Happiness Zengeni
My Two Cents!
Opinion in good men is but knowledge in the making, according to one of my favourite quotes from John Milton’s novel, Areopagitica. While a further look into Green Fuel would have been necessary following a recent visit to the Chisumbanje ethanol plant, I felt it necessary to respond to a more pressing issue. Not that Green Fuel is not important.
Over the past couple of months, in his Sunday Mail column African Focus in the Sunday Mail, Dr Tafataona Mahoso has been debating about the need for national currency, referencing to issues that have been moved in both this paper and on FinX. Obviously differences in opinion are healthy for development of any society, and perhaps on a lighter note, name calling is an attempt to emotionally manipulate the course of the discussion
In order to maintain its inflation targets, spur economic growth and encourage banks to lend the US Federal Reserve has been embarking on an unconventional monetary policy where the Federal Reserve purchases Government securities and other securities from the market.
This is known as Quantitative Easing. It increases money supply by flooding banks with capital and it should be emphasised that QE does not involve printing of new banknotes as was the case in Zimbabwe. The timing and values of the purchase is crucial so as to minimise higher rates of inflation.
The Reserve Bank of Zimbabwe took to the printing press over a prolonged period of time to sustain Government spending; thus increasing money supply and causing hyperinflation. The RBZ’s strategy was purely to finance expenditure and was not intended to influence or change any economic variable.
In other words it was purely fire fighting. Likening the two as suggested by Dr Mahoso (who is my regulator by the way and someone I respect as a good historian) is just bizarre.
It is important that people avoid applying inflexible (best word should have been dogmatic) thoughts into any discussion even that which is totally divorced from politics.
Zimbabwe is not in a political crisis but an economic crisis and this requires a give and take approach.
CSC, GMB, NRZ, ARDA, ZISCO, ZUPCO and other public enterprises collapsed or showed signs of collapse way earlier than the era of economic sanctions.
The continuous losses by these enterprises also contributed in a way to the unsustainable fiscal deficits Zimbabwe experienced in the 90s. Other State enterprises such as PTC, ZBC and ZESA failed to come up with decent growth business models that would have seen them meeting the then future demand for their services?
These companies failed to invest in new technologies and equipment at a time when it was easy for them to raise finance by issuing Government guaranteed bonds. Financing was not the issue either.
Today 34 years after our political independence some areas are yet to enjoy any reception from ZBC and ZESA is yet to build a new major power plant.
It never occurred to management at these enterprises that a growing economy and population would eventually lead to increased demand in the future.
By 1985 these entities should have had their long term business plans and models, if they had done that we would not be talking of power cuts as well as unaffordable utility bills.
This was gross failure on their part. It also defeats the purpose of taking a census. The failure of these enterprises had nothing to do with neither our politics nor sanctions but was a result of inept managers who failed to manage these enterprises efficiently and profitably with a long term objective of developing the country.
This is the same sickness befalling our own private sector enterprises (a topic for another day).
Advocates of privatisation of state enterprises point out that this is merely another way for Government to raise funds by exiting the investments and not necessarily that the private sector will run the businesses better.
The fiscal space is rapidly shrinking and such disposals can come a long way in financing Treasury activities.
Otherwise leveraging the development of the country on corporations that themselves require billions of dollars in new capital will be a mammoth task that we might not achieve in this generation.
So, as a consequence, it is noteworthy to analyse Zim Asset in its entirety. The blue print itself is like manna sent from heaven and indeed it is a great document; if you have not read it then be wise and masticate on it.
By the look of things Zim Asset requires billions of dollars in funding if you consider levels of investments required for Food Security (Agriculture), Social Services, Infrastructure and Utilities and Value Addition and Beneficiation that would be done mostly by the private sector or quasi-government entities like Zimbabwe Mining Development Company. These are all capital intensive projects that will no doubt take time.
Let us take Kunzvi Dam for example; the project requires in excess of US$500million and 3 years at least to complete it.
Not mentioning much about how the project promoters have been failing to raise funds for the project since 2009.
In fact the project is yet to raise US$15million for the feasibility study. In other words we do not know if the project is viable.
The two questions that we should all be asking is; firstly what is exactly the financial cost and budget of carrying out such a grand economic development plan and secondly, is the prescribed timing clear-cut and achievable?
More importantly are the defined sources of funds sufficient for such an undertaking? If these questions cannot be answered clearly and satisfactorily then the ZimAsset blue print becomes incomplete.
Therein lies the likelihood of failure in the execution of yet another economic blueprint. Other than sanctions; Zim Asset also faces several obstacles here at home ranging from venality, a technologically maladroit manufacturing sector and challenging economic variables.
Short of considerable foreign direct investment inflows to finance some of these projects; the total funds from the Sovereign Wealth Fund, tax and non tax revenue, leveraging resources, and securitisation of remittances will not adequately finance the programmes identified in the blue print within the targeted time frame.
Public private partnerships and issuance of bonds are dependent on the improvement on the country’s risk profile, and as such this is not a given.
The ability to issue bonds will also be determined by how the country resolves its debt issue with the multi-lateral lending institutions. Zimbabwe currently has a poor debt repayment record and thus a poor credit rating if at all rated. I doubt if Dr Mahoso would repeatedly lend money to a workmate who is renowned for not repaying their debts.
As we delve further into this ongoing debate about a national currency for Zimbabwe, it should be worth noting that when people holding a currency have severe lack of confidence in its ability to maintain its stored value then that particular currency will be rejected by the very same people.
When Zimbabwe introduced the new 1 trillion dollar note back in 2008, unlike Dr Mahoso, some of us who were using the public transport system at that time were perplexed when transport operators rejected the new note the same day it was issued; retailers, vendors and other businesses followed suit thus a multiple currency regime was inevitable.
Zimbabweans in general had lost that confidence in their own currency and the central bank in particular.
To a large extent the main reason behind this prolonged period of hyperinflation from 1999 when inflation topped 50 percent, was the unsustainable growth in money supply to finance the successive budgetary deficits exacerbated by a shrinking tax base, loss making state enterprises and an increasing Government wage bill.
The decision by the government to introduce the multiple currency system was in effect a way to restore confidence in the economy, arrest speculative foreign currency trading (“burning”), tackle runaway inflation, improve capital investment and bring about economic stability.
Hence for the first time in 10 years the Zimbabwean economy did not contract but to the contrary the country registered its first economic growth.
As we ponder the pros and cons of a new national currency it is worth the salt to analyse what exactly is in the best interest for the country in the short-term, medium term and long term given the economic challenges vis a vi the economic development/recovery plan; Zim Asset.
We are in total agreement with Dr. Mahoso about the need for a national currency for Zimbabwe, but not now. This has nothing to do with preference of the Federal Reserve, but with severe lack of confidence and mistrust in the Reserve Bank of Zimbabwe and most importantly the economic reality we face as a nation. Trying to sweep it under the carpet or beautifying the situation is a grave mistake and will lead into a worse crisis.
Advocates for the immediate return of a national currency point out to the lack of competitiveness of exports versus imports, including the stagnation of wages and critically it is more based on emotions as opposed to rationality. But with a deadwood of an industry what exactly will the country export?
They would rather see the Reserve Bank of Zimbabwe hitting the printing press to address a liquidity challenge as opposed to addressing the real economic fundamentals. To be continued….
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