Left in limbo. . . Business in wait-and-see mode as MPS stalls

Incoming Reserve Bank of Zimbabwe Governor Dr John Mushayavanhu (left) and his predecessor Dr John Mangudya in a conversation at a recent press conference in Harare
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For Zimbabwean business executives, January typically brings a renewed sense of direction. The annual release of the Reserve Bank of Zimbabwe’s (RBZ) Monetary Policy Statement (MPS) has traditionally been a crucial planning tool.

This year, however, the familiar rhythm of the economic calendar has been disrupted, leaving executives in a state of anxious limbo.

With the MPS now overdue by two months and whispers of a potential delay until April, when the new central bank governor Dr John Mushayavanhu assumes office, businesses across the country are grappling with the challenge of navigating an uncertain economic landscape.

Critical decisions regarding investment, hiring and pricing all hinge on the unknown — the direction of interest rates and the government’s approach to foreign exchange management.

“Without clarity on these issues, it’s difficult to make any long-term plans,” an executive with a ZSE-listed entity said.

“Do we invest in expanding our stock? Do we hold off expansion projects? It all feels like a gamble right now,” said the executive who requested to speak off record.

His story reflects a wider sentiment of unease gripping the Zimbabwean market.

Most businesses and consumers are struggling to cope with the lack of clear economic direction.

“We are in a state of limbo,” said economic analyst and veteran asset manager, Dr Alfred Mthimkhulu.

“Clients are holding back on making decisions. It is affecting us meaning they too are really suffering. State of limbo,” said Mthimkhulu in a texted message.

He said investors are particularly concerned about exchange rate policy “especially the form of local currency and extent to which USD will keep being used.”

Mthimkhulu’s sentiments were shared by a local stockbroker who requested not to be named for professional reasons.

The delayed release of the MPS is “ definitely a factor” in the decision-making of investors.

“People are concerned about a possible conversion with the new currency so only conservative decisions are being made. Interplay between ZWL, USD and new currency is unknown so a contract may lead to exchange losses,” the stockbroker said.

Walter Mandeya, an analyst with Trigrams Investment, said lack of clear pronouncements on the delay in the Monetary Policy Statement presentation, creates uncertainties, which will eventually lead the financial markets to operate at the very fringes of and in the directions which policy makers might not want the markets to go, leading to “immediate effect” policies, that perpetuate the policy inconsistence culture.

“One of the biggest risks of operating in Zimbabwe, especially in the financial markets has been policy inconsistency with most policies being effected with an “immediate effect” approach, probably meant to give the policy measures the greatest impact to address the perceived challenges.”

“A simple statement from the RBZ saying that the institution is in leadership transition and the incoming Governor has sort and been granted some delay in presenting the Monetary Policy Statement, would have gone a long way to keep the markets from going into unnecessary speculative if not panic mode,” he said.

Mandeya said as a business or investor; “ you obviously don’t want to get caught flatfooted by policy pronouncements, but at the same time such situations are also how opportunities for massive investment profits are created”.

Truworths chief executive officer, Themba Ndebele, said the much talked about introduction of ‘a structured currency’ is making it difficult for businesses operating in the credit markets.

In a statement accompanying its last set of results, Truworths said it stopped ZWL credit sales in July 2022. Although USD credit sales have since been introduced, they make only 18 percent of total sales for the full year to July 9, 2023.

“To return to sustainable profitability, the business needs to offer credit in a stable currency and access long-term funding at affordable interest rates. Regrettably, these conditions do not currently exist in the Zimbabwean economy,” reads part of the financial statement.

In a text message, Ndebele said; “the whole economy needs a reset, a USD economy is not sustainable without USD savings and international credit. We saw that from 2013 and what it led to,” he said.

Another business executive who spoke off the record said the delayed announcement of the MPS is of major concern.

“We were told the currency issues and their price distortionary impact will be resolved by the MPS, we are in some sort of limbo. We are hoping the measures announced will mitigate some of the effects of the Finance Act,” he said.

Others are, however, not concerned by the delay and are happy that authorities are taking their time, hopefully to allow them to come up with sustainable and conducive policies.

Bongai Zamchiya — President of Restaurant Operators Association of Zimbabwe, expressed full appreciation that “changes at the central bank with a new governor designate require extensive consultations”.

“While fully cognisant of the fact that the time scales for the announcement of the MPS have been exceeded, as domestic investors who are fully vested in Zimbabwe, we understand the importance of having a holistic MPS and this direction being given by the Governor Designate in consultation with the Minister of Finance and Investment Promotion.

“We understand the frustration that the delay is causing some but at the same time look forward to a Monetary Policy that addresses issues around pricing, export retention and enhancing an enabling environment for business to thrive and for the general upliftment of all Zimbabweans, “ said Zamchiya.

Both the outgoing and incoming Governors of the Central bank have promised the MPS will be panacea to the price and exchange rate challenges, while Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube has said the MPS, which have more details on an announced structured currency will be released “in the fullness of time”.

Bankers Association of Zimbabwe President and acting chief executive officer of CBZ Holdings, Lawrence Nyazema, said despite the delays, it is wise to wait for a real solution to the currency challenge.

He said it is imperative to get it (currency solution) right this time around because another failure will limit chances of success in future.

“When we announce the MPS measures, we want them to be believable, we want them to be effective. So, from that perspective, as a bank, we have been carrying on with our business as normal as we can.

He said the assurance that the multicurrency system will be in place till 2030 was more effective than any announcement that will be made now, “especially if we stick to it”.

“If 80 percent of our business is in US dollars, the question is what is stopping us from continuing to do business?

“Obviously what we want is that promise of 2030, if we can stick to it. We are largely in US dollars and transactions are continuing. Obviously, we are looking forward to the MPS, and the solution on the Zimbabwe dollar where we have high levels of inflation,” Nyazema said.

Business Weekly’s analysts explored the potential impacts of different monetary policy approaches on both businesses and consumers.

A looser monetary policy, characterised by reduced interest rates, could be a double-edged sword. While it would make borrowing cheaper for businesses, potentially stimulating investment, expansion, and job creation, it could also lead to a dangerous increase in the money supply.

This, in turn, could fuel inflation and erode purchasing power for consumers, leaving them with less money to buy essential goods.

On the foreign exchange front, a relaxed approach might involve a devaluation of the Zimbabwean dollar.

This could make exports cheaper, potentially benefiting export – oriented businesses. However, it would also make imports more expensive, increasing production costs for domestically focused businesses and raising prices for consumers on everyday items.

Conversely, a tighter monetary policy with higher interest rates would make borrowing more expensive, potentially discouraging investment and dampening economic growth.

However, it could also be a powerful tool to curb inflation by reducing the money supply. This could lead to more stable prices for consumers, allowing them to stretch their budgets further.

When it comes to foreign exchange, a tighter policy might involve stricter controls or a more cautious approach to devaluation.

While this could stabilise the Zimbabwean dollar and potentially lower import costs for businesses, it could also create challenges for those that rely on foreign currency for imports or hinder the growth of export-oriented businesses. – Business Weekly