DOLLARIZATION; BOON FOR AGRICULTURE AND MINING
Throughout the history of this economy mining and agriculture industries have always been the mainstay of the economy contributing significantly towards the GDP and providing employment for thousands. In fact prior to the land reform we had a thriving horticulture industry; we were the second largest producer of tobacco in the world, major producer of lint, tea, coffee and flowers. On the mining front we were one of the largest producers of gold on the continent as well as steel and coal. Now it is instructive to note these industries are naturally labour intensive something which really helped to maintain relatively normal rate of unemployment for a developing economy. Unfortunately the politics of this country between 2000 and 2008 played a substantial role in the decline of these two important pillars our economy. In addition our currency took repeated blows starting from the Black Friday back in 1997 eventually collapsing around 2007 and 2008 and not forgetting the hyperinflation which reached record highs. On agriculture after the so called land reform was carried out, the new inexperienced and unfunded farmers could simply not maintain the production levels of the outgoing farmers. Even when resources were availed to them the whole exercise of farming was simply not worth it because in the end farmers would be paid in the increasingly valueless currency, the Zimdollar even as the crop itself was bought in foreign currency. Records high prices were registered during this turbulent period yet this did not translate into increased production of this crop. Mining on the other hand also underwent its most difficult period as foreign exchange regulations at the time simply made it impossible to continue operating optimum levels. In some cases the prices for the minerals were determined by officials here, who pegged the prices in local currency something which resulted in losses as the local receipts could not cover the foreign currency expenditure made by the miners. Now as the local currency’s collapse went into overdrive a few years before the new government production levels in mines and in the farmland dropped quite drastically as evidenced by major food shortages that ensued. While politics and poor decision making were at the centre of everything, what has happened since the country adopted the so called multi-currency system or dollarized indicates to some extend that the collapse in production levels may have been linked more to wrong economic policies than anything else. In fact since the start of the multi-currency regime mining and agriculture have led the way in recovery. Tobacco production which dropped to under 50 million kgs during this lost decade has however been on a growth path and looks set to surpass the record high of 210 million kgs achieved in 2001 in a few years’ time. So far about 130 million kilogrammes has been sold earning farmers nearly $350 million and according to Tobacco Marketing Board (TIMB) thousands of additional farmers have registered to grow the crop this coming season as the price and of course the currency we are using makes it very viable to grow this. Cotton production has been improving as well as farmers who had previously discontinued growing this crop are returning as the prices are now lucrative and importantly the currency is stable and maintains value. Obviously it is still a long way before we match the previous highs but it is evident from these figures that dollarization has really stabilised the agricultural sector. The mining industry is one which has really benefited from the introduction of the multi-currency system because it no longer has to deal with the exasperating regulations like foreign currency surrender requirements or multiple exchange rates. Prices that miners get are more or less the same as the international market prices thus miners are getting full value for their resource. Now with China, India and other members of the emerging economies expected to continue registering such phenomenal growth, it is the economy and miners who will benefit as these countries will need our minerals for their development. This means that in the short to medium term prices for such minerals as chrome, steel, platinum will remain in the high levels and this will not only encourage miners to increase production but it will entice new miners to start production as well. In fact there is evidence of this already in such areas like Lalapanzi, it has rich and large deposits of chrome ore.Now this high global demand for chrome for instance has really transformed this town and created opportunities as well as employment in the last 3 years. A lot of small scale miners have been encouraged to go into mining not only chrome but gold and other highly sought minerals and this has been made possible courtesy of the dollarization of the economy. The message which all this is conveying to everyone is that on the economy front our economy now functions as a normal one hence investors particularly local have been encouraged to invest. To this end the mining and agriculture industries are expected to grow by 47% and 19.3% respectively way above the national expected rate of 9.3%. According to Frost and Sullivan mining consultants the mining industry in Zimbabwe is expected to grow by that much primarily because of the exchange control policies and the dollarization of the economy. In both industry cases, the growth in number of small scale miners or farmers aptly sums up the just how important the decision to dollarize the economy has been. Of course the mining industry could do a lot better if the current controversies surrounding mining ownership reforms are cleared to everyone’s satisfaction as well as the improvement in the political environment. Therefore this currency regime has to be given the right timeframe to enable not only full recovery but actual growth. It is the hope that this is increasingly becoming clear to decision makers hence we anticipate less talk of the local currency’s return.
Terence Zimwara is an economic analyst and you contact him on tem2ra@yahoo.com or visit blog-temra-temra.blogspot.com
Throughout the history of this economy mining and agriculture industries have always been the mainstay of the economy contributing significantly towards the GDP and providing employment for thousands. In fact prior to the land reform we had a thriving horticulture industry; we were the second largest producer of tobacco in the world, major producer of lint, tea, coffee and flowers. On the mining front we were one of the largest producers of gold on the continent as well as steel and coal. Now it is instructive to note these industries are naturally labour intensive something which really helped to maintain relatively normal rate of unemployment for a developing economy. Unfortunately the politics of this country between 2000 and 2008 played a substantial role in the decline of these two important pillars our economy. In addition our currency took repeated blows starting from the Black Friday back in 1997 eventually collapsing around 2007 and 2008 and not forgetting the hyperinflation which reached record highs. On agriculture after the so called land reform was carried out, the new inexperienced and unfunded farmers could simply not maintain the production levels of the outgoing farmers. Even when resources were availed to them the whole exercise of farming was simply not worth it because in the end farmers would be paid in the increasingly valueless currency, the Zimdollar even as the crop itself was bought in foreign currency. Records high prices were registered during this turbulent period yet this did not translate into increased production of this crop. Mining on the other hand also underwent its most difficult period as foreign exchange regulations at the time simply made it impossible to continue operating optimum levels. In some cases the prices for the minerals were determined by officials here, who pegged the prices in local currency something which resulted in losses as the local receipts could not cover the foreign currency expenditure made by the miners. Now as the local currency’s collapse went into overdrive a few years before the new government production levels in mines and in the farmland dropped quite drastically as evidenced by major food shortages that ensued. While politics and poor decision making were at the centre of everything, what has happened since the country adopted the so called multi-currency system or dollarized indicates to some extend that the collapse in production levels may have been linked more to wrong economic policies than anything else. In fact since the start of the multi-currency regime mining and agriculture have led the way in recovery. Tobacco production which dropped to under 50 million kgs during this lost decade has however been on a growth path and looks set to surpass the record high of 210 million kgs achieved in 2001 in a few years’ time. So far about 130 million kilogrammes has been sold earning farmers nearly $350 million and according to Tobacco Marketing Board (TIMB) thousands of additional farmers have registered to grow the crop this coming season as the price and of course the currency we are using makes it very viable to grow this. Cotton production has been improving as well as farmers who had previously discontinued growing this crop are returning as the prices are now lucrative and importantly the currency is stable and maintains value. Obviously it is still a long way before we match the previous highs but it is evident from these figures that dollarization has really stabilised the agricultural sector. The mining industry is one which has really benefited from the introduction of the multi-currency system because it no longer has to deal with the exasperating regulations like foreign currency surrender requirements or multiple exchange rates. Prices that miners get are more or less the same as the international market prices thus miners are getting full value for their resource. Now with China, India and other members of the emerging economies expected to continue registering such phenomenal growth, it is the economy and miners who will benefit as these countries will need our minerals for their development. This means that in the short to medium term prices for such minerals as chrome, steel, platinum will remain in the high levels and this will not only encourage miners to increase production but it will entice new miners to start production as well. In fact there is evidence of this already in such areas like Lalapanzi, it has rich and large deposits of chrome ore.Now this high global demand for chrome for instance has really transformed this town and created opportunities as well as employment in the last 3 years. A lot of small scale miners have been encouraged to go into mining not only chrome but gold and other highly sought minerals and this has been made possible courtesy of the dollarization of the economy. The message which all this is conveying to everyone is that on the economy front our economy now functions as a normal one hence investors particularly local have been encouraged to invest. To this end the mining and agriculture industries are expected to grow by 47% and 19.3% respectively way above the national expected rate of 9.3%. According to Frost and Sullivan mining consultants the mining industry in Zimbabwe is expected to grow by that much primarily because of the exchange control policies and the dollarization of the economy. In both industry cases, the growth in number of small scale miners or farmers aptly sums up the just how important the decision to dollarize the economy has been. Of course the mining industry could do a lot better if the current controversies surrounding mining ownership reforms are cleared to everyone’s satisfaction as well as the improvement in the political environment. Therefore this currency regime has to be given the right timeframe to enable not only full recovery but actual growth. It is the hope that this is increasingly becoming clear to decision makers hence we anticipate less talk of the local currency’s return.
Terence Zimwara is an economic analyst and you contact him on tem2ra@yahoo.com or visit blog-temra-temra.blogspot.com
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