There is no doubt that dollarization helped the Zimbabwean
economy find its feet after years of decline. The use of multiple currencies
particularly the American dollar has made it attractive even for foreign
investors to consider pouring money into the country.
With inflation currently in the negative territories, the
Zimbabwean economy offers some of the best returns on the dollar although the
country risk remains an obstacle.
The last two years have not been great for the Zimbabwean economy
however, national demand has been sliding while the current account deficit has
reached unsustainable levels.
The use of international currencies has meant that the
central bank has had little or no influence on where the economy is heading.
This has of course led to regular calls to reintroduce the
Zimdollar and the government has consistently come out to say this will not
happen anytime soon.
At the recent Zimbabwe International Trade Fair, a
government official Mr Supa Mandiwanzira reiterated that the return of the
currency was not imminent as had been speculated by some.
This followed both foreign and local media reports that the
government was planning to re introduce the local currency as it tries to
arrest the continued economy decline.
In this article, we will try to understand why there is an
agitation for the Zimdollar’s return by mainly corporates and the reluctance to
see this through by the general population.
Zimstats the country’s official statistical body recently
reported a trade deficit of approximately $1 billion dollars in the first
quarter of 2014 and indication that the appetite to import is not receding.
One has to walk through the pavements of Harare’s central
business district to understand the problem from a layman’s viewpoint. The
pavements literally packed with all kinds of imported goods ranging from
foodstuffs to clothing and even semi durable items.
There is toothpaste, washing powder, fruits the list is
endless suffice to say the same items are found in their abundance in retail
outlets. Vendors and enterprising business people have suddenly started selling
mainly South African made products at prices that beat locally made goods.
To illustrate a 500 gram pack of locally made margarine (Stock
Margarine) costs about $2.5 in most stores yet there is an almost similar
product which is being imported into the country and is sold for just $1 in
some retail stores!
It is this staggering price differential that leaves one
shaking their head, what exactly are the ingredients used in making margarine
locally that makes it so expensive?
Local producers will claim that power shortages, high
interest rates and a lack of credit lines raises the cost of production and in
turn this local products uncompetitive.
Clearly there are no easy answers however, part of the
problem also lies in the fluctuations of the currency of Zimbabwe’s major
trading partner, South Africa.
The South African rand currency has performed poorly against
major currencies particularly the US dollar. It has depreciated by some 37
percent since the end of 2012 and the effects on the Zimbabwean economy are now
becoming apparent.
Suddenly it has now become lucrative for South African
companies to sell on the Zimbabwean market than at home.
To illustrate, a loaf of bread sells for between 8 and 9
rand in SA while the same costs about $1. At the current exchange of U$1: 10
rand, then you would realize more by selling in the Zimbabwean market because
the price would be 10 rands.
Of course there are
other hidden costs that may cancel out the extra arbitrage profit that can be
realized in the case illustrated above. In reality however, there are quite a
number of products where the price differences are so huge such that it would
make economic sense to import.
While local businesses may find little motivation in
importing, the same cannot be said of cross border traders and informal traders
who have seized on the opportunities that the depreciating rand has presented.
These traders are selling everything from sweets to
furniture and realizing profit as result of the depreciation of the rand. Two
years ago this was not possible when the exchange rate was at just under US$1:
8 rand.
Due to the continued depressed value of the rand, local
business leaders are now asking government to intervene by imposing heavy
tariffs on imports in order to ‘protect local jobs’.
At a workshop organized by the Buy Zimbabwe lobby, players
in the baking industry asked the government to intervene by way of banning
imports of flour products.
A few business leaders if any have gone record and publicly
called for the return of the Zimdollar however it is something that apparently
is getting some consideration in the corridors of power.
For ordinary Zimbabweans, the return of the Zimdollar is
certainly an unwelcome topic as evidenced by the recently reported panic
withdrawal. This followed a report by Bloomberg Financial news service that the
return of the Zimdollar was imminent.
The government is well aware of the demise of Zimdollar and
what caused it. It is the continuing economic stagnation however that is
pushing the government against the wall and this is notwithstanding the fact
international donors remain unwilling to help.
The government finds itself in a conundrum, where either
action has severe consequences not for it politically but in an economy sense
as well.
It remains to be seen what course the government will take
in light of all this.
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