adminKudzanai Gerede
ZIMBABWE’S financial sector finds itself cast under an intricate spell as two of its major adopted currencies the United States Dollar (USD) and the South African Rand (ZAR) continue to widen the exchange rate gap between them.
The union of the two currencies as major tender circulating simultaneously in a multiple currency system which was adopted by the country in 2009 brought stability to a devastated economy which had been left crippled by a devalued local currency, but six years on, the union stands on the brink of collapse.
The past few weeks have seen the dollar surge against major global currencies with the rand taking a nosedive which has compromised the country’s financial sector by exposing it to exchange rate distortions and the rebuking of the rand by the general public, a dilemma calling for some urgent soul searching from authorities ahead of the soon expected National Budget presentation.
With Europe and Japan stuck in the doldrums and a slowing Chinese economy, a strong United States of America’s economy has maintained its forte as a global giant with the International Monetary Fund projecting a 3.6 percent growth this year.
While the idea of returning the Zimbabwean dollar will be unrealistic, there have been calls for Government to consider the adoption of a single foreign currency with the loudest of voices calling for Government to join the South African Common Monetary Area (CMA).
Those in support of the rand cite that such an arrangement will give the Central Bank (RBZ) some flexibility in setting interest rates and determine monetary policy as the case with other regional countries like Swaziland, Namibia and Botswana.
Critics to the idea have, however, highlighted the risk of adopting the rand as making trade easier and very cheap for South Africa especially considering the country’s low industrial output which has already seen South Africa being the country’s biggest trading partner and the ultimate winner as it stands.
On the other hand, the dollar is now evidently proving to be problematic for the country with its continuous gains against major currencies which has put the country under spotlight as an attractive market for cheap foreign products in pursuit of the elusive American dollar.
Analysts at the recent Overberg Asset Management said: “Emerging markets are the worst affected in the current global mood.”
This culminates from a general reluctance of taking risks by global investors, a scenario which is gloomy for most of emerging markets like Zimbabwe who are in need of investment and capitalisation on the Zimbabwe Stock Exchange (ZSE) among other challenges.
As a predominant USD economy, local companies are now faced with a stiffer challenge of competing against regional import products whose cost of manufacturing and processing in their home currencies is far less the equivalent of that which is incurred when manufacturing in a strong USD environment.
“We have the strongest currency in the region, if you look at the Angolan kwanza its falling, the rand is falling and the Zambian kwacha is falling, actually they are having all night prayers to revive their currency. Malawi and Mozambican currencies are falling too, so we become an attractive market because everyone is looking for the US dollar,” Grain Millers Association chairman, Mr Tafadzwa Musarara said.
He said while regional countries were in pursuit of the dollar, they prefer exporting finished products like wheat flour so as to intensively harness the final cost which was killing local processors.
“We do not necessarily want protectionism , what we want is the levelling of the playing field considering the local environment dictated by a stronger US dollar currency,” added Mr Musarara.
While countries are seized by the regional integration agenda, there is a general fear that radical protectionist policies will be retrogressive to the progress made so far, but a fair deal has to be made for both importers and local manufacturers and processors.
With reference to the milling industry, he said the country’s wheat national requirement stands at 300 000 tonnes per year and the country produces 55 000 to 77 000 tonnes, with the deficit being covered by imports from neighbouring Zambia and other international partners at very cheaper prices.
“Government should import wheat which is in short supply locally considering the plight of local farmers who end up being paid low prices arising from cheap imports.
“There should be a level playing ground with regards to importation of processed wheat products like wheat flour so that we create employment in the local milling industry which has a sufficient workforce and machinery to feed the nation,” he said.
This lack of competitiveness has led to many industries either closing shop or operating below capacity due to job cuts as they bend to imports stress as highlighted in the manufacturing sector statistics published by the Confederation of Zimbabwe Industries last week were it stated that 65 percent of the installed production capacity in the manufacturing sector was lying idle due to viability challenges.
Zimbabwe’s lack of an indigenous currency has led to its inability to influence monetary trends even within its own territory arising from global markets events.
This has been the privilege of countries using their local currencies such as China, who having been the world’s largest consumer of raw materials and commodities for its economic growth in excess of seven percent in the past few years, realised slow growth lately and opted to devalue their currency in a move meant to stimulate their export sector and other economies such as South Africa have managed to do the same.
Online Reporter