adminDr Gift Mugano
Addressing liquidity problems requires a number of complementary measures and not piece-meal solutions. First, we need to accept that it is difficult to run out of the dollarised arrangement for a local currency if — and only if — the country has insufficient reserves that provide import cover for several months. For now, in order to restore the lender-of-last-resort ability, the Reserve Bank of Zimbabwe and Ministry of Finance and Economic Development need to urgently secure lines of credit from international financial institutions or those who are amenable to our debt problem.
Second, we need to work very hard on reforms that address investor concerns so that Zimbabwe can attract Foreign Direct Investment by virtue of maintaining the United States dollar in circulation as Panama and Ecuador did. Naturally, Zimbabwe, with a well-educated workforce, good geography (ie favourable weather, good location and enormous natural resources) and a fully dollarised economy, should gain impetus to attract billions of US dollars in FDI ahead of Zambia, Mozambique, Angola and Nigeria.
This should be a very serious consideration which may even require Government to bite the bullet on indigenisation law.
Third, knowing that the US dollar is a vehicle currency for international settlements, it, therefore, follows that Zimbabwe has become a hunting ground from genuine businesspeople like retailers, and criminals like drug traffickers.
Against this background, stringent regulations must be put in place (which should include Ministry of Home Affairs, the Zimbabwe Revenue Authority, RBZ, etc) beyond the terms of reference of the recently established foreign exchange committee that aims to regulate imports.
That foreign exchange committee is a real pregnant mother who will give birth to twins of financial crisis and severe shortages, and the associated grandchildren of job losses, company closures and inflation.
The central bank will not have capacity to regulate over 10 000 types of imports ranging from toothpicks to soft drinks.
Rather, the ministries of Industry and Commerce, Finance and Economic Development, Agriculture and Youth, Indigenisation and Economic Empowerment must work on enacting the local content law as a matter of urgency so that we can curb avoidable imports.
Fourth, knowing that food constitutes 60 percent of imports, it requires us to work hard in raising productivity in the agricultural sector.
The command agricultural programme Government recently launch is a move in the right direction.
What is more exciting is that it is targeted farming; targeted in irrigable areas which can help us mitigate climate change vulnerability.
What we must guard against as that programme is rolled out is corruption.
Otherwise, we can, through agricultural productivity, go a long way in cutting imports, thereby improving liquidity.
Knowing that the four cylinders that must help us raise liquidity — FDI, aid, remittances and exports — are not firing properly, we need to seriously consider adopting the South African rand as an official currency.
This will help us raise the competitiveness of our exports since the rand has depreciated so much in recent years, although there is risk of import-induced inflation.
Government will have the opportunity to get a share of seigniorage which will be quite useful in financing the National Budget.
In addition, the rand is not prone to the threat of money laundering and other forms of capital flight as is the case with the USD.
However, this requires a political process of joining the Southern African Customs Union and associated loss of sovereignty.
Dr Gift Mugano is an economist and research associate in the Department of Economics and Economic History at Nelson Mandela Metropolitan University in South Africa. He wrote this article for The Sunday Mail
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