirements and only 31 percent of the $1,3 billion needed to last Zimbabwe four months. To the common man on the street who spends hours waiting to withdraw $50 for his daily commute and to pay for vegetables at the market, the impact of the $400 million has not been felt.
Just to paint a picture, the central bank in 2016 when the cash shortages began to surface more permanently said it was importing between $10 and $15 million each week. This would have put the total cash imposing the four months to about $255 million. Despite cash imports almost having doubled, based on the weekly averages, shortages have worsened with only bond notes circulating.
Even the bond notes that are not imported are also scarce. The RBZ said bond notes in circulation are now $350 million plus $40 million worth of coins. This is almost half of the $800 million Dr Mangudya argues is enough adequate in circulation under normal circumstances. Broad money supply for the country was $8 billion as of December 2017.
One would assume that it perhaps helped fund companies that had been on the waiting list to get funds for their imports, but figures that have been made public speak a different language all together.
The black market rates that had soared to a premium of 95 percent on electronic modes of payment and 50 percent on bond notes for the US dollar in November last year prior to the new dispensation remain flat at about 50 percent since January. This is testimony that hard currency is still in short supply for industry and individuals whop largely depend on imports.
Solutions to the cash crisis
Like Mangudya rightly pointed out, ours is a foreign currency crisis where export earnings are just not enough to support our demands as an economy hence the need to produce more across all sectors be in agriculture, manufacturing and mining.
It is not helpful that we keep importing way more than what we export.
There is need to ensure the economy depends less on imports by capacitating local industry, opening barriers to entry for new players in high technology and production of consumables. There is need to ensure that the existing industries produce world class products that are of a competitive quality such that people don’t need imports.
Value addition is a major game changer as it maximises export earnings and reduces need to import. In the textile industry for instance, instead of importing fabrics and exporting unprocessed cotton, we should value add and export fabrics and shirts instead of importing clothing items. The same goes for our leather industry which has potential to produce shoes. What is needed is the latest technology and the skills to produce fine products that are competitive globally.
There is need for policy consistency and clarity. Consistency and clarity inspires the much needed confidence to avoid hoarding of cash and encourage whatever cash is imported to remain in circulation instead of finding its way into pillows and under beds.
People need to be able to preserve their foreign currency balances in their accounts and be able to withdraw or transact when they need to. The problem comes when their $1 million bank balance can’t buy them a new Mercedes from Germany and they have to find cash on the black-market. This means any hard currency that leaves the banking system will not find its way back. Government also has a role to play to ensure electronic modes of payments are adopted such that cash is only used on a need basis.
Latest official reports say 96 percent of all payments are now electronic, a major score for the economy.
