Source: Adopting exclusive use of the SA rand | The Financial Gazette November 24, 2016
… A cruel necessity for Zimbabwe
By Joseph Kanyekanye
AT its peak, industry contributed a total of 22 percent to Zimbabwe’s gross domestic product (GDP) and 37 percent of export earnings.
Post the crafting of the Industrial Development Policy (IDP) 2004-2010, the manufacturing sector’s contribution to GDP continued to decline in spite of implementation of interventions such as assistance to distressed and closed companies, import substitution and value addition, development of integrated industrial clusters and the creation of sub-sector task forces that were developing detailed action plans for each sub-sector.
We spent hours in the National Economic Consultative Forum alongside fellow industrialists trying to ensure that we could arrest the decline.
Put simply, we met with some limited success especially during the Government of National Unity years of 2008 to 2010 when I was Confederation of Zimbabwe Industries (CZI) president and Professor Welshamn Ncube was the minister of industry and commerce.
The subsequent IDP (2012 -2016) itself envisages “transforming Zimbabwe from a producer of primary goods into a producer of processed value added goods for both the domestic and export market through the promotion of viable industrial and commercial sectors”.
The overall objectives of the policy at inception, was to restore the manufacturing sector’s contribution to GDP of Zimbabwe from the then 15 percent to 30 percent and its contribution to exports from 26 percent to 50 percent by 2016.
Clearly this has failed.
The so-called five-day window for investment was truthfully never achieved despite pronouncements contrary to this.
The failure was not because Industry Minister Mike Bimha did not push for it, but I argue here that this was not largely feasible on the basis of a strong United States dollar amidst a weakening rand.
It is my outright contention that any new IDP would only be of academic use like its fore-runners if it is not anchored on a rand currency.
Notwithstanding the apparently strained bilateral relations between Zimbabwe and Britain and the valid colonial abuses of the past, Britain bequeathed Zimbabweans with some of their cultures such as the English language and History.
In my case, this included their university education in Wales.
In British history, we have Cromwell, an English soldier and later statesman who referred to King Charles 1’s execution as a “cruel necessity.”
I shall not equivocate but state bluntly that adopting the rand is now a cruel necessity.
In this article, I want to arouse the interest of fellow citizens to build consensus on taking this route by examining objective evidence of our current economic situation and industrial capacity without losing sight of the inescapable and absolute need to re-align Zimbabwe back towards a sustainable growth trajectory.
Indeed inaction is not an option.
Common sense
Zimbabwe is a country where by far the largest consumer of US dollars is the government which in turn is not productive and requires greenbacks to pay salaries.
It makes no sense to use a high value currency on unhelpful consumptive behaviour and then essentially force everyone else to find US dollars to feed their government.
If government salaries are paid in rand, the cost that everyone else incurs feeding that same government goes down dramatically.
Hence using the rand has always made sense from the beginning.
A significant amount of consumer and/or industrial goods that are brought in from South Africa actually do not originate from there but from China.
If you go into a supermarket or wholesaler it’s sad to note that goods such as household electricals come with standard South Africa plugs yet the packaging says made in China.
This scheme called “white labelling”, is legal and stems from the fact that South Africa has resources to be able to do this while Zimbabwe has limitations particularly now when bank nostro accounts are literally empty and local Real Time Gross Settlement balances do not translate to a definite ability to export notwithstanding that the accounts are all in United States dollars.
South Africa can afford to import these goods from China and put a huge mark up and re-route these goods to Zimbabwe due to having substantial domestic foreign currency reserves, lower transaction costs, economies of scale/scope and the comparative advantages of having ports and a more fluid economy compared to ours.
Thus when the National Railways of Zimbabwe imports railway sleepers made of Msasa (Brachystegia spiciformis) from Mozambique as opposed to abundant Matabeleland sleepers, it is simply because it is significantly cheaper to import than procuring locally.
Milk producers also find it cheaper to import milk from South Africa/New Zealand than from local producers.
Put simply, our domestic factors of production are messed up badly and anyone telling otherwise is lying.
This makes Zimbabwe producers for raw commodities and finished goods uncompetitive except in a command economy that forces Zimbabweans to pay more for everything than they should.
These South African companies, including other foreign firms, are there to essentially take our US dollars available locally.
I concur with Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya, that money is getting out but, in my view, this currency harvesting is happening fairly, legally and principally because of our unnecessary use of the US dollar.
On the issue of gold mining, a radical and necessary route is to liberalise buying and selling of gold and allow individual firms, banks and designated financial institutions to buy and sell gold.
This will have the effect of creating new liquidity while also removing need for people to hold currencies as a store of value.
Readers must surely remember the time when we had continuous fuel challenges.
Retired Lt. General Mike Nyambuya, as minister of energy, successfully liberalised the sector, leading to no shortages up to now.
The current regime where only Fidelity Printers & Refiners is the sole player has long been discredited and is not applied anywhere else in the world.
Common sense suggests that we can create liquidity in rand by structuring such deals in South Africa which most of us are quite familiar with.
Export of minerals such as chrome should not be restricted as what happened not so long ago amid declining liquidity.
Such an irrational policy flip-flop when firms are invested in the sector defies logic given our operating environment and harms our country.
We should rather allow exports through previous channels.
Exaggerated issues concerning environmental damage and/or degradation can then be dealt with through improving inspections, fortifying current degradation laws and the administration thereof.
Anyone who has observed how oil is extracted in Canada from a process called fracking would be shocked by misplaced and exaggerated environmental degradation concerns often proclaimed when any development is to be done.
We cannot use a “tree-hugger” posture to effect an urgent economic turnaround desperately needed in our country.
This academic nonsense is best deployed in the West were basic needs are available to their people and not in our case.
I am an environmentalist myself, but let us be practical. Allowing unrestricted exports will arguably increase liquidity which we desperately need more than bond notes can.
Most of our chrome exports are into South Africa and using the rand will surely enhance quantities and liquidity to Zimbabwe.
We should be wary of holding stock of things in the ground and claim we are rich.
We should exploit these today and now because we don’t know what the future holds.
The world is changing rapidly and we seem to be getting left behind.
I believe the issue of leveraging minerals raised previously by former RBZ governor Gideon Gono and Patrick Chinamasa in his maiden budget as Minister of Finance needs to be tackled with the same level of efficiency the ZANU-PF Politiburo dispenses with disciplinary matters.
Get Gono and some of us to work on this.
This is not new and it’s happening in other countries.
President Robert Mugabe ought to create a minerals leveraging commission with set financial annual targets to be incorporated into the national budget.
This should complement the hardworking Minister of Finance and present an additional basis for mobilising liquidity.
Again using the rand especially makes sense than paying external debt in the hope of getting more debt.
It’s sad but true that one does not give alcohol to a recovering alcoholic with the hope that he/she will drink moderately.
Our use of statutory instruments to regulate international trade is arguably not wise, legal or sustainable.
Under GATT Article XI, “no prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licenses or other measures, shall be instituted or maintained by any member on the importation of any product of the territory of any other member or on the exportation or sale for export of any product destined for the territory of any other member”.
The only exceptions are found under Article X1I as follows:
•Export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party;
•Import and export prohibitions or restrictions necessary to the application of standards or regulations for the classification, grading or marketing of commodities in international trade;
We must therefore ensure that we manage our brazen attitude to international trade which we have wrongly regulated by using domestic laws.
We need to use derogations permissible under the safeguard rule in Article XIX of GATT 1994 where a World Trade Organisation member may temporarily suspend multilateral concessions on its imports of a given product.
Suspension of concessions may inter alia include: Increasing the tariff above the bound rate, application of a quantitative restriction, or take other trade restrictive actions that otherwise would be prohibited.
Such a suspension of concessions is taken “if its domestic industry is seriously injured or threatened with serious injury caused by a surge in imports”.
If our trading partners reciprocate this illegality, this can have a serious impact on the little liquidity we still talk about.
Bilateral discussions need to be done to safeguard ourselves and contain what appears to be an inconsistent act in international trading terms.
Martin Luther Junior aptly noted in his famous speech called “I have a dream”, that “this is no time to engage in the luxury of cooling off to take the tranquilising drug of gradualism”.
Our nation is littered with industrial carcasses from Mutare’s paper industry, the comatose Midlands giant, Zimbabwe Alloys which is trying to get back on its feet to the decimation of Bulawayo’s industry.
We cannot postpone the exclusive adoption of the rand now!
In the forestry profession, where I originally come from, there is a concept called silviculture whereby such a scenario is called the DDD complex i.e. dying, diseased and deformed.
Silviculture manuals suggest a remedy for dealing with a DDD complex i.e thinning of DDDs or there will be group-death.
Thinning is an effective sanitation clean-up hence the urgency to use the rand exclusively now to avoid apparent group death manifesting itself in our nation.
If anyone doubts this, a casual analysis of both fiscal and monetary policies by both Chinamasa and Mangudya respectively show a healthy focus towards production and an apparent thrust to finance foreign exchange generation in a scenario where industry now does not even account for two percent of foreign currency being received by this country annually.
Mining, tobacco and Diaspora remittances currently make up almost 98 percent of our sources of foreign currency.
Michael R. Waldmann, York Hagmayer and Aaron P. Blaisdell in their book “Beyond the Information Given” , discuss causal models in learning and reasoning with the conclusion that “people’s ability to predict future events, explain past events, and choose appropriate actions to achieve goals belongs to the most central cognitive competencies necessary for being a successful agent in the world.”
Where are we getting it wrong in not using the rand only?
Malaysia has moved from being poorer than Ghana to a middle income country and its set to achieving full industrialised country status by 2020.
They developed their motor industry through protection.
In fact, their motor industry has been protected up to 2016 at a duty of 300 percent for car imports.
No wonder ministers there drive protons, I drove in a proton and everyone there looks at them with pride.
This was achieved through pain and concerted effort.
Ironically, our own car industry such as Willowvale Mazda Motor Industries has better cars.
They cannot compete with South African imports that have a 40 percent export rebate.
In any case, Zimbabwe has a two-year derogation that it could use to protect selected industries.
We can protect industries where we have a competitive advantage and encourage locals to Buy Zimbabwe.
This is about creating jobs, protecting industries and taking ownership of our economic problems.
Any protectionist policy needs to have a sunset clause not exceeding five years or we will end with perpetual infants or “big youths”.
Using the rand exclusively is clearly one of the most cost effective methods of restoring competitiveness in some industries like the timber industry in Zimbabwe.
In this industry currently, a treated pole producer in Polokwane has a lower transport and material cost to Lusaka than any producer in Mutare or Harare to the same destination.
Our politicians are engaged in mortal combat for political supremacy at the expense of our economic growth, industry viability and ultimately at a great disservice to the young generations.
We are a nation of elections, by-elections, restructuring of parties, congresses and primaries between elections and outstanding issues.
These elections about elections dissipate economic recovery efforts and create deep-seated, anti-business policies and actions.
An alien visiting earth, assuming he/she has one gig of brain would probably say you guys have one outstanding issue; economic prosperity.
Amid all this cognitive dissonance, objective models for industrial recovery are being dumped for politically compliant but economically inefficient policy positions.
Here are some not so inconvenient truths:
•Singapore works not because of democracy;
•China is the best ally for infrastructure developments;
•Best mining partners for Zimbabwe are Canadians and Australians;
•Diplomacy and scholarship is best executed by the British in the case of Zimbabwe;
•Political governance using South Africa is not backed by efficacy or any African country as a role model;
•RSA is not our trading partner but fierce adversary.
My fellow Zimbabweans, Russia, Malaysia, Brazil, China and India have made a dent on poverty by growing at least seven percent per year.
There is no abject poverty in Malaysia and yes unemployment is 0,0036 percent.
Malaysia has moved from being poorer than Ghana and yet they attained independence on the same day.
It is now a middle income country and its set to achieving full industrialised country status by 2020.
They developed their motor industry through protection.
Our national situation
Statistics recently published by Africa Monitor Southern Africa, are worth looking at. The numbers are not only depressing but show that we are economically a small country…very small. Put sarcastically, a couple of firms on the Johannesburg Stock Exchange like BIDVEST are almost the same size as Zimbabwe in GDP compared to their annual revenues.
The numbers also confirm that we have an unhealthy current account balance, little to no economic growth prospects for 2016 and insignificant foreign reserves.
This is aggravated by an increasing total debt stock suggesting that increased debt is not being efficiently deployed when viewed against a declining GDP and exports.
That we are giving each other business awards with such a dire situation is tomfoolery.
The late Eddison Zvobgo would perhaps have coined a humorous analogy to discourage this.
My view is that having a weaker rand being super-imposed over such a scenario is a recipe for continued de-industrialisation.
Africa Monitor Southern Africa further argued that the weakening rand is depressing cost-push pressure given that most consumer goods are imported from South Africa and then priced in dollars.
With consumer price index inflation being negative on a year on year basis, local manufacturers must realistically not expect any price growth.
As the rand weakens further and it will, the business case for a dollar based local manufacturer is getting untenable.
I come from 26 years of uninterrupted manufacturing industry experience from the shop floor to the boardroom but the current rate of de-industrialisation is alarming notwithstanding the odd good case investment as seen in Mutare.
The Zimbabwe industrial complex was arguably anchored on a profiteering mentality adopted during the Zimbabwe dollar “burning” days as stated bluntly by Noah Paswani in response to my personal call to adopt the rand in August 2014.
Various business leaders and lately the Bankers Association of Zimbabwe (BAZ) are now in agreement with this. Dear friends and colleagues, it has taken you two years to accept this reality? Really?
Call to adopt the rand
In August 2014, I argued unsuccessfully at the CZI congress for the adoption of the rand (see Business Live of August 1, 2014).
I opined then as I still do now that this was necessary for competitiveness.
At the risk of being labelled a prophet, I argued then that it was “only logical that we should use the rand as a currency as it has depreciated 40 percent in the past year, which works to our advantage”.
I further suggested that “I have to dispel this notion of an academic comfort zone that we will only adopt a certain currency after optimum conditions are achieved.”
This was neither a prediction of the coming of bond notes nor a call to recreate a casino economy coined by Gono.
I wanted to cut through intellectual noise in favour of practical remedies to our deteriorating economic condition.
While I do not claim any prophetic powers, I also argued then that, “a weakening South African rand is making South African goods cheaper for Zimbabwean importers who have a strong dollar. This severely reduces the stock of liquidity as the dollar is used to buy South African goods.”
I went on to suggest that South Africa was now aggressively pushing “their exports into the nearby Zimbabwe not bothering going all the way to Europe, Asia or America to earn foreign exchange.”
We are now in 2016 and my afore-mentioned views in 2014 have been validated by the obtaining situation.
Kupikile Mlambo, deputy governor of the RBZ, did not dismiss bluntly my views then but suggested then that there were complications from using the rand.
I will revisit this complication business later in this article.
In 2015 I further opined that South Africa “was not our major trading partner, they are now our major adversary with what is happening in the industry.”
The rand had crashed further by 20 percent to what was then an all-time low of R14,3 to the US dollar.
This co-existed with increasing imports from South Africa of 5,4 percent while exports declined by 37,3 percent in August 2015.
I had been invited as a speaker in Gweru to a Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim-Asset) implementation meeting to come up with recommendations to buttress Zim-asset.
I again pleaded for turning to the rand albeit unsuccessfully.
Back to basics
I grew up in Sakubva in Mutare and as a young boy there were certain instances where one had to be blunt.
The afore-mentioned complications envisaged by Mlambo in adopting the rand will be there but so are the complications in every good process.
Using Sakubva lingo, “kubara kunetuma complications amweni” but such is the nature of the beast.
The argument that Zimbabwe is a sovereign State and cannot adopt the rand as repeatedly argued by some of my colleagues needs to tested and overcome.
If the price for Zimbabwe to adopt the rand as its currency is to join the Southern African Customs Union (SACU), so be it.
Botswana, Lesotho, Namibia, Swaziland and South Africa are in SACU and they are not going through any of the embarrassing cash shortages and illiquidity we have.
Zimbabwe with its vast mineral resources and potential is akin to a beggar on a throne or to Drake getting less people to a musical gig than Hosiah Chipanga in London.
This is not funny at all as careers, childhood potential and dreams are being crushed by this harsh environment.
My teenage sons ironically do not believe that it is possible that Hosiah Chipanga can secure more people than Drake even in Harare.
By allowing ourselves as individuals and as a nation to be ridiculed through cash shortages and late payments to civil servants, we are living the impossible but plausible reality borne out of inaction.
The late Benazir Butto (1953-2008) talked of “a moral crisis of inaction, a crisis of silence and acquiescence”.
We need to act now by exclusively using the rand
I refuse to accept and will not measure Zimbabwe against little Lesotho or Swaziland in any field, at any time, and anywhere in the world.
(To be continued next week).
Joseph Kanyekanye is an industrialist, scientist, finance, marketing and forestry consultant in SADC and former president of the Confederation of Zimbabwe Industries. He writes in his personal capacity.
COMMENTS
Using the Rand is a nonstarter. Why these learned fools keep making the argument is difficult to understand
The problem is not on the rand but on the Mugabe administration.?
The rand is the only way.It will also stop the capital flight as rand cash can only be banked up to R25,000 before being reported to SARS.The third party business men from surrounding countries and Chinese businesses wishing to use Zim as a place to convert their funds into dollars and move it else where will be stopped by the less attractive rand,plus the abundance of rand cash will stimulate the economy and make Zim part of the SADC trading platform which will now be a level playing field.