Bond Notes a political decision

The RBZ governor is a political prisoner, aware of our root problems but unable to apply the necessary economic medicine and is therefore dealing with symptoms.

Source: Bond Notes a political decision – The Zimbabwean 17.6.2016

After spending some time with John Mangundya, the RBZ governor yesterday under the #ThisFlag public discussion on bond notes, I am rather convinced that the idea to introduce this pseudo currency is more a political than an economic decision.

Clearly, the economic and emotional costs of introducing bond notes with such low trust levels between the government and its citizens given their 2008 nightmare, far outweigh the purported benefits. Even at this juncture, the early announcement by the RBZ of their intention has already resulted in lost opportunities for the country through increased perceived country risk, speculation, postponement of investments, and the re-pricing of goods and services before the bond notes even hit the market. It’s a comedy of errors as usual.

John clearly articulated the economic problem situation we are facing in Zimbabwe, but unfortunately, he has failed to convince me and others that bond notes are the correct medicine to deal with the issues. This is especially given that our core problem is the trade deficit, corruption and excessive government expenditure in an economy whose ability to generate revenue is regressing daily.

Zimbabwe is a broke, bankrupt and failed state created by ZANU (PF) and the responsibility to get out of the rut seems to have been thrown at the RBZ Governor who does not actually have the mandate or the tools to deal with the root cause of our problems.

The key problem here is that we have a government that has run a $2.5 billion deficit, destroyed agriculture, the life blood of our economy, and unfortunately, nobody can dare challenge Mugabe in reversing the damage done. Without dealing with land tenure and racism in agriculture we cannot quickly get back on our feet and I have been told that discussing the land issue with the President is political suicide.

Yes we need to incentivise exports, but as it turns out, they are certainly better and more transparent ways of doing so as opposed to paying exporters with a dead “currency” which will certainly not have a similar perceived exchange value as the US dollar has.

I think that the Governor should have had a meeting with exporters first, so that they can tell him what they want, as opposed to the prescriptive approach taken. Which raises my suspicion once more that Mugabe has decided and by the way, he is the law, the alpha and the omega of Zimbabwe.

It is fact  that the projected future benefits of $6 billion exports as a result of incentives is highly unlikely given  that we are not competitive as a country, have no production capacity, have outdated machinery, high energy costs and do not invest enough in research and development. Our export base will therefore continue to be dominated by raw minerals and who knows the international prices going forward. It is really wishful thinking to me to think that bond notes will be the magic wand to increase exports and revenues.

Interestingly there seems to be more emphasis on exports whose prices we really can’t control and not import substitution, something we can control. All we have to do is go back and see what Ian Smith did under sanctions. He industrialised Zimbabwe.

On government expenditure, the behaviour of the government and its Ministers is inconsistent with the desperate economic meltdown that we are in. For example today we hear the government is recruiting 10,000 teachers!

From yesterday’s meeting it is clear the action of printing bond notes itself is illegal but what is clear to me is the fact that the Governor is a prisoner of politics and cannot even begin to address the core issues that need attention. ZANU (PF) clearly has another agenda here.

My conclusion is that, there is no temporary solution to incompetence and corruption and structural economic reforms. Short of a huge injection of capital, the serious cutting down of government expenditure, the radical reduction of imports and dealing with corruption now, our economy will not survive.

Zimbabwe requires a new paradigm shift at political leadership level and don’t hold your breath as long as Mugabe is calling the shots.

We got problems!

Vince Musewe is an economist and author based in Harare. You may contact him on vtmusewe@gmail.com. He writes in his personal capacity.