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Dr Bongani Ngwenya
Preamble:
THE adoption of a multiple-currency regime in February 2009 did not structurally mean or signify currency reform in Zimbabwe, but was a mere response to the rejection of the Zimbabwe dollar by the citizens because of loss of confidence in the currency as hyperinflation continued unabated.
Coincidentally the country had substantial reserves of these multiple currencies by then. As a result, or by default it became easy to just switch over to the use of multiple currencies. With time it became clear that Zimbabwe was failing to manage the phenomenon. The then Government and monetary authorities slept on duty and got carried away in the excitement, while the multiple currencies reserves were depleting at the rate that was not matched by the rate of their replenishment. With a dead industry, the country was left with no choice, but to continue meeting consumption demand through imports rather than higher capacity utilisation to increase domestic output, and depended on commodity exports for revenue inflows that were also affected by international price fluctuations as the country does not control the prices of these commodities. The weak financial system, and lack of adequate legal framework to manage and curb the leakages left the multiple currencies reserves vulnerable to externalisation, especially for the US dollar exacerbating the liquidity problem that started surfacing towards the end of 2015 leaving the then Government clueless on the solutions to the problem. Yet the answers lied simply on the political commitment and will to undertake the necessary reforms.
The debate on currency reforms came first at the most favourable time in the history of the country’s political economy, that was marked by the signing of the Global Political Agreement in September 2008 and the inauguration of the Government of National Unity in February 2009. In March 2009 the Government of National Unity adopted the Short Term Emergency Recovery Programme (Sterp) whose main goal was to stabilise the economy through increasing capacity utilisation in all sectors of the economy to ensure the availability of the basic goods and services, the rehabilitation of the collapsed infrastructure and service delivery. The adoption of the multiple currencies of course has been marked by the decline in inflation to single digits, increased availability of imported basic goods, as well as a marginal recovery in capacity utilisation. However, further progress has been hampered by the biting liquidity problem that has affected the financial sector which has been worsened by the loss of lender-of-last-resort function of the Central Bank and monetary policy sovereignty.
As the liquidity challenges continued to bite, the debate on currency reforms has continued, with the Reserve Bank Governor declaring early October 2017, or ruling out the adoption of the South African rand for example. This had followed the lobbying by the industrialists for the adoption of the South African rand, mainly based on the premises that, South Africa is Zimbabwe’s largest trading partner in the Sadc, and that at least the South African rand was a weaker currency compared to the United States dollar, as the United States dollar rendered Zimbabwe a high cost of doing business destination for both domestic and foreign investment. Of late the former government economic advisor, Professor Ashok Chakravarti is continuing the debate.
Riding on the new political dispensation:
I believe all the reasonable and sober-minded Zimbabweans are convinced through the disposition of the current administration’s leadership that there is political commitment to undertake the necessary reforms in the country for the sake of economic recovery. My argument is that all the good intentions in the past, to resuscitate the economy from the Government of National Unity era to the last moment of the previous administration were hampered and hamstrung by lack of political will and commitment to undertake the necessary reforms. I am very much positive that Professor Chakravarti is also, like myself and many more sober-minded Zimbabweans motivated by the good indications and signs of political commitment to undertake the necessary reforms by the new administration’s leadership. The Professor is suggesting an introduction of the new local currency backed by a Diaspora bond and has in the past advocated for the adoption of the South African rand in order to eliminate the current cash shortages. He has recently reiterated the option of adopting the South African rand as an alternative to introducing a new local currency that can be backed by a Diaspora bond. The two options in my opinion are economically sound. Establishing a Diaspora bond offers an investment opportunity to our brothers and sisters in the Diaspora. Above all, I don’t think there can be a greater sense of patriotism more than investing towards an instrument backing the value of one’s country’s sovereign currency. I wish I was in the real Diaspora. The adoption of the South African rand would facilitate the expansion and increased trade between Zimbabwe and South Africa. South Africa is Zimbabwe’s largest trading partner in the Sadc region. I am seeing a potential for increased trade between the two sister countries accruing from the option of adopting the rand as the official currency. Over and above being Sadc partners, Zimbabwe and South Africa have their own South Africa-Zimbabwe Bi-National Commission. When his Excellency President Mnangagwa met with his South African counterpart, President Jacob Zuma last year in this Bi-National Commission meeting they raised the need for the two countries to increase their trading volumes for the mutual benefit of the two countries.
There are arguments that have been raised in the past against the adoption of the rand as the official currency. Based on the worsening economic deterioration, liquidity problems, and the challenges of the bond notes, the question of surrendering our sovereignty to South Africa as a nation by adopting the South African rand in my opinion is just a lame excuse and a very unwise sense of pride. Adopting the South African rand, yes, will subject us to scrutiny, and test our sincerity and seriousness to engaging in economic reforms, as the option will certainly come with demands by the South African administration and monetary authorities for us to increase our efforts and tempo in the right direction towards engaging in the necessary economic reforms.
When the debate on the currency reform started in 2009 at the early stages of the Government of National Unity, there was the underlying understanding that South Africa was going to help Zimbabwe with a $1 billion loan facility. Unfortunately, the idea died a natural death, and I want to believe, it was scuttled largely by lack of political commitment and will by our previous government. With the new political dispensation that is characterised by the political commitment and will to undertake the necessary reforms it is my take that the new Government can consider re-engaging the South African government on the possibility of a loan facility. The current leadership has so far shown good signs of willingness to transcend personal interests for the general good of the nation. The President has made it clear that he and his Government have the economy to recover and people to serve. While it may seem difficult for Zimbabwe to be able to join the South Africa’s Common Monetary Area, largely restricted by the absence of a sovereign currency, I personally concur with Professor Chakravarti that there are no major economic issues to ponder about in adopting the South African rand even tomorrow.
In conclusion, I believe as a nation we can ride on the new political dispensation and consider currency reform, either through introduction of a new local currency backed by a Diaspora bond as suggested by Professor Chakravarti, or re-engaging South Africa on the possibility of adopting the rand as the official currency, with the stock of the rand supplied through at least a $1 billion loan facility to mitigate the current liquidity problem and re-capitalise the productive sectors of the economy.
-Dr Bongani Ngwenya is based at the University of KwaZulu-Natal as a Post-doctoral Research Fellow. [email protected]
derick.khumalo