BUSINESS leaders have demanded greater consistency on policy measures and devotion to promises from the Government to instill confidence in a volatile economy amid an exchange rate tailspin that has been blamed for driving a wild inflation resurgence.
This comes at a time the Zimbabwe currency, reintroduced after a 10-year hiatus due to the hyperinflation of the decade to 2008, has been experiencing rapid depreciation against insistence by authorities that the economic fundamentals were in place to support a stable currency.
Inflation, which peaked at a post-dollarisation high of 837,5 percent in 2020, had rapidly declined to a two year low of 50,1 percent in June last year largely attributable to the introduction of the auction system, which improved access to forex for key imports by industry.
Chief among the private sector’s grievances is the inability of the Government to stick to its promises, particularly the clearance of the auction market backlog, which has seen some industry players unable to access the hard currency long after their bids are approved.
This, businesses say, has led to the waning of confidence in the conduct of the Government and its arms, a scenario reportedly causing lack of confidence in the local currency and widening the already huge margin between the official and the skyrocketing parallel market exchange rate.
In response, the Government said it had instituted policy measures to contain rapid money supply growth to stymie exchange rate depreciation and rein in brawny inflation.
Zimbabwe’s annual inflation rate for May 2022 shot to 131,7 percent from 96,4 percent in April this year, an overly unsustainable level given that incomes continue to trail galloping prices by a huge margin.
Speaking during a panel discussion at the Political Actors Dialogue (POLAD) currency indaba in Harare yesterday, Zimbabwe National Chamber of Commerce (ZNCC) vice president, Mike Kamungeremu, said the currency problem in the economy was an offshoot of wide-ranging deficiencies in the economy.
He said the dysfunctionality of the Reserve Bank of Zimbabwe’s auction system had birthed a serious confidence deficit for the industry down to the general population.
According to Kamungeremu, authorities had made countless promises on the urgent need to clear the auction backlog but to no avail.
“Foreign currency auction has worked but it has worked at some point, but as we speak right now as a business we are almost desperate. With the backlog that is there, it is very difficult, we have had calls for the clearing of the backlog made and several promises have been made, but unfortunately, those promises have not been fulfilled and that is a critical issue.
“That touches on the aspect of confidence, when I hear promises being made and I have money that has been in queue (at the auction) since January, I will not have confidence, this is why we then see problems happening on the currency front because the currency is just a derivative of what is obtaining in the broader economy,” said Kamungeremu.
He pointed out that arbitrage practices manifesting in the economy were being fueled by authorities’ inability to decisively prosecute perpetrators of currency manipulation, who are well known given the know-your-customer nature of banking.
Some banks are also implicated.
“Reserve Bank of Zimbabwe has been making a number of pronouncements and they have been promising to take action against those that are known, we believe RBZ knows everything and we expect them to take action.
We have heard that there are people sabotaging the economy, manipulating the system but what we want to see is more action. We should have seen some form of punishment to them, we implore the central bank to take action so that we do not punish every one.
“There is a lot of arbitrage taking place emanating from the disparities in the exchange rates. Action needs to be taken, to reduce the chances of arbitrage and chances for corruption,” he added.
Weighing in on the issue Confederation of Zimbabwe Industries (CZI) president, Kurai Matsheza said:
“The issue I need to talk about is the issue of confidence, we need to have a clear roadmap of what it is that we want to achieve and work consistently in a more transparent manner to achieve that we have set ourselves to achieve. Let’s say we want a depolarisation over a period of time, let it not be a surprise, let it be debated and it must come to everybody and we must understand clear benchmarks.
“But if it does not happen and we have surprises at every turn that confidence element I am talking about becomes very difficult to build over time and as long as that is not there, economic agencies will play first in their own interest,” said Matsheza.
Finance and Economic Development Minister, Professor Mthuli Ncube, bemoaned the arbitrage conduct happening in the economy, blaming retailers as some of the perpetrators and reason behind the runaway inflation in the economy leading to high inflation figures.
He, however, acknowledged that the incessant price hikes by retailers may be driven by the need to replace stocks in addition to the negative impact of imported inflation which was being experienced across the world due to disruption of supply and value chains as a result of Russia’s invasion of Ukraine.
“Exchange rate has been the biggest driver of inflation and the gap between official rate (auction rate) and the parallel rate is the driver of this inflation, this has also been driven by the behaviour of retailers and other speculators. There is enough arbitrage opportunity that people want to take advantage of and they have been doing that, this is what has been driving the parallel market rate.
“What we are noticing as the government is that the parallel market is not just a spot rate, but it is also a rate where economic agents are pricing food thinking about replacement costs, thinking about replacement exchange rates going forward so it’s kind of a forward rate which partly explains the gap between the interbank rate and the parallel market rate,” said Mthuli.
Businesses are currently using the interbank rate of $373/US$1 for their pricing against a parallel market exchange rate now hovering around $550 to $600 to the greenback.
To address the challenge, Mthuli said the Government had now staggered local currency payments to contractors of major public infrastructure projects underway across the country.
The contractors, the Treasury chief said, after being paid allegedly seek to hedge their money through buying foreign exchange from the parallel market, which is pushing the exchange rate to undesirable levels.
Mthuli said the suspension of bank lending earlier last month was also a measure to nip speculative lending in the bud, which was feeding into the skyrocketing black market exchange rate.
“The other thing we are managing is having those who are doing road and dam construction get paid in domestic currency and not rush to the parallel market, so we are spreading out payments to contractors to minimise the impact of their liquidity on the exchange rate, we have decided to split so that 50 percent is paid in domestic currency and the remaining in hard currency and we expect that it will go a long way on the currency.
“We took some action a few weeks ago and suspended (bank) lending, because we noticed that there was a bit of speculative lending within the banking sector, with corporates basically directing this liquidity not towards real sectors but towards the parallel market and also some of the liquidity finding its way into the equity market creating a price bubble, hence our decision to take a pause which was a macro-prudential regulation so that monetary policy becomes effective.
Reserve bank of Zimbabwe Governor, Dr John Mangudya, said the local currency “heist” was coming from the fear of past experiences where the domestic completely lost value thus Zimbabweans now rush to convert Zimbabwe dollars into hard currency to hedge inflation.
He, however, highlighted the need to step out of the past and face the new era the country is now in.
“Currency volatility is a symptom emanating maybe from the fear factor of past experiences before dollarisation, but why should we live in the past, so whenever people get Zim dollars people want to throw it away and buy US dollars to get value and what do we see, pricing volatility.
He lamented the growing arbitrage culture in the local economy, citing that it was damaging, highlighting that some of the benefactors of the auction system were at the forefront of skyrocketing parallel market rates.
“We need to change our arbitrage business models, we don’t want to be blaming people, but we are blaming the humanity in people.
“It is very unfair that a business person we have sold foreign currency to at willing buyer willing seller rate today thinks is clever goes and sale the money at a higher rate is that fair? , because I would have sold my money to you today at $340 but you go and sale the money at $500, so the issue we are seeing is about behavior,” lamented Dr Mangudya. – Business Weekly