Companies call for government action and consistency
Business leaders demanded greater consistency in policy measures and adherence to government promises to instill confidence in a volatile economy amid a falling exchange rate that has been blamed for causing a wild resurgence of inflation.
It comes at a time when Zimbabwe’s currency, reintroduced after a 10-year hiatus due to decade-long hyperinflation to 2008, has seen rapid depreciation amid authorities’ insistence that economic fundamentals were in place to support a stable currency.
Inflation, which peaked at a post-dollarization high of 837.5% in 2020, quickly fell to a two-year low of 50.1% in June last year, largely due to the introduction of the auction system, which improved access to forex. for major imports by industry.
The private sector’s main grievance is the government’s inability to deliver on its promises, particularly the clearing of the auction market backlog, which has seen some industry players unable to access hard currency long after approval of their offers.
According to the companies, this led to a loss of confidence in the conduct of the government and its weapons, a scenario which would have caused a lack of confidence in the local currency and widened the already huge margin between the official exchange rate and the rate of exchange. parallel market skyrocketing exchange.
In response, the government said it had instituted policy measures to contain the rapid growth of the money supply in order to counteract exchange rate depreciation and curb vigorous inflation.
Zimbabwe’s annual inflation rate for May 2022 has soared to 131.7% from 96.4% in April this year, too unsustainable a level given that incomes continue to follow runaway prices by a huge margin.
Speaking during a panel discussion at the Policy Stakeholders Dialogue (POLAD) Monetary Indaba in Harare yesterday, Zimbabwe National Chamber of Commerce (ZNCC) Deputy Chairman Mike Kamungeremu said the Currency problem in the economy was a consequence of wide-ranging deficiencies in the economy.
He said the malfunctioning Reserve Bank of Zimbabwe auction system had created a serious confidence deficit for the industry down to the general population.
According to Kamungeremu, the authorities had made countless promises on the urgent need to clear the auction backlog, but to no avail.
“The foreign exchange auction worked, but it worked at one point, but as we speak as a business, we are almost desperate. With the backlog that is there, it is very difficult , we have received calls for the elimination of the backlog and several promises have been made, but unfortunately these promises have not been kept and this is a crucial problem.
“It touches on the aspect of trust, when I hear promises being made and I have money that’s been pending (at auction) since January, I won’t have trust, that’s why then you see problems happening on the currency front because currency is just a derivative of what is happening in the wider economy,” Kamungeremu said.
He pointed out that arbitrage practices manifesting themselves in the economy were fueled by the failure of authorities to decisively pursue perpetrators of currency manipulations, who are well known given the nature of the bank knowing its customer. .
Some banks are also involved.
“Reserve Bank of Zimbabwe have made a number of statements and they have promised to take action against those who are known, we believe RBZ knows all and we expect them to take action.
We’ve heard that there are people sabotaging the economy, manipulating the system, but what we want to see is more action. We should have seen some form of punishment against them, we implore the central bank to act so that we don’t punish everyone.
“There are a lot of trade-offs going on emanating from exchange rate disparities. Steps need to be taken to reduce arbitrage risks and corruption risks,” he added.
Weighing in on the matter, Confederation of Zimbabwe Industries (CZI) President Kurai Matsheza said:
“The issue I need to talk about is the issue of trust, we need to have a clear roadmap of what we want to achieve and work in a consistent and more transparent way to achieve what we have set ourselves. a depolarization in time, that it is not a surprise, that it is debated and that it comes to everyone and that we understand clear benchmarks.
“But if that doesn’t happen and we have surprises at every turn, that element of trust that I’m talking about becomes very difficult to build over time and until that’s there economic agencies will play first. in their own interest,” Matsheza said. .
The Minister of Finance and Economic Development, Prof. Mthuli Ncube, has lamented the arbitrage conduct occurring in the economy, blaming retailers as some of the perpetrators and the reason for runaway inflation in the economy leading to high inflation figures.
He acknowledged, however, that retailers’ relentless price hikes could be driven by the need to replace inventory, in addition to the negative impact of imported inflation that was plaguing the world due to the disruption of retail chains. supply and value resulting from the invasion of Ukraine.
“The exchange rate has been the main driver of inflation and the gap between the official rate (auction rate) and the parallel rate is the driver of this inflation, this has also been driven by the behavior of retailers and other speculators.There are enough arbitrage opportunities that people want to take advantage of and they did, that’s what pushed up the parallel market rate.
“What we notice as a government is that the parallel market is not only a spot rate, but it is also a rate where economic agents set the price of food with replacement costs in mind, thinking about replacement exchange rates in the future, so it’s kind of a front rate that partly explains the discrepancy between the interbank rate and the parallel market rate,” Mthuli said.
Businesses currently use the interbank rate of $373/US$1 to set their prices against a parallel market exchange rate that now fluctuates between $550 and $600 for a greenback.
To meet the challenge, Mthuli said the government has now staggered local currency payments to contractors for ongoing major public infrastructure projects across the country.
Entrepreneurs, the treasury chief said, after being paid, would seek to hedge their money by buying currencies on the parallel market, pushing the exchange rate to undesirable levels.
Mthuli said the suspension of bank lending early last month was also a move to nip in the bud speculative lending, which was fueling the surge in the black market exchange rate.
“The other thing we manage is that those who build roads and dams are paid in national currency and do not rush into the parallel market, so we stagger payments to contractors to minimize the impact of their liquidity on the exchange rate, we have decided to separate so that 50% is paid in national currency and the rest in hard currency and we expect this to do a lot for the currency.
“We took action a couple of weeks ago and suspended (bank) lending because we noticed there was a bit of speculative lending within the banking sector with companies essentially directing that liquidity not to the real sectors. but to the parallel market and also some of the liquidity flowing into the equity market creating a price bubble, hence our decision to pause which was macro-prudential regulation for monetary policy to become effective.
Zimbabwe’s Reserve Bank Governor Dr John Mangudya said the “breakage” in the local currency stemmed from fear of past experiences where the country completely lost value. Zimbabweans are therefore now rushing to convert Zimbabwean dollars into hard currency to hedge inflation.
He, however, underlined the need to move on from the past and face the new era in which the country currently finds itself.
“Currency volatility is a symptom perhaps stemming from the fear factor of past experiences before dollarization, but why should we live in the past, so every time people get Zim dollars, people want to throw them away and buy US dollars to get value and what do we see, price volatility.
He lamented the growing culture of arbitrage in the local economy, citing it was damaging, pointing out that some of the benefactors of the auction system were at the forefront of skyrocketing parallel market rates .
“We need to change our arbitrage business models, we don’t want to blame people, but we blame the humanity in people.
“It is very unfair that a businessman to whom we sold currency at a willing buyer and willing seller rate now thinks it is smart to sell silver at a higher rate, is that fair?, because I would have sold my silver to you today at $340 but you are going to sell the silver at $500, so the issue we see is behavioral,” Dr Mangudya lamented. weekly