eBusiness Weekly
Martin Kadzere
Zimbabwe is engaged in “serious discussions” on currency reforms because it is no longer sustainable to retain the United States dollar as the predominant medium of exchange, according to Finance and Economic Planning Minister Patrick Chinamasa.
But he said changes can only be implemented after the government has addressed some critical macro-economic reforms.
In an interview with Business Weekly on Tuesday, Minister Chinamasa said Zimbabwe’s U.S. dollar dominated currency regime had exposed structural weaknesses in the economic, which called for immediate reforms.
Zimbabwe abandoned its domestic currency in 2009 for a basket of foreign currencies dominated by the greenback, leading to what is now generally referred to as dollarization.
However, a combination of factors including the widening trade deficit, subdued foreign direct investment and diaspora remittances have resulted in foreign currency shortages.
Several business are saddled with huge foreign payments backlogs and some supplies have since scaled down or completely stopped supplying local companies.
Minister Chinamasa said Zimbabwe was responsibly concerned about resolving the currency problems.
“The current situation where a reserve currency; the global reserve currency like the United States dollar is used to pay wages; is used to buy wild fruits is not sustainable,” said minister Chinamasa, who also held the finance brief at the time of dollarization.
“The U.S dollar in necessary, but should be used solely to buy essential commodities, equipment and goods, which are essential to turning around the fortunes of our country; which are necessary for economic growth and not the way we use it currently, “ he said.
The finance minister said serious discussions had started on how to improve the cash shortages and to undertake comprehensive currency reforms, but would not give a timeframe.
“What I want to emphasise is that in our discussion, we are saying before we bring our own currency we need to address certain macro-economic fundamentals, we need to address issues to do with building up reserves, increasing export earnings, trade imbalance, debt arrears as well as our political isolation,” he added.
Economic analysts say Zimbabwe needs to correct market conditions necessary for currency reforms, and the major issue was a production problem.
“What was taken out by the market can only be brought back by the market,” economist Dr Gift Mugano said. “Zimbabwe has no currency problem, but production crisis. Without achieving the macro-economic fundamentals, discussion of currency reforms was a waste of time.”
“What will only change is the denominator, but the answer will remain the same,” said Dr Mugano. He said it was premature to start debating about currency reforms.
Investors seemingly unmoved
Minister Chinamasa however said the prevailing worries over Zimbabwe’s currency regime had not affected investors seeking business opportunities in the country.
The southern African country has received firm investment commitments worth over $15 billion as investors warm up to Zimbabwe since the coming in of the new administration of President Mnangagwa in November last year. The President has since declared Zimbabwe open for business and has already repealed the indigenisation law which limited foreign ownership of companies to 49 percent.
The law is now restricted to only two minerals, diamond and platinum, but even then, this only temporary to allow the Government to craft a beneficiation policy for them, after which the indigenisation law would scrapped for the entire extractive sector.
“Most of the investors who come have already acquainted themselves with those shortcomings and they are fully aware that Zimbabwe is operating in a very unique situation, under sanctions, without currency of its own, using US dollars to pay wages when in fact it does not print the US dollar. They understand all that, but clearly, from our point of view what sticks out is that there is a structural problem, which needs to be addressed,” said minister Chinamasa.
Time to invest is now
Minister Chinamasa said the business environment was now more conducive for foreign direct investments as leadership changes had bought a “new hope and direction.”
Minister Chinamasa said the only inhibiting factor currently was the forthcoming elections, slated for the 30th of next month, after which the country could start experiencing a foreign investor stampede. He said Government was working on clearing hurdles inhibiting investments and knows “where there are”. “We are very clear what needs to be done. We have to re-engage, as long as we are isolated, politically and economically, we will go nowhere as a country. We can’t leave in isolation.
“But we cannot give a timeframe as to when the other parties will remove the sanctions. But, we see a warming up on the part of the western countries in particular.”
Zimbabwe’s Treasury chief said shrewd investors would not wait for the things to be right.
“The easiest was of riding an elephant is when it is lying down. When it wakes up, you need a ladder,” Chinamasa said.
“And I can apply this analogue to our economy. The shrewd investors know we are going to rise quickly. And when that happens the premium will be higher to enter this market,” he added.
