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The formal industrial sector regards the continued taming of inflation as the single most important monetary factor in their business and are prepared to support the present interventions of the Government and Reserve Bank of Zimbabwe to maintain monthly inflation in the low single digits, 1,8 percent last month.
In its thoughtful intervention, the Confederation of Zimbabwe Industries then wants this solidified low inflation rate to be built on to secure the more open setting of the interbank exchange rate, the price that willing buyers and willing sellers can agree on each day.
With these two goals met it sees Zimbabwe finally becoming a stable economy so far as inflation and currency dealing are concerned.
It believes both goals of low monthly inflation and an interbank market expanding to take over almost all currency dealing are possible, but only if the present policies to tame money supply growth are strongly adhered to.
This would mean that while, we presume from individual complaints, many in industry do not love the 200 percent a year bank interest rate, from an economic perspective they see the point since there are some things, like high inflation, even worse than expensive loans.
We also assume that the CZI economists also continue to support the gold coins which have mopped up so much surplus foreign currency, so reducing the available money supply and mopping up a lot of surplus liquidity.
The International Monetary Fund in its latest visit were somewhat dubious about the coins. To a degree the visiting team was correct, since they are being used to mop up the mess of too much liquidity rather than ensuring there is not too much to start with.
But on the other hand when someone leaves the taps on and floods the bathroom you do have to mop up.
In any case the coin sales are not sufficiently high to have a major adverse effect on the economy. So far less than 500kg of gold, less than half a tonne, has been minted into coins.
Zimbabwe is a gold producer, so the gold has not been imported, and that 500kg is less than two weeks of production.
This relatively low level of coin sales, compared to the monthly production, is important. Even if all coin buyers want to sell out for US dollars after six months, as they are entitled to do, the Reserve Bank of Zimbabwe can handle a total buy back, since it does get the gold in return and if necessary could export that.
In addition, that US dollar payments would not be in the form of piles of US$100 banknotes, but deposits into bank accounts, so the payments would be inside the formal system, not feeding the black market.
The CZI was concerned over the potential jump in liquidity on past experience from the agricultural season, and they have a point.
But to a degree the Government in this case is not creating money to pump into the economy, but more acting as a merchant banker to smooth out the otherwise insurmountable problem of farmers needing a lot of inputs to grow the crops, and then some months later needing to be paid for what they grew, and then the money finally returning when those who process the crops buy them over the following 12 months from the relevant marketing entity.
There was a time when Zimbabwe had a huge merchant banking sector or its equivalent with the then Agricultural Marketing Authority to raise and then rotate the required sums over the year. The Government has reconstituted the AMA into something that can act as its predecessor used to, but that is a process not an event. Sometime privatisation is less successful than theory suggests.
The CZI suggests far more involvement by the private sector in the financing of the farmers. Everyone agrees, including the Government which has set an initial target of 40 percent for such financing.
But the CZI does not need to persuade the Government or anyone else. It needs to persuade its own members and other industrialists, since the private sector we are talking about happens to be organised industry. No one is stopping industry doing the financing, and in fact everyone is encouraging this.
Millers and stock feed producers should be paying farmers to grow grain; oil expressers should be paying farmers to produce oil seed; spinners, weavers and oil expressers between them should be paying farmers to grow cotton, the seed going to the expressers after ginning and the fibre going to spinners and, while that industry is being rebuilt and expanded, to the export traders.
These businesses are large elements in organised industry, the people CZI represents.
This works well in tobacco, with that industry having worked out how to operate at new record production levels in the post-land reform environment.
One reason why tobacco works so well is that it has an independent regulator, the Tobacco Industry Marketing Board, which grows, finances, buys and sells nothing, but registers everyone from the smallest-scale farmer to the largest merchant and processor.
All sections of the industry are represented on the board, but the board is then expected to set the agreed rules and enforce them. This it does, as the recent suspension of four cheating contractors shows. Side marketing can be beaten before it damages.
Other sectors in the farmer-industry combinations might need a similar body, and the CZI seems the ideal organisation to provide the industrial input and representation.
Government would still be involved, first at the bottom end of the farming ladder to ensure households can grow their food, rather than rely on food aid, and secondly at the other end to finance adequate stocks of essential food that are kept to cope between seasons with drought and other disaster.
But we can move to the position that the bulk of farm production is private-sector financed, and here the CZI needs to act, not just talk.
So far as the expansion of the interbank market goes, and its development into the sort of market that other countries have, this is again the ultimate desirable goal, but it does depend on two factors.
One is obvious, the low inflation being locked in with the market-derived controls kept in place to stop the black market resuming its speculation functions. As CZI notes that simply means what is now being done right continues.
The second is to start the integration of what are effectively three foreign currency pools: surrendered export earnings, retained export earnings and diaspora remittances.
Zimbabwe has a net inflow of foreign currency, but the inflow is split and the surplus tends to end up in the private sector nostro accounts. Here CZI needs to contribute more creatively on how the integration can be achieved.
In other words, while its intervention is valuable, the CZI needs to start acting on its own advice, rather than just talking and assuming someone else will do the work. This would also return the CZI to the days when it represented almost everyone in industry, and make it an essential and large cog in the engine of economic growth.
Online Reporter