FORMER Finance Minister, Cde Patrick Anthony Chinamasa, (P.A.C) who is also the ZANU-PF secretary for finance has rallied behind the current Minister of Finance, Professor Mthuli Ncube, saying the country’s economic prospects look positive following the introduction of the Zimbabwe dollar as the sole legal tender.
In a wide-ranging interview with The Sunday Mail Deputy Editor, Lovemore Ranga Mataire, Chinamasa insists that time was ripe for the introduction of a local currency.
L.R.M: As the former Minister of Finance and the current finance secretary for ZANU-PF, do you think the country is pursuing the correct path with the recent introduction of a mono-currency regime?
P.A.C: Yes, I think we are going in the right direction. Let’s go back to 2008 during the hyperinflation period. Let’s not concern ourselves with what caused it because it’s now history. What is important is what killed it at that time. At that time, you know I was made Acting Finance Minister in January 2009. We formed a small committee because I realised that the country needed very strong measures to kill the hyperinflation and to implement those strong measures, there was need for political buy in.
So we formed a committee, which included the current President who was the then Minister of Defence, the then Reserve Bank Governor, Gideon Gono and (Constantino) Chiwenga, (George) Charamba, (Happyton) Bonyongwe, (Sydney) Sekeramayi and the Police Commissioner General (Augustine) Chihuri to map out the way forward.
We were sitting every day almost into the late hours and it was during those meetings that we came to the conclusion that the answer was to introduce a multi-currency basket to include all foreign exchange but more importantly the basket included the Zimbabwe dollar despite it having depreciated. My tenure was just one month then there was the formation of the inclusive Government.
Looking back, what I think was unfortunate was that the RBZ stopped printing the Zimbabwe dollar. I believe they should have continued regardless of what its value was relative to the other currencies in the basket. And I recall that kombi drivers continued to use it as change until they ran out of the notes and it went almost up to December.
L.R.M: Were you no longer in a position to advise and was the committee you mentioned disbanded after the coming into the fold of the coalition Government?
P.A.C: We now had a new Minister — Tendai Biti and you know it’s not good to interfere with what colleagues are doing. However, you will recall that it was through the committee and the budget that I presented that introduced the multi-currency basket and it was through the same budget that included a wide range of measures which were later adopted. For instance; the introduction of toll-gates to assist in the development of road infrastructure was in that budget.
As we went, it became clear that two currencies became dominant — the Rand and the US dollar. The US dollar began to gain strength and literally kicked out all the other currencies largely because people were now looking at the US dollar not as a medium of exchange but as a store of value. Then it came to a position where it was almost 95 percent of transactions and the Rand remained in the play largely in the south of the country — Matabeleland South, Bulawayo and probably Matabeleland North but not to any significant extent.
So this is where our problem began to show and because the US dollar was very strong and dominant and we had no control over its printing. What this meant then was that our cost of production became more expensive. By the time I took over, clearly there was need to address that issue about uncompetitiveness in terms of exports and low production. Again, within the context of the basket of currency, we tried to tackle the export competitiveness issue by identifying producers, export earners and giving them incentives to reduce the cost of production. This is where the bond notes came in.
They were intended to help the exporters to reduce their cost of production so that they can remain competitive. I am satisfied that it worked. It also helped them to remain in production because we had identified that low production was the cause of most our problems especially in the context of sanctions.
L.R.M: Were the bond notes meant to be a permanent feature?
P.A.C: No, it was not going to be a permanent feature. We envisaged that once production is up we could get our economic fundamentals right to a point where we could introduce our own local currency. That was the route, because to introduce our own currency when production is very low was going to bring back the hyperinflation.
L.R.M: Do you think production has since increased to a level where we can now use our local currency?
P.A.C: Yes, yes. The fundamentals currently are not what they were in 2009 and I will give you a few statistics. Let’s take the example of gold. When I came in 2013, gold production was at 12-13 metric tonnes annually and through the measures we took with the Central Bank; we were able to push production from that figure — year to year, to 32 metric tonnes last year.
I just hope that it won’t remain stagnant. It will keep pushing up. That was gold production alone. Through the measures that we took in terms of supporting artisanal miners and also the incentives — we were able to push up gold output. The same thing with tobacco. When I took over, tobacco had plummeted to 50- 60 million kg and I am happy to say that last year production of tobacco reached a record 252 million kg. Platinum production also went up.
Other measures that we introduced included allowing exports of chrome ore and this was to make sure that production and exports receipts increased. Nickel exports went up and tourism was revived and has even greater prospects to grow to even higher levels. We also envisaged that when agriculture is supported — given the fact that it is the mainstay of the economy; we envisaged that it will help to resuscitate our industry through agro-processing of the surplus that will come from the agricultural sector. I am just mentioning that because when I come to the decision that the Government has taken; I am saying the fundamentals are not the same as they were in 2008 and 2009.There has been some significant improvement.
L.R.M: What about manufacturing? Has there been any significant improvement in terms of production?
P.A.C: Manufacturing is still down because it relies mostly on resuscitation of agriculture. There must be a surplus. Surplus of sugar-cane, soya beans, maize, wheat and sugar beans. In my view, that is what I think will drive the resuscitation of our industry. If you have nothing to process, it is very difficult to revive the industry- more so now when our economy has become highly informal.
We are thus looking to SMEs to be the vehicle for retooling and resuscitating our manufacturing sector. We are looking to family-based small scale businesses to resuscitate industry. It might be in mining- you name it. The first port of entry is for us to transform the informal sector into a formal sector.
We also need to encourage those who are doing well to go a notch higher by getting bigger and so on. So for them to go a notch higher; they need machinery, which can only be imported. Now, what you need to understand also is that the world over, foreign currency is the preserve of the government through the Central Bank.
Given the fact that we had a basket of currencies, which were legal tender, it then meant anyone could hold foreign currency in their pockets and that is where the structural problem to turn the corner of transforming the economy began.
L.R.M: Some individuals have challenged the legality of introducing the Zimbabwe dollar. And how do you respond to some critics saying the timing for the introduction of the local currency was not good?
P.A.C: I differ and I want to applaud government for the courage to take the plunge in introducing our local currency. Why I say so is that it is important that we all accept and recognise that foreign currency is the property of the Central Bank. That is the practice the world over. We cannot lift ourselves by our boot slaps if we are using foreign currency in the manner that we have been doing.
So there was need for courage. This view has always been with us. That the fundamentals are right but I believe that because of the re-dollarisation of the economy, things were getting worse than when I left because during my tenure we had come to accept that the equivalent of our local currency are RTGs, which can be transacted through swipe and the public had accepted that including the business community.
The other local equivalent currency was the bond notes and again it had been accepted.
L.R.M: All that you said Chinamasa could be right but you are aware that the success of any policy is dependent on confidence. How do we build confidence for the public’s acceptance of our local currency given the history of the 2008-2009 hyperinflation?
P.A.C: You cannot build confidence by doing the wrong things. The wrong thing is to continue using US dollars for transacting in domestic business; that is wrong. It came about because of necessities but cannot grow our economy. For our economy to grow, we need to use foreign currency only to import essential commodities that drive growth in the economy.
In this country, we are not an oil producer, so we need foreign currency to buy fuel, which currently is being used to buy “mazhanje”. You can’t have an economy of that nature. We need electricity because we are not producing it sufficiently.
Ultimately, take this from me; as a country we earn more foreign currency than a lot of other countries. I understand that we were hovering around US$2-3 billion in terms of our foreign exchange earnings but the figures that came out last year put it around US 5 billion, which indicates that there has been an increase in production. So the issue is about how do we use that foreign currency. We cannot allow it to be in people’s pockets. We must do like what other countries do. Foreign currency belongs to the Central Bank and must be apportioned to sectors according to their importing needs- like mining, manufacturing where most of the equipment is obsolete. We need to completely retool and for that we need foreign currency. Similarly, for agriculture to thrive, we need mechanisation and all that needs foreign currency. That is where our foreign currency should go and not to buy non-essential things. We need proper management of that resource because it is hard earned. Which are the industries earning it/ essentially, there are five or six commodities which earn foreign currency. Gold, tobacco, platinum, chrome ore, nickel, diamonds — all hard earned. Everybody selling in the streets has some foreign currency in his pocket; what is it doing there? Individually, it sounds as if it is insignificant but collectively, it is what can basically save this economy and spur it to greater growth.
L.R.M: From what you have just said, it appears the country is on the right track but to the ordinary people there seem to be no immediate tangibles. Fuel queues continue to persist as well as bread shortages.
P.A.C: What I have told my colleagues in Government including the Minister of Finance is that we need effective communication strategy to explain to the people what these changes mean. It must also be explained to them that the results are not immediate and that any transformation is a process. Not a one-year exercise but can take between 10 to 15 years continuous. It is not an event but a process.
L.R.M: But some ordinary people will argue that they have been through these austerity measures and they exacerbated their condition? What is your comment to that?
P.A.C: You need to appreciate that this is not self-inflicted. Everything goes back to the land reform. People don’t understand how far reaching the land reform was in the history of not only our country but the world especially in the manner in which we undertook it. The consequences are dire. They want the fruits of land reform but not want to bear the consequences. As you know, land reform completely disrupted agricultural production because the structural issue which was there was that it was in the hands of a few farmers. The majority of the population was not in the economy. This was prevalent in mining and all other sectors. So it was a structural anomaly that needed to be corrected. However, as it gets corrected — production is the first casualty. So this happened in agriculture, manufacturing and mining.
L.R.M: You have spoken about sanctions and also the land reform. Let’s now focus on corruption. Don’t you think corruption has been one major obstacle in achieving economic prosperity? Are you happy with the manner in which the Government is tackling the scourge?
P.A.C: My difficulty is that as a former Attorney General, I know that one of the difficult crimes to prosecute is corruption because the briber and the bribed have both benefited. And unless one of them cheats the other, you can’t get to the core. Everybody speaks in general terms. There are not witnesses. There are not people coming with information. How then do you tackle it?
L.R.M: Given the difficulties you have highlighted, what do you think is the best way of tackling corrupting?
P.A.C: What is important is to put your systems in place. Let’s take for example, procurement procedures. Generally, much of the corruption takes place around procurement whether it’s in the private sector or public sector. The responsibility of a managing director of any company is to find out how the procurement department is structured and whether it is manned by people of integrity. Generally procurement departments are the sources of most cases corruption. If you kill it there, then you have nipped corruption in the bud.
Personally, I think we need to put in place a more robust procurement system. And we have already started doing it by putting in place a more robust procurement system through the amendment of the Procurement Act, which led to the setting up of the Procurement Authority and procurement entities in local authorities and parastatals so that we strengthen them and the procedures are clear. People must also be trained to appreciate the regulations. For me, that is your best fight against corruption. Then you can haul someone before the courts for not following the procedures. Not following the procedures could be out of ignorance or there could be prejudice. At least one can have the basis for nailing a person. Generally, people who are corrupt, the first thing they do is to destroy systems so that at the end of the day, you know money has disappeared but you are not sure how. What is inspiring at the moment is that the law is now there.
The challenge we have at the moment is that very few people would want to come and volunteer information on alleged corruption. Assuming that corruption is rampant, we don’t need to fight it in a rampant way. We need to by systematic and send people to jail so that it becomes a deterrent to other people.
L.R.M: Chinamasa, I would like to thank you for your time and hope that next time we will talk about the national airline- Air Zimbabwe where you recently assumed the chairmanship of the board.