Should Zimbabwe adopt the rand?

Several publications have recently been awash with a story about Zimbabwean businessman, Strive Masiyiwa’s Facebook Post in which he opined that Zimbabwean goods should be priced in Rand as opposed to RTGS dollars in order to stabilise prices. I have not been able to independently verify whether Strive actually posted about this. I tried to search for the post on his Facebook account but I couldn’t find it. I am therefore assuming that Masiyiwa indeed posted that statement.
I totally disagree with Masiyiwa on this one. Pricing goods in rand will not stabilise prices. The first point I want to make is that Zimbabwe is using a Multi-currency system and the South African rand is part of the regime. Why are businesses not voluntarily pricing their goods and services in rand, yet it is part of the Multi-currency regime?
In addition, let’s suppose that all prices are converted from RTGS dollars to rand with immediate effect, what effect will that have on price stability? According to Masiyiwa, prices will stabilise, but I beg to differ. The issue is that an ordinary worker is being paid his or her salary in RTGS dollars. Therefore, if prices are converted to rand, that same worker has to look for the rand elsewhere. Unfortunately, he or she has to go to the black market. We will then have a situation whereby everyone wants to purchase the rand. What this means is that the demand for the rand will increase. Holding supply constant, this will lead to an increase in the cost of acquiring the rand on the parallel market. In other words, the rand will appreciate in value or the RTGS dollar will lose value. People will now need more RTGS dollars to purchase the rand than before. This will create more problems to the ordinary consumer.
What Zimbabweans need to understand is that currency is the least of our problems. We need to correctly diagnose our problem; otherwise we may waste a lot of resources trying to address a non-existent problem. Trying to adopt a new currency at this juncture is like prescribing tissue paper as a remedy for cholera.
The question then is why is Zimbabwe in this current economic mess? The answer is very simple: We are not producing sufficient goods to meet our demand. More so, we are very inefficient when compared to our neighbours. Most of our industries are using archaic machinery and equipment. Our costs of production are very exorbitant. This is killing our competitiveness on the international market.
Because of the above mentioned reasons, the country’s demand for imports is very high. It is very embarrassing that our country is importing goods such as matches, toothpicks, diapers, onions, bricks, tinned beans etc. This is totally unacceptable. These unnecessary trinkets are chewing up the few foreign currency resources we have. Furthermore, why do we import steel when we have a World Class parastatal like ZISCO? Why is it taking centuries to retool this strategic company? Are all the universities and agricultural colleges in Zimbabwe failing to produce a wheat variety which is suitable for the production of bread? Why do we continue importing electricity when we can expand local production? The equation is very simple, if we produce these things locally, we will free up some foreign currency resources to purchase important goods and services. This will reduce our import bill.
Apart from Zimbabwe’s unsustainable import bill, the country’s exports are not competitive on the international market. The country’s exports are dominated by goods which are more susceptible to external shocks. The problem is that most of our exports are primary goods. We need to promote value addition and beneficiation in order to boost our export proceeds.
Moreover, some of the policies by the government discourage exporters. A good example is that of tobacco farmers and gold miners who sell their produce in US dollars but are only allowed to retain a portion of the proceeds in foreign currency. The remainder is converted into RTGS dollars at an unrealistic ‘market rate.’ Why do we have a foreign currency allocation committee? Who generated the foreign currency which this committee allocate? Is there anyone from the mining or agricultural sectors among the committee members? This is clear daylight robbery. Those who generate foreign currency must be allowed to retain 100% of their income in foreign currency (the government will benefit from the tax which they will also pay in foreign currency). We must not kill the spirit of our exporters.
Conclusively, to address Zimbabwe’s current economic challenges, the government must address the production side. Any attempt to introduce a new currency under the current conditions will be very futile if not suicidal. Let’s reduce our import bill, boost our exports and build sufficient foreign currency reserves before we harbour any ambitions of introducing a new currency.

Luckmore Chivandire is an Economist, Chartered Secretary, Author and Blogger. He can be contacted at luckmorechivandire@gmail.com.

Should Zimbabwe adopt the Rand

Several publications have recently been awash with a story about Zimbabwean businessman, Strive Masiyiwa’s Facebook Post in which he opined that Zimbabwean goods should be priced in Rand as opposed to RTGS dollars in order to stabilise prices. I have not been able to independently verify whether Strive actually posted about this. I tried to search for the post on his Facebook account but I couldn’t find it. I am therefore assuming that Masiyiwa indeed posted that statement.
I totally disagree with Masiyiwa on this one. Pricing goods in rand will not stabilise prices. The first point I want to make is that Zimbabwe is using a Multi-currency system and the South African rand is part of the regime. Why are businesses not voluntarily pricing their goods and services in rand, yet it is part of the Multi-currency regime?
In addition, let’s suppose that all prices are converted from RTGS dollars to rand with immediate effect, what effect will that have on price stability? According to Masiyiwa, prices will stabilise, but I beg to differ. The issue is that an ordinary worker is being paid his or her salary in RTGS dollars. Therefore, if prices are converted to rand, that same worker has to look for the rand elsewhere. Unfortunately, he or she has to go to the black market. We will then have a situation whereby everyone wants to purchase the rand. What this means is that the demand for the rand will increase. Holding supply constant, this will lead to an increase in the cost of acquiring the rand on the parallel market. In other words, the rand will appreciate in value or the RTGS dollar will lose value. People will now need more RTGS dollars to purchase the rand than before. This will create more problems to the ordinary consumer.
What Zimbabweans need to understand is that currency is the least of our problems. We need to correctly diagnose our problem; otherwise we may waste a lot of resources trying to address a non-existent problem. Trying to adopt a new currency at this juncture is like prescribing tissue paper as a remedy for cholera.
The question then is why is Zimbabwe in this current economic mess? The answer is very simple: We are not producing sufficient goods to meet our demand. More so, we are very inefficient when compared to our neighbours. Most of our industries are using archaic machinery and equipment. Our costs of production are very exorbitant. This is killing our competitiveness on the international market.
Because of the above mentioned reasons, the country’s demand for imports is very high. It is very embarrassing that our country is importing goods such as matches, toothpicks, diapers, onions, bricks, tinned beans etc. This is totally unacceptable. These unnecessary trinkets are chewing up the few foreign currency resources we have. Furthermore, why do we import steel when we have a World Class parastatal like ZISCO? Why is it taking centuries to retool this strategic company? Are all the universities and agricultural colleges in Zimbabwe failing to produce a wheat variety which is suitable for the production of bread? Why do we continue importing electricity when we can expand local production? The equation is very simple, if we produce these things locally, we will free up some foreign currency resources to purchase important goods and services. This will reduce our import bill.
Apart from Zimbabwe’s unsustainable import bill, the country’s exports are not competitive on the international market. The country’s exports are dominated by goods which are more susceptible to external shocks. The problem is that most of our exports are primary goods. We need to promote value addition and beneficiation in order to boost our export proceeds.
Moreover, some of the policies by the government discourage exporters. A good example is that of tobacco farmers and gold miners who sell their produce in US dollars but are only allowed to retain a portion of the proceeds in foreign currency. The remainder is converted into RTGS dollars at an unrealistic ‘market rate.’ Why do we have a foreign currency allocation committee? Who generated the foreign currency which this committee allocate? Is there anyone from the mining or agricultural sectors among the committee members? This is clear daylight robbery. Those who generate foreign currency must be allowed to retain 100% of their income in foreign currency (the government will benefit from the tax which they will also pay in foreign currency). We must not kill the spirit of our exporters.
Conclusively, to address Zimbabwe’s current economic challenges, the government must address the production side. Any attempt to introduce a new currency under the current conditions will be very futile if not suicidal. Let’s reduce our import bill, boost our exports and build sufficient foreign currency reserves before we harbour any ambitions of introducing a new currency.

Luckmore Chivandire is an Economist, Chartered Secretary, Author and Blogger. He can be contacted at luckmorechivandire@gmail.com.

Zimbabwe’s internet shutdown: Was it necessary?

On the 15th of January 2019, the Zimbabwean government ordered all Internet Service Providers (ISPs) to shutdown the internet. This order was a result of public protests which were triggered by a 150% increase in fuel prices. The shutdown was however declared illegal by the High Court of Zimbabwe. What is however disturbing is the fact that the government is not showing any sign of remorse. Speaking during a live radio interview on Capitalk FM recently, the Deputy Chief Secretary for Presidential communications, George Charamba justified the government’s actions. In fact, he categorically stated that the government will not hesitate to shut down the internet in future in the event of any civil protest. Charamba made this statement notwithstanding the fact that such action was declared illegal by the High Court. Does the government even care about the rule of law?

Shutting down the internet violates human rights which are enshrined in the Constitution of Zimbabwe. I refer you to Section 57(9)(d) which provides for the right to privacy and freedom from communication infringements, Section 61 which provides for freedom of expression and freedom of the media and Section 62 which guarantees right of access to information. I will not dwell much on human rights violations.

Besides it being a human rights violation, shutting down the internet has several economic repercussions. Reliance on the internet for day to day activities is now a global phenomenon. According to Hawking (2016), the world is now connected by the internet like neurons in a giant brain. In other words, it is almost impossible for a country to survive without the internet, even for a single day. A recent study by Deloitte concluded that an average low connectivity country such as Zimbabwe loses about 0.4% of its daily Gross Domestic Product (GDP) for each day that internet services are completely shut down. Given that Zimbabwe’s annual GDP was projected at 18.9 billion in 2018, it entails that the country lost $621 370 in potential GDP for the three days when there was complete internet shut down. Put in other words, in just three days, Zimbabwe lost GDP which is equivalent to 3.5% of the Ministry of ICT and Cyber security’s 2019 budgetary allocation.

More so, the Internet shutdown resulted in several businesses losing very important contracts because of their inability to conduct certain vital transactions. I know of a certain Harare company which failed to make a payment for essential raw materials and the supplier has since shifted goalposts. The supplier now insists on payment upfront, something which is very difficult in this harsh economic environment. A lost contract implies loss of revenue and in worst case scenario, it may result in business closures and loss of jobs.

In addition, with many Zimbabwean companies embracing digital methods of doing business, the internet shutdown interrupted communications, access to digital documents and banking services. Of late, the Reserve Bank of Zimbabwe has been advocating for the use of plastic money. Point of Sale machines rely on the availability of the internet for them to function. Several people failed to carry out their transactions during the time when the internet was down.

The shutdown also exposed internet users to privacy and security risks since some of them ended up using untrustworthy Virtual Private Networks (VPNs) in order to bypass the internet restrictions. Some of these networks allow malicious third parties to snoop through the internet users’ personal data and in some cases they use people’s internet connections to conduct illegal activities on the web.

Furthermore, no serious investor will invest in a country where the government can shut down the internet at will. Shutting down the internet undermines business confidence and has a negative effect on Foreign Direct Investment.

The tourism sector was also not spared. Guests need the internet for hotel bookings and reservations. More so, lack of internet connectivity affects the ability of tourists to discover local services and businesses through the use of applications such as Google Maps and Trip Advisor. I will not be surprised to hear that there are tourists who were forced to change their travelling itineraries as a result of this shut down.

In conclusion, everyone was affected by this shutdown. Think of the lost revenue by the government, the sick who failed to purchase drugs and the general public who failed to purchase ZESA tokens. No one benefited from this brutal act. It is regrettable that the government is promising future internet shutdowns.

Luckmore Chivandire is an Economist, Chartered Secretary, Author and Blogger. He can be contacted at luckmorechivandire@gmail.com.