Saturday, March 29, 2014

Zim the dollarization process

Zimbabwe is essentially operating a multiple currency system and recently the then Acting RBZ Governor, Dr Charity Dliwayo announced the adoption of more currencies in the economy.
Despite this Zimbabwe is viewed as a dollarised economy given that the Government conducts all its business using the United States (US) dollar and it is the currency that has become predominant among the other currencies used in the country.
The chief advantage to dollarization is that rampant inflation has been dramatically stabilized. This has, in turn, stabilized the overall economy, sustained the buying power of the Zimbabwean people, and allowed the nation as a whole to experience significant economic growth.
Long-term economic planning is easier to do under a stable currency, and the hope is that the dollar will attract foreign investors who were previously reluctant to invest in Zim due to its economic and monetary weaknesses.
On the other hand, there is also a downside to dollarization. By scrapping its own currency, the Zim government can no longer make its own monetary decisions which Dr. Ngwenya, a lecturer at Solusi University describes as seigniorage.
Zimbabwe’s monetary policy is now essentially made thousands of miles away in Washington, D.C. by the Federal Reserve Board. The decisions the Fed makes, furthermore, might not necessarily be in Zimbabwe’s best interests.
Moreover, Zimbabwe is at a competitive disadvantage to its trading partners in that, unlike neighbouring countries such as Zambia or South Africa, it cannot make its goods cheaper in the worldwide market by devaluing its currency.
Other drawbacks to dollarization became apparent during its implementation: people were unfamiliar with the currency, which made counterfeiting easier, and the illiterate portion of Zimbabwe’s population (which, unfortunately, is significant in rural areas) had difficulty identifying the uniformly-green bills (the sucre had been printed in different colors for different denominations).
Perhaps most importantly, dollarization still does nothing to address the core problems that are dragging Zim’s economy, such as the nation’s woeful lack of infrastructure, Zimbabwe’s massive internal and external debts caused by rampant spending, continued political instability, and debilitating corruption.
Dollarization is a factor of stability. Commerce and services grow rapidly in Zimbabwe, encouraged by dollarization. The monetary scheme succeeded in that the spending power of Zimbabweans is maintained and is going towards the purchase of goods and services, many of which are imported.
The control of inflation was key for these activities. This is reflected in the shopping centers, harbors, bazaars, stores and in the streets of the main cities, where the supply of products of Chinese, South African and Dubai origin at low prices is unlimited.
Dr Ngwenya a lecturer at Solusi University says, dollarization only gave stability to some of the economic variables that were used by entrepreneurs to plan their businesses. He refers to inflation and the stability of foreign exchange.
Dr Ngwenya recognizes that now the economy is concentrated in the services, while the contribution of national production is reduced.
“Dollarization has weaknesses, because it does not generate wealth from exports. It is reducing industry and increasing imported goods,” he explains. Dr Ngwenya recommend increasing productivity and reducing costs of production so that industrial activity does not further decay.
But Dr. Warambwa, the Managing Director of Siabuwa Infrastructure Development Cooperation (SIDC) adds that, first, the Government must lower the public debt and maintain an economic policy of fiscal austerity and reduced taxes.
“Dollarization is like a straitjacket, but heretofore it hasn’t felt like one and we continue spending more.”
Dr Ngwenya, on the other hand, maintains that the presence of wealth from exports in the economy is generated by high prices of petroleum and the remittances of emigrants.
“That allows there to be a balance in the public finances and the balance of payments,” he adds. But the predicaments are not only for entrepreneurs.
Dollars do not circulate easily in the marginal urban areas of the country.
Dollarization corrected problems with electricity, petroleum, telecommunications and interest rates. We could not continue ignoring (washing away) inefficiency.
The dollar has been a stability factor. In order to visualize the relation that dollarization has had on political policy, a small exercise of imagination is required. What might have happened with the Zim dollar had rumors of political wars actually existed?
It is not difficult to imagine terrible devaluation that would have occurred and the effect that would have had on the Government. Dollarization has been, then, an economic phenomenon that has had enormous political meaning. In fact, the decision to adopt that model was a political measurement.
Some analysts also agree that dollarization has created an atmosphere of stability for the public, soothed by their purchase capacity, that neutralizes the calls to mobilization that indigenous and labor leadership often make.
In Zim the dollarization process also has meant a certain change in the behavior of the political class regarding the topic of the budget. Although the old custom still exists to press the government in power to add items to the budget for political purposes, every day grows a new, more conscious understanding of the State’s inability to put more money into circulation.

Wednesday, March 19, 2014

Zimbabwe enters deflation

2014-03-18 19:46


Special Report

Zimbabwe caps salaries of state firm bosses
Zimbabwe caps salaries of state firm bosses
Zimbabwe’s cabinet has announced a $6 000 monthly salary cap for executives of state-owned entities, following reports they were grossly overpaid.
Harare - Zimbabwe recorded deflation in February, official figures showed on Tuesday, in what analysts deemed a further danger sign for the struggling economy.
Year-on-year inflation for February was minus 0.49% - almost a whole percentage point lower than January's 0.41% inflation - according to the Zimbabwe National Statistical Agency.
"This is a reflection that there is dampened economic activity. There is hardly any major economic activity taking place," said Godfrey Kanyenze, director of the Labour and Economic Development Research Institute of Zimbabwe.
"Fewer people have money to buy the available goods and services. We really need to come up with fiscal stimuli to whip up demand," he told AFP.
Sustained deflation can be dangerous for an economy as a widespread decline in prices may lead to consumers delaying purchases.
It can trigger a destructive spiral where companies forced to cut prices also cut wages and lay off workers, leaving consumers with less money to spend and the entire economy worse off.
Kanyenze said the country needs to attract more foreign investment and boost mining and agriculture exports, but its risk profile is keeping investors away.
Eric Bloch, an independent economist based in the second city of Bulawayo, said one monthly drop was insignificant in the context of poor economic performance.
"There is no benefit or prejudice to the consumer," Bloch said. "It's as bad as continuous inflation."
Most Zimbabweans have little disposable income, which translates into low aggregate demand for goods and services.
This is pressing on employment, rather than consumers holding off on purchases.
In January already the main trade union federation said companies were laying off around 300 people every week.
Zimbabwe's economy has been on a downturn for over a decade, with most people living below the poverty line and firms either downsizing or pulling down the shutters.
But economists estimate the country is only running at a third of its current capacity, and conditions have failed to improve after President Robert Mugabe's ZANU-PF party won polls in July last year.
The government has also been pursuing a policy of pushing foreign companies to hand over a majority stake to locals, which has served to reduce foreign investment.


Tuesday, March 18, 2014

Zimbabwe economy

A CURRENCY is a wonderful flagship for a country, bobbing away minute by minute on the waves of global sentiment and trade. It is a useful proxy for where the market and economy is heading next, but in Zimbabwe’s case it has become more like an albatross around the necks of its leaders, dragging them further into an abyss of economic disaster.
Zimbabwe had to abandon its currency — hard won via bloody civil strife for freedom — in 2009 as effectively worthless, with the US dollar and rand being accepted instead as the main legal tender.
While this change did put a plug in runaway inflation, a new plank in the strategy has been to look east by accepting the Chinese yuan, Japanese yen, Indian rupee and Australian dollar as legal tender too.
The jury is out on how clever all of this is, as the ultimate aim should surely be to reclaim your flag — your currency in this case — and let it proudly flap away in the winds of global economic change.
My son, aged five, got into trouble during the recent heavy rains in South Africa when he left my iPad exposed to the elements after forgetting it on the lawn. I was, of course, furious (I use it for work, not only games), but he came up to me once the dust had settled with a Z$20m bill his grandfather, who is prone to going on safaris into deep, dark Africa, had given to him to pay. He’d heard an iPad cost about R5,000 or so, and thought the money would easily pay for it.
Of course, his attempt to solve one of the first bad experiences in his young life warmed everyone’s hearts — and we thanked him profusely for the largesse. But I did quickly explain to him that this money came from Zimbabwe, and was no longer in use because their economy was not like ours, or most others. It was certainly nowhere close to his German grandfather’s economy, which used the euro, of which each one was worth R15 and a whole lot more than the millions of Zim dollars he was so keen on parting with to settle his damages.
It is a sad state of affairs when a country can fall into a state of such disrepute — even sadder when it is on our doorstep. Of course, letting things slide so badly — it was so bad in Zimbabwe that the value of its citizens’ money was halving every day, and Z$20-trillion was worth just one US dollar — has serious repercussions. And there is no worse repercussion for a country and its elected leaders than when people begin to starve.
While Zimbabwe’s politicians have been running around looking for food import deals with South Africa to help stem a new food crisis as 2-million people need food assistance, the United Nations’ (UN’s) World Food Programme says money is a problem. The UN’s own plan to feed 1.8-million Zimbabweans is running into money trouble — it is $60m in the red and desperately looking for donors.
Of course, there is no reason Zimbabwe can’t become a breadbasket again — it has the land and resources to do it. But the system of land grabs has turned everything into a mess. Investors need to be brought in, and they’ll only do so if property rights are protected — if they know they are dealing with people who have the rights to farm the land. So, unfortunately, it’s over to the politicians again, who seem to forget that their future, and that of the starving millions, hinges on the economy. Running off to South Africa or adopting the yuan is not ultimately going to help.
Setting up two fairly simple programmes may be better. Start with a foundation of private property rights protection, as it is the clarity over property titles that is holding back investment. Then set up a programme to drive smallholder farming. To do this, go back to the basics — it needs an efficient market of buyers and sellers. Then there will be no more need to import hundreds of thousands of tons of maize. With these things on track, you can fly your economic flag — your currency — proudly again.
A top UN food man I spoke to said the UN would be only too keen to help set up such a market, but what is lacking is the political will. The Southern African Development Community also tells me it has a four-year plan in place to beef up food security, which includes Zimbabwe. But, again, all indications are that more input is needed from the Zimbabwean government.
Investment Asset Management’s Zimbabwe expert, Roelof Horne, says ultimately any country would want to have its own currency again at some stage as it formed a "shock absorber". Other currencies are driven by their own monetary policy and could be misaligned to your needs.
A looming problem is the need for even more money. The Zimbabwean government has agreed to a 26% pay increase for civil servants — which is hardly affordable. Its government bond market is not working well either — you need your own money for that — and so the country is battling to borrow externally.
The whole mess has led to a general lack of market liquidity, with banks short of funds, capital and deposits.
It is giving rise to talk of a possible relaunch of the Zim dollar, but the timing is out. To relaunch it, they will need high levels of confidence in economic policies. The value of a currency is determined by confidence, which is nowhere on display. According to Horne, should the currency be launched now, it will be a decision "doomed to be a failure".
"It is probably bound to lose value very quickly as people have no confidence," he tells me.
The solution is to get working on solid economic policies. Look to Asia as an example — using their currencies is not the solution, but their models, when implemented, would help set up the foundations for a booming food or cotton trade. Until then, Zimbabwe’s basket-case status remains in play, its currency doomed to the sidelines of the daily market news pages.

Broken Hearts, Tension and Anger at the Tobacco Auction Floors

Zimbabwe: Broken Hearts, Tension and Anger at the Tobacco Auction Floors

TENSION was high at various tobacco auction floors in Harare last week where angry growers said they were being cheated by unscrupulous buyers.
The situation was especially volatile at Boka Auction Floors where farmers pushed for physical action, including protests, against what they said was a deliberate move by the buyers to shortchange them.
The farmers claimed that prices, which ranged from as low as US$0,60c to around US$3 per kilogramme, were a mockery of their hard work.
Anti-riot police could be seen milling around the premises, further incensing farmers who believed it was a move to intimidate them against protests.
Decked out in their full combat gear, the police patrolled the premises and its environs in a menacing manner.
One of the farmers, 27-year-old Kudakwashe Budayo from Bocha in Marange district, said she was disappointed by the prices that the auctions floors were offering.
"I left my two minor children with their father hoping I would sell at a good price but it has been so disappointing. I'm a new farmer but I do not think I will grow tobacco again," she said.
Looking dejected and angry, Budayo said she had sold three bales of tobacco for prices ranging from US$0,60c to around US$3 per kilogramme, which she said were very low by any standards.
"I know my crop was of excellent quality but they gave all sorts of reasons so that they could not pay well and in the process of sorting out, the weight of the bales was reduced drastically," she said.
Budayo accused some officials of corruptly taking farmers' tobacco and then selling it later.
"We do not trust the manner in which those girls were handling our crop," said Budayo. "They gave all sorts of reasons just to disqualify our crop. I am going home empty-handed. After all the hard work, this is what I get."
But officials at the auctions said some of the tobacco failed to meet the required grade because it was wet, badly packed or poorly sorted or cured.

Chinese Firm to Invest U.S $250 Million in Solar Project

Zimbabwe: Chinese Firm to Invest U.S $250 Million in Solar Project

CHINESE energy company, Zhenfa New Science and Technology plans to invest $250 million in a 100 megawatt solar photovoltaic project this year. In a statement issued at the just-ended Zimbabwe Agenda for Sustainable Socio Economic Development seminar last week, the company said the project will require 315 hectares and will generate 218 million Kw/h in the first year of operation.
"Zhenfa will invest in a 100MW solar photovoltaic power project in Zimbabwe in 2014," said the company.
"The project will generate 218 million Kw/h in the first year and five billion Kw/h after five years.
"The company decided to invest in Zimbabwe by referral after hearing that the country had power challenges but very good solar radiation ratios.
"The rich sunshine resource and climate enables Zimbabwe to be one of the leading countries to build solar power stations.
"We are still looking at various sites to set-up the plant but any place in Zimbabwe would be good for a solar power plant."
A director at the company, Mr John Wang said the firm would use internal resources to invest in the country. Over time, he said Zhenfa plans to invest as much as 2 gigawatts solar energy capacity in the country.
"Zhenfa group plans to invest in a 2GW solar photovoltaic power project in Zimbabwe within the coming five years. We would like to share the experience and invest in PV power projects in Zimbabwe and Africa as a whole," said Mr Wang.
He said both projects would support agriculture and animal husbandry activities thereby creating employment.
Mr Wang said the firm has since identified ChiMuts Solar Zimbabwe as a strategic partner in which Deputy Foreign Affairs Minister, Christopher Mutsvangwa's son Tendai has interests.
Established in 2004, the firm focuses on solar power system technology innovation, PV system equipment development and large scale applications.
The firm has so far completed PV projects with total capacity of 2GW (include EPC and own investment). In 2013 alone, the firm installed 1,3GW.

Monday, March 17, 2014

RBZ Collaped CAPS Operations

Zimbabwe: RBZ Collapsed Caps Operations - Mutanda

CAPS Holdings executive chairman Mr Fred Mutanda has made sensational claims that the Reserve Bank of Zimbabwe collapsed the operations of CAPS Pharmaceuticals after ordering delivery of "all stocks of medicines" to State hospitals about six years ago.
CAPS Pharmaceuticals, once the country's largest drug manufacturing firm has since ceased operations and its premises in Southerton were once auctioned for $1,5 million.
The auction was, however, reversed after the High Court ordered that the sale of the premises should be done through a private treaty.
Government was also reported not to be happy with the business that was likely to be conducted by the winning bidder.
While the collapse of CAPS Pharmaceuticals is blamed on poor management and alleged interference by Mr Mutanda, who is also the majority shareholder, the businessman has blamed the actions of the central bank, which he alleged collapsed the company.
CAPS Pharmaceuticals used to manufacture about 75 percent of the country's essential drugs. In court papers filed at the High Court in which Mr Mutanda is challenging the placement of QV Pharmacies, one of CAPS Holdings subsidiaries, he said the central bank had promised to pay the drug maker in foreign currency to procure raw materials. But the company had to look for funds elsewhere after the central banks failed to pay.
"Around August 2008 the Reserve Bank crippled CAPS Pharmaceuticals after commandeering the delivery of all stocks of medicines to Natpharm to facilitate re-opening of Government hospitals, promising to provide foreign currency for raw materials to replace the delivered medicine and restock the whole product portfolio," he claims.
"The promised foreign currency never materialised but CAPS was paid months in worthless Zimbabwean dollars, which the company could not access until local currency was demonetised."
Zimbabwe adopted a multi-currency regime on January 29 2009 in the wake of the collapse of the Zimdollar, and four currencies were adopted - the South African rand, the Botswana pula, the British Pound Sterling and the US dollar.
Government has since directed that CAPS should be re-opened due to the strategic nature of the business.
In 2008, most gold mines, including those operated by Metallon, the country's largest producer of the metal suspended operations due to delays in receiving payments for gold delivered to the central bank which had monopoly on the gold trade. But the miners resumed operations in July 2009 after a new unity Government allowed miners to sell their own bullion.
The RBZ owes gold producers about $50 million, acting governor Dr Charity Dhliwayo said last week. The debt has since been assumed by the Ministry of Finance and Economic Development which will settle all payments.
Former central bank governor Dr Gideon Gono has on several occasions defended his actions. His actions were meant to prevent the country from descending into chaos "like Somalia."
"Whatever I did had authorisation from the Government of the day," Dr Gono once said.

From John Robertson

It is not over yet. But to what extent we can hope for the change we really need, which is the repeal of the Indigenisation and Economic Empowerment Act, rather than mere amendments, has yet to be seen. Today, Thursday, a meeting of the Council of Ministers is to be held to discuss this topic. I have reproduced below an entry from the Prime Minister’s Newsletter, Edition 37, published on his website yesterday. You can download updates by calling up but I hope to be able to alert you to any helpful developments


Zimbabwe: Chemco Shareholders Okay ZSE Delisting

CHEMCO Holdings shareholders this week approved the delisting of the company from the Zimbabwe Stock Exchange (ZSE). A manufacturer and distributor of agricultural inputs, Chemco was suspended from the ZSE in 2012.
The de-listing follows after the public was said to be no longer offering value to shareholders and the company also wants to change the business model from being a manufacturer to become a distributor.
TSL- Chemco's majority shareholder is of the view that corrective actions for the company, which has been posting losses over the last three years are best implemented outside of regulations and social pressures of the capital markets. TSL has a 62 percent stake in Chemco. Chemco will become a wholly owned subsidiary of TSL, but as a delisted entity
The company recorded a comprehensive loss of US$380,479 for the year ended October 2013 compared to a US$1,1 million loss same period last year.
Shareholders voted for the issuing about 15,8 million Chemco shares to TSL by way of private placement in exchange for assuming debt and third party trade payables of up to US$2,64 million.
The company said it recorded a 27 percent increase in revenue to US$4,4 million from US$3,5 million during the same period last year.
All resolutions including the conversion of US$2,64 million worth of debt and trade payables into equity and the issue of shares to TSL by way of private placement were unanimously approved. Chemco's flagship brand, Agricura, is held in Agricor, in which Chemo owns 68 percent. Other divisions include Chemical and Pest Control.
In addition to retailing building material and timber supplies through TS Timber branches, Chemco operates Agriculture Buying Services in Harare, which sells agriculture and hardware supplies.
Other shareholders in Chemco include Farm-A-Rama (14 percent), TS Timber (6,5 percent), Agriculture Buying Services (5,6 percent), Old Mutual Life Assurance (5,3 percent) and Alpha Asset Management (3 percent).