Industry tells Prof. Mthuli Ncube, it will not work

Finance and Economic Development Minister, Professor Mthuli Ncube
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Economic analysts have criticised the macroeconomic and exchange rate policies by Finance minister Mthuli Ncube, calling them “reactionary” and designed exclusively to destroy the local industry.

Ncube last week outlined a slew of steps to protect the local currency and slow price hikes in an effort to address the widespread price spikes.

Some of the measures included removal of duty on all basic commodities, scrapping of the 15% surrender requirement on domestic foreign currency sales for businesses, allowing them access to 100% of their locally generated forex revenue.

Ncube also announced that the foreign exchange auction system would be further fine-tuned and would now auction a pre-announced envelope, on a pure Dutch auction basis.

But economic analysts were unforgiving in their responses last week, telling the treasury boss that his policies would not work.

“An economy cannot be managed in a reactive mode from crisis to crisis, but sadly that is what is happening,” economic analyst Vince Musewe told Standardbusiness.

“There is no debate that Zimbabweans prefer the US dollar and those with US dollars will continue to demand a premium.

“Despite the country generating US$12 billion per annum, the appetite for the US$ dollar will never be satisfied and it is clear the informal sector does not react to economic policy measures, but operates to maximise profits.

“This has resulted in a supermarket economy where everyone is selling some imported trinkets to make a living and importing basic goods kills local industry.

“The scenario has not changed where the rate goes up inflation goes up and the rate goes up creating a vicious cycle.

Musewe said employees earning in local currency will suffer.

“It is time to realise that the dollarisation of incomes is the only sensible thing to do to cushion citizens,” he said.

“Salaries and wages must now be in US dollars and companies must freely charge in US dollars.

“The economy has rejected the Zimbabwe dollar; nobody wants it.”

Confederation of Zimbabwe Industries chief executive officer Sekai Kuvarika said players in the industry needed to give stabilisation measures a chance before destabilising the manufacturing sector by flooding the market with cheap imports

“I think we need to give the stabilisation measures a chance before we destabilise the manufacturing sector by flooding the market with cheap imports,” Kuvarika told Standardbusiness.

“You also have to remember that these imports are coming from environments that are not the same as we are.”

She said there was no shortage of basic commodities in the country.

Another economic analyst Stevenson Dhlamini said the move to increase interest rates will push the parallel market to increase premiums.

“It’s difficult to conclude whether they are effective or non-effective, but it’s showing that they are appreciating that we are in a crisis,” Dhlamini said.

“There is a clause where the minister says he will increase the interest rates to curb inflation in the short term.

“My belief is that the interest rates and the parallel market have to continue to chase each other.

“The more you increase interest rates the parallel market simply increases its premiums to compensate for the higher interest rates.

“So the question can be: is the interest targeting the best or the most effective response at this stage or rather we should be addressing the sources of money supply growth.”

Gift Mugano, a professor of economics, said the removal of the 15% domestic currency deposit was a positive step.

“It’s a good one,” he said, noting that the 15% forex retention was discouraging foreign currency deposits.

However, Mugano said opening up borders for basic commodities would expose the local industry while draining foreign currency.

“The move by the government to open the borders for basic commodities under the argument that they want to push improvement and availability of basic commodities; I don’t think it’s a good one,” he said.

“It clearly exposes our local industry and it becomes a significant drainer of foreign currency because we are allowing unrestricted draining of foreign currency to import goods.

“My view on this: I think the government is being emotional about the current price spike.

“The tragedy is that the price hikes will continue because local manufacturers will be forced to charge Zimdollar and United States dollars in the shops as required by law, but those who are going to import commodities, particularly cross border will not charge in Zimbabwean dollars.

“This will further deepen dollarisation and use of United States dollar because they need foreign currency to be able to go back and import again.”

Statistics show that the Zimbabwean dollar tumbled to $2 700 against the United States dollar from about $1 200 a week ago.

This has led businesses to increase prices to preserve the value of goods and services, further eroding consumers’ purchasing power.

Officially, over the same period, the Zimbabwe dollar fell to $1 222,27, against the greenback as of Friday, which is a depreciation of just over 25%. – The Standard