Zim dollar return talk ill-timed

FOLLOWING utterances by the Vice-President Constantino Chiwenga at a rally in Shurugwi, that the country would re-introduce a local currency at what he called an appropriate time, the debate about the return of the Zimbabwe dollar has been re-ignited.

The Brett Chulu Column

What Chiwenga said is trite economics: a local currency needs to be supported by the right economic fundamentals.

Presently, the economic fundamentals do not lend support to the reintroduction of a local currency. The real economy, where goods and services are produced, must recover and grow first before any local currency is re-introduced.

The Bible, amazingly, lays down the marker for a functional currency. In Genesis 47:13-15 (KJV) the connection between the real economy and a monetary currency is apparent: “And [there was] no bread in all the land; for the famine [was] very sore, so that the land of Egypt and [all] the land of Canaan fainted by reason of the famine.

“And Joseph gathered up all the money that was found in the land of Egypt, and in the land of Canaan, for the corn which they bought: and Joseph brought the money into Pharaoh’s house. And when money failed in the land of Egypt, and in the land of Canaan, all the Egyptians came unto Joseph, and said, Give us bread: for why should we die in thy presence? for the money faileth.”

You cannot have a stable currency when production is poor. This is the fundamental challenge staring us in the face as a country. We are not producing enough.

Our trade performance eloquently narrates our story of poor levels of production. From January to March, our imports stood at US$1,670 billion against exports of US$784 billion, generating a trade deficit of US$401 million.

In April, we still had a trade deficit, US$215 million. At the end of the first four months of the year, we have already posted a trade deficit of US$1 billion. The nature of imports reveals that our local production base is heavily crippled.

The bulk of our imports during the first four months of the year comprised cereals (maize, rice and wheat), fertilisers and energy (diesel, petrol, electricity) and medicines.
In April alone, our imports hit US$544 million, composed mainly of diesel (US$78,1 million), unleaded petrol (US$40,1 million), electricity (US$31,1 million), crude soya bean oil (US$9,1 million), rice (US$13,3 million), ammonium nitrate fertilisers (US$13,1 million), wheat (US$6,5 million), among others.

This is against exports of US$330 million, with 85,8% of these exports composed of either raw or semi-processed commodities: semi-manufactured gold (US$126 million), nickel mattes (US$64 million), nickel ores and concentrates (US$38 million), ferro-chrome (US$30 million), flue-cured tobacco (US$15 million), chromium ores and concentrates (US$9 million), unwrought platinum (US$4 million), black tea (US$3 million) and black granite (US$2,6 million).

Our challenge is clear: we are producing unprocessed goods and importing value-added goods and we are struggling in terms of food self-sufficiency.

The latter is a cause for concern when viewed against the backdrop of a decrease in land under key crops this year when compared to the 2016/2017 farming season. The area under maize fell by 12% from 1 875 297 hectares (ha) to 1 656 665ha.

In terms of tobacco, the area decreased by 5% from 110 518ha to 104 397ha. In terms of cotton, the area declined by 5% from 207 786ha to 198 063ha. Area under sugar bean fell by 42% from 26 257ha to 15 336ha and that under sunflower declined by 58% from 16 321 ha to 6 823ha. Though the area under soya bean increased by 16% from 35 996ha to 41 925ha and will take our annual soya bean output to about 70 000 tonnes, it will not be able to meet our 220 000 tonnes annual soya bean requirement.

Imports of crude soya bean oil will continue. Our major crops such as maize and tobacco are mainly rain-fed. The vagaries of weather, heightened by the reality of climatic change, bring uncertainty to our food self-sufficiency.

Attaining self-sufficiency in food is the foundation for reducing our huge and growing deficit. We cannot do that with rain-fed agriculture. Increasing the area under irrigation is a key investment we need. The raw materials fed from agriculture will provide the much-needed inputs for our once strong agro-based manufacturing, creating a new line of processed exports.

We cannot talk of introducing a new currency when we have less than two weeks of import cover as is now the norm in Zimbabwe. We need at least three months import cover in terms of foreign currency reserves in order to begin considering re-introducing a local currency.

Our budget deficit needs to be contained too; it is now touching 10% of gross domestic product. The budget deficit, if we really need one, must be contained at below 3%. The budget deficit financed through relentless borrowing from the local banks is what is fuelling the nominal economy: roaring market for Treasury Bills and a recovering stock market, with investors looking to preserve the nominal wealth fuelled by a financial market driven by excessive credit-creation to whet the appetite for government expenditure.

When the nominal economy roars and real economy whimpers softly, it indicates a unhealthy economy. It is unsustainable.

The sad thing about our government is that it is creating budget deficits to finance recurrent expenditure, crowding out borrowers who want to finance the real economy. It is a shame that the bulk of loans (24,15%) lent by our banks is for household consumption while agriculture gets 18,56%.

It shows that there is little confidence in the security of tenure in our agricultural sector. This does not augur well for reviving agriculture.

The elephant in the room is our politics. Rehabilitation of our local politics is the single most important lever for reviving our real economy. The dreams that our politicians have for reviving the economy are commendable but affordable funding is the prerequisite to a tangible economic recovery, not mega-deal announcements unsupported by real action on the ground.

Plans to increase area under irrigated agriculture from about 174 00ha to 350 000 hectares is a step in the right direction. This needs massive funding. Energy investments are critical to reducing both the electricity import bill and whittling down the cost of power to local producers.

The refurbishment of Hwange Power Station to add another 600 megawatts to the national grid through a US$1,5 billion loan from China is a sign of green shoots. The recent commissioning of the refurbished 300-megawatt Kariba power-generation plant is commendable.

What we need are new power-generation projects. New power projects are needed. The Batoka hydro-electric power joint venture with Zambia is a good dream. The Lisulu coal-to-fuel project is another good dream as it will ensure self-sufficiency in fertilisers and fuel.

All these dreams can come to fruition if a credible and competent government comes to power after credible elections.

The reduced country risk will unlock several sources of affordable funding to increase the competitiveness of our local products, raising the prospect of competing successfully in the export markets for manufactured goods, especially foodstuffs.

A credible and competent government is the first and major step in creating the conditions for the growth of the real economy, setting the stage for a successful re-introduction of a local currency. That will take time, arguably, at five years from now. The restoration of trust will not be overnight.

Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer-reviewed international journal. — brettchuluconsultant@gmail.com