Gift Phiri 9 April 2017
HARARE – Propasals for Zimbabwe to adopt the South African rand as the
major instrument of trade amid growing United States dollar shortages has
attracted mixed views, with some economists firm that it will boost the
economy while some warn it could upend the country’s wealth through
The comments by leading economists in a wave of recent calls for rand
adoption offer the first glimpse of the balancing act fiscal and monetary
authorities must perform.
While some economists applaud pro-rand adoption proposals that have now
earned the support of top bosses in the Reserve Bank of Zimbabwe (RBZ),
some are raising alarm about a policy that may hurt Zimbabwean consumers
and perhaps their own balance sheets.
RBZ deputy governor Kuphukile Mlambo has said the central bank was
considering a basket of currency reforms, the centrepiece of which is rand
adoption, to try to shore up liquidity after the offer to Zimbabwean
producers for a 5 percent bonus on the value of what they export in US
dollars – funded by the new bond notes introduced last November – have
failed to address the cash crisis.
Banks are now disbursing a maximum of $30 dollars a day, sometimes in
coins only, down from their usual $100 – while those that had capped the
maximum withdrawal limit at $500 a week have pulled this back to $200.
The central bank has also dramatically failed to keep US dollars in
circulation at a time imports massively outstrip exports.
The only option is a painful adjustment in wages and prices through
adoption of the rand to stem continuous leakage or “externalisation” of
the dollar out of the economy, University of Zimbabwe economics lecturer
and President Robert Mugabe’s economic advisor Ashok Chakravati said.
He said the US dollar is an international currency in great demand;
therefore it was not possible for a developing country like Zimbabwe to
maintain a dollarised economy while being surrounded by a non-dollarised
He called on the government to adopt the South African rand and ditch the
“I have said this before, we need a weaker currency. The weaker, the
better for us. As South Africa has just been downgraded, this is an
opportune time,” he said, referring to South Africa losing its
investment-grade credit rating from S&P Global Ratings for the first time
in 17 years last week in response to a Cabinet purge by President Jacob
Zuma that saw the sacking of Finance minister Pravin Gordhan who was
replaced with former Home Affairs minister Malusi Gigaba, a rookie when it
comes to finance and business, in a stunning reshuffle that weakened the
Zimbabwe’s largest business lobby group has also called on the government
to adopt the rand as its “reference currency” instead of the dollar.
But economist Persistence Gwanyanya warned that switching to the rand was
not a short-term solution.
“Any forced conversion at a devalued dollar-rand exchange rate would have
enormous repercussions which will lead to litigations,” Gwanyanya warned.
“Savings, pensions, and corporate balance sheets would need to be
similarly devalued, though in a less catastrophic way to dollarisation in
Zimbabwe’s government adopted the use of foreign currencies such as the
rand and US dollar nearly eight years ago, abandoning the local dollar
which had been rendered worthless by years of hyperinflation during a
decade of economic decline.
Gwanyanya said unless the rand fell steeply, the country will remain
hugely uncompetitive because of deep-seated structural challenges
characterised by production constraints that have made it difficult to
re-balance the economy.
The Zimbabwe Economics Society member said this economic imbalance –
reflected by high levels of consumption and imports against low production
and exports levels – has conspired with the country’s inability to attract
and retain both local and foreign capital to produce the undesirable state
of a faltering economy in stress.
Equally, he said, the poor investment policies and market indiscipline has
resulted in undesirable levels of capital flight.
The RBZ reported that in 2015 alone, the country lost about $2 billion
Bankers Association of Zimbabwe president Charity Jinya, who is also MD of
MBCA Bank, a subsidiary of South Africa’s Nedbank, has said that the rand
had to be urgently adopted.
“It is not sustainable for the US dollar to continue as the major
transacting currency, so we recommend that the South African rand be used
as the main transacting currency. This would reduce concentration of risk
on the US dollar,” said Jinya.
“We also recommend that the US dollar be reserved to make offshore
payments and local electronic payments. That will reduce the amount of US
dollars likely to leave Zimbabwe through unofficial means.”
Gwanyanya admitted bond notes have been less potent in curtailing
“As long as influence-peddlers who have the ability to access the US
dollar and cart it across the border loom large on the economy, prospects
to significantly cut smuggling will remain dim,” he said, adding no wonder
$600 million is reportedly sitting in offshore accounts when the country
is in dire need of capital to rebuild.
Since 50 percent to 60 percent of Zimbabwe’s total trade is with South
Africa, the most advantageous foreign currency for this country to adopt
is the rand, Chakravati insisted, adding it is a non-convertible currency
and therefore it will remain mainly in South Africa and in Zimbabwe.
“There is no incentive for economic agents to try and externalise the
rand,” he said.
An adequate supply of rand is available from Zimbabwe exports to South
Africa, Diaspora remittances from South Africa, and access to the South
African banking system with which many of Zimbabwean banks and financial
institutions such as MBCA are already connected.
Chakravati said the informal sector will be able to trade easily with
“Use of the rand will help prices, costs and wages in Zimbabwe to
equilibrate with South Africa, and this will result in the increased
competitiveness of our industries, and the economy as a whole,” Chakravati
said, adding Zimbabwe’s sources of US dollars were limited to export
earnings, foreign direct investment (FDI) and Diaspora remittances which
have been dwindling.
Diaspora remittances, which account for 30 percent of the country’s
foreign exchange earnings, declined by 17,9 percent from $1,9 billion
received in 2015 to $1,5 billion in 2016 of which $779 million are
remittances from the Diaspora while remittances from international
organisations running local NGOs amount to $795 million, according to the
“The fall in remittances is attributed to the poor performance of the
global economy, fall in the dollar-denominated value of remittance inflows
as a result of continued appreciation of the US dollar against regional
currencies as well as increasing use of informal remittance channels,”
said a 2017 monetary policy analysis presented in the National Assembly on
“This has affected general market liquidity in the economy with adverse
effects on aggregate demand and sustained economic recovery.
“Government must continue to offer incentives to the diaspora community to
ensure sustainable flow of funds from this community.”
Chakravati said Zimbabwe’s sources of US dollars was “barely enough to
cover the foreign exchange requirements of import demands.”
While bond notes have added to liquidity to some extent after the
injection of $102 million so far, “they are not a solution to the
problem,” the economic advisor to the President and Cabinet said.
“Even if the RBZ today released the total amount of $200 million in bond
notes, the liquidity problem would not be solved,” he said.
Chakravati said a good tobacco season being anticipated will ease the
situation and provide temporary relief, but it is not a solution to the
problem even after newly registered tobacco farmers increased by 56
percent to 13 950 from 8 959 farmers in the previous season under the
2016/17 season, .
Central bank governor John Mangudya has said the opening up of the tobacco
auction floors on March 15 will boost the country’s foreign exchange
earnings and this is expected to go a long way in ameliorating the
liquidity challenges in the market.
The area under tobacco for the 2016/17 season increased to 110 216
hectares, from 102 537 hectares in the previous season.
“This is inclusive of 87 603 ha under contract arrangements, wherein, 19
companies are participating in supporting tobacco farmers,” Finance
minister Patrick Chinamasa said in the latest Treasury bulletin.
South Africa is the second largest buyer of Zimbabwe’s tobacco crop.
Tobacco sales to South Africa have increased by more than 50 percent since
2015. And the cash crisis is also hitting tobacco farmers delivering their
crop to the auction floors.
Chakravati said the continued US dollar use cannot be a basis for
competitiveness and sustained growth irrespective of what administrative
measures are taken, “it will continue to be externalised out of the
country over time.”
He said ideally, Zimbabwe, like all other developing countries, should
have its own national currency in circulation.
“Unfortunately, there are stringent conditions for the re-introduction of
a national currency, and since these conditions are not present in the
economy today, the introduction of a national currency is not an option
open to us today,” he said.