Read Our Latest Articles

Monday - Friday9am- 5pm

37 Victoria Avenue Newlands, Harare

Harare Office +263242776598-9

Econometer Global Capital

Econometer Global Capital

Monday, 07 October 2019 10:23

New exchange control dampens confidence

The Reserve Bank of Zimbabwe (RBZ) last week tightened exchange control regulations on locals earning foreign currency.

 The apex bank tightened regulations on withdrawals of foreign currency by Zimbabweans who earn their salaries in foreign currency. Zimbabwe’s economy is facing serious headwinds and what it needs now is protection of investment and policies that stimulate growth. Sadly that is not happening at the moment.

The latest decision by the central bank to tighten foreign currency withdrawals evokes yesteryear memories when the same bank raided foreign currency accounts of those earning the greenback. The Zimbabwe dollar has been on a free-fall and one of the missing ingredients in defending the value of the local unit is confidence.

Over the past few weeks, the central bank has announced several measures in its quest to reverse the devaluation. Those measures have not yielded much. The suspension of cash-ins and cash-outs on mobile money platforms and the reversal of this directive have cemented criticisms on Zimbabwe that her policies are inconsistent. That is not good for investment for an economy on the tails-end on the ease of doing business.

Zimbabwe, a net importer, is currently generating US$5 billion in exports annually and government is one of the biggest importers. At a time when hospitals are under stocked and fuel supplies remain erratic, government is splurging millions of dollars in importing state of the art vehicles for bureaucrats when the Willowvale Motor Industries is on the brink of collapse. That is but one area where the state is failing on its priorities.

For a country that reintroduced its domestic currency this year, after outlawing the use of the multicurrency system, confidence-building should be the central bank’s top priority.

At the height of the hyperinflationary era which peaked 231 million percent in 2008, Zimbabweans dumped new bank notes that were injected into the economy despite earlier efforts to rebase the currency. The reason for that was lack of confidence.

As pressure mounts for authorities to pump in new notes into the economy, the central bank should be mindful of the minefields that lie ahead when confidence is the missing link in the economy. Knee jerk reactions to structural deficiencies on the economy will not help much in stimulating the economy.

As Finance minister Mthuli Ncube and his team finalise the 2020 National Budget, the economy should take centre stage not politicking. Zimbabwe’s economy is on its knees contrary to the narrative been pushed and until and unless that becomes the starting point, this economy will continue to move in circles.

The Reserve Bank of Zimbabwe has reversed its decision to ban cash in and cash outs from mobile money transfer platforms after it introduced new caps for the facility.

Government on Monday ordered the shutdown of the cash-in and cash-out facilities citing Section 10 of the National Payment Systems Act in an attempt to stem illegal foreign currency trades which has seen the US$:ZWL$ rate hitting its lowest point since the reintroduction of the multicurrency system. The local unit lost 80 percent of its value in less than three months.

EcoCash became operational in 2011 and has helped to drive financial inclusion by reaching to the remotest parts of the country where banks found it untenable to open branches.

A day later, Cassava Smartech, the parent company of EcoCash, has made an urgent chamber application seeking a temporary interdict seeking to reverse government’s decision to bar cash-ins and cash-outs under mobile money platforms.

“Cognizance of that, enhanced monitoring mechanisms have been put in place by both the Reserve Bank and Payment System Providers to mitigate against abuse of payment systems and ensure abusers are brought to book,” the central bank said in a statement.

“To this end, Payment System Providers are hereby advised that cash-out facility is now capped at $100 per transaction with immediate effect.”

The apex bank also announced that it would inject cash into the economy “without changing money supply.”

Cassava Smartech, the parent company of EcoCash, has made an urgent chamber application seeking a temporary interdict seeking to reverse government’s decision to bar cash-ins and cash-outs under mobile money platforms.
Government on Monday ordered the shutdown of the cash-in and cash-out facilities citing Section 10 of the National Payment Systems Act as it moves to stem illegal foreign currency trades which has seen the US$:ZWL$ rate hitting 25 two weeks ago.
EcoCash became operational in 2011 and has helped to drive financial inclusion by reaching to the remotest parts of the country where banks found it untenable to open branches.
According to court papers filed by the company’s lawyers Mtetwa and Nyambirai, cash-ins worth US$10 billion plus ZW$7.5 billion have been transacted under this platform. On the other hand cash-out transactions worth US$8.6 billion and ZW$4.1 billion have been transacted under this facility.  

“This application is intended to temporarily stop the continued implementation of the Respondent’s directive pending the determination of the legality or otherwise of the directive on the return day on the grounds that the applicant meets all the requirements for the grant of temporary interdict,” the lawyers averred.  

The Reserve Bank of Zimbabwe yesterday issued a directive barring EcoCash agents from cashing in or cashing out money as authorities make frantic efforts to manage the current exchange regime. The decision to suspend operations of the mobile money platforms, that have been in the past been credited for promoting financial inclusion in the country generated a lot of debate.

Before this, the country’s mobile phone operator, Econet Wireless, had closed nearly 3000 agents for selling local bank notes and coins at a premium as high as 60 percent. The depreciation and crash of the Zimbabwe dollar three months after the banning of the multi-currency regime for a mono-currency system has resulted in market distortions. As the trend continued, pressure was mounting on authorities to re-dollarise—that would have been a PR disaster for President Emmerson Mnangagwa’s administration.

As we have consistently pointed out since June, when the mono-currency system was reintroduced, Zimbabwe’s decision to outlaw the multicurrency was not only ill-timed but also not anchored on key fundamentals. Judging by the reemergence of long fuel queues, price distortions and state of the manufacturing sector, Zimbabwe has less than two weeks import cover and that is not sustainable.

Movements of foreign currency on the parallel market cannot be addressed by piecemeal measures. Before this decision to move in on EcoCash agents, the central bank had increased interest rates to stop borrowings for those seeking arbitrage opportunities.

Appetite for foreign currency will remain high during this time of the year and addressing the symptoms will not achieve the desired results. Soon after Monday’s Cabinet meeting, Finance minister Mthuli Ncube said government would increase money supply to meet the cash needs of the economy. The question that he did not address is how much he will pump into the economy and obviously the impact of this move. Government has over the past year issued a lot of Treasury Bills which were mainly used to finance agriculture—the Command Agriculture programme. Such quasi fiscal activities have been inflationary and have not aided government’s fiscal consolidation efforts.

As demand for cash surges during the last quarter of the year, we anticipate that the local unit will further depreciate as inflation heads northwards. To manage inflation in the short to medium term, authorities should stop printing money until a stable equilibrium is established in the market. But given the growing appetite for cash transactions in the economy and as the current administration approaches its half way mark since last year’s election, the central bank will soon be forced to print more to finance government projects mainly for political expedience.

In the meantime, an alternative market will soon reemerge with higher premiums as well as higher risks. Zimbabwe economy requires a huge financial package and reforms that contain government expenditure and support private sector-led growth.

Monday, 30 September 2019 12:26

What a week to remember for ED

The past week has been a difficult one for Zimbabwe’s President Emmerson Mnangagwa. Domestically and on the international arena—everything seemed to be off the rails.

During the week under review, the International Monetary Fund (IMF) raised the red flag over the central bank’s appetite for quasi-fiscal activities, particularly payments made under the controversial Command Agriculture Programme. In our previous analyses we have highlighted how the import-substitution programme should be reviewed to improve transparency and more private sector participation.

An IMF mission led by Mr. Gene Leon visited Harare from September 5th to 19th to conduct the Article IV Consultation and review progress under the Zimbabwe’s Staff-Monitored Program (SMP). The discussions covered recent economic developments, the near and medium-term outlook, risks to the economy, developments in the financial sector, and the set of economic policies that are needed to restore stability and build the foundations for strong, sustainable, and balanced growth.

Barely a few days after Harvard University appointed First Lady, Auxillia Mnangagwa an ambassador or honorary, the University faced enormous pressure when former ambassador (some of whom served in Zimbabwe) lobbied the university to rescind the honour. The Mnangagwas were in the United States for the United Nations General Assembly when all this drama happened.

At the same time, the prestigious private university in Cambridge, Massachusetts, has gone to some lengths to try to distance itself from the Global Health Catalyst (which bestowed the first lady the health ambassadorial role under the name of the university) programme that has so readily been using its name.

The straw that broke the camel’s back is the statement from the United Nations.

A UN human rights expert has called on Zimbabwe to embrace and safeguard democracy, saying that the country’s change in leadership provided an opportunity to promote political tolerance, accountability and bring an end to impunity for human rights violations.

Clément Nyaletsossi Voule, the Special Rapporteur on the rights to freedom of peaceful assembly and association, concluded a 10-day official visit to Zimbabwe on Friday, the first such mission to the country by an independent expert appointed by the Human Rights Council. He went to Zimbabwe at the invitation of the Government.

“The change in leadership in Zimbabwe two years ago and its promised ‘new dispensation’ - which reaffirms the aspiration to bring the country forward in terms of democratic processes, civic space and the realisation of human rights for all - must be put into action now,” Voule said in a statement.

On the domestic arena, the shock decision by the family of the late former President Robert Mugabe to bury his remains at his rural home came as a surprise for the administration. This came after government had begun working on a mausoleum whose purpose was to inter the remains of the former leader. A budget of US$2 million had been set aside and the work was expected to be completed within the next few weeks. From this we can conclude that government’s public relations machinery as well as Foreign Policy officials were caught unawares. As Zimbabwe, continues on its reengagement exercise, authorities should master the art of trying to read in between the lines when erstwhile hostile nations speak glowingly on the current administration.

Zimbabwe reengagement with the international community will not move with the speed many would envisage without political and economic reforms.

Wednesday, 25 September 2019 06:39

Zim economy: What govt should consider

The National Budget formulation process has begun. Like many budgets across the globe, there will be competing interests when this fiscal policy document is crafted.

In the case of Zimbabwe however, the budget comes at a time when the nation is in despair. In fact during the first quarter of the year, 2019 was being described as an annus horibilis—a horrible year.

Rising inflation, fuel prices, companies scaling down operations and the general socio-political environment made it a difficult year. As we approach the last quarter of the year, the bulk if not most of these challenges and probably more are confronting the economy.

With many sinking into abject poverty, it would be interesting to see how much Treasury will budget for safety nets. On the contrary vote allocations towards health, education mining and security ministries will also come under the spotlight.

As reality sinks in that not all that glitters is gold, we can only hope that authorities slow down on propaganda on mega deals and focus on real economic issues confronting the economy. Zimbabwe, which has been struggling to secure financial packages from bilateral and multilateral lenders, has few options at its disposal.

For many structural adjustment programmes prescribed by Brettonwoods institutions are widely seen as poisoned chalice. Zimbabwe, Zambia and Kenya are often cited as classic examples of how SAPs have failed in developing countries. As debate rages on whether developing countries should adopt wholesome prescriptions made by institutions such as the International Monetary Fund and the World Bank, authorities should come to the realisation that the current economic policy has yielded little. And there is need for a relook.

As government works on political and economic reforms, we contend that in formulating its policy which will dovetail with the budget, there is need to develop the following trade development strategies. By ensuring that at least a third of exports are channelled towards domestic production, Zimbabwe could set out for recovery.

Import substitution

Import substitution and industrialisation should be aggressively pursued in earnest while at the same time respecting regional and global protocols. SI 64/2016 in principle was informed by this policy but its implementation could have exposed Zimbabwe’s economy to harsh reciprocity from regional powerhouses like South Africa.

Zim Balance of Trade (figures in millions)

Balance of trade

Export-oriented industrialisation

This trade and economic policy seeks to speed up the industrialisation process of a country by exporting goods for which the nation has a competitive advantage. In the case of Zimbabwe, gold, tobacco, macadamia nuts among other goods constitute the long list of exports that need to be promoted. The country’s trade facilitation body ZimTrade has a pivotal role in identifying some of these low-hanging fruits.

Zim External Debt (figures in millions)

External debt

SAPs

Dealing with the country’s external debt issue which has become an albatross cannot be done without structural adjustment programmes. What authorities need to ensure is that such programmes are tailor-made for Zimbabwe since they often focus on cutting government expenditure (thereby starving social spending) in order to fund productive sectors. SAPs are supposed to make Zimbabwe’s economy more market-oriented and competitive in the final analysis of it all. In the case of Zimbabwe, government support for agriculture particularly vulnerable groups should be maintained while programmes such as Command Agriculture should be led by the private sector.

North-South Industrialisation model

This model explains that the growth of a less developed “South” or “periphery” economy like Zimbabwe that interacts through trade with more developed “North” or “core” economy should be considered. Zimbabwe’s bid to re-join the Commonwealth could be a Launchpad for this type of policy. However more political will is required for Harare to be in synch with the preconditions of this union.


South-South Cooperation

South-South Cooperation is a term historically used by policymakers and academics to describe the exchange of resources, technology and knowledge between developing countries, also known as countries of the Global South. In the case of Zimbabwe, South-South Cooperation is already in motion through the Look East Policy.

 China which has been key in keeping Zimbabwe on the global forum notwithstanding its barrage of criticism ranging from poor labour practices and its development model—remains a developing country according to the World Trade Organisation. However in the case of Zimbabwe years of malaise and corruption in state-owned enterprises makes it difficult to adopt the state-capitalist model in Beijing. Apart from China, Zimbabwe should also strengthen cooperation with other BRICS countries.

It is our fervent hope that authorities consider some of these policies as Zimbabwe renews its reengagement efforts with the international community.

Monday, 23 September 2019 07:57

Why ED’s UNGA message will ring hollow

President Emmerson Mnangagwa is this week expected to attend the United Nations General Assembly in New York, USA.

The annual meetings come barely a month after the Southern African Development Community held a summit and declared October 25 as a day entities within the region will organise activities and lobby the US to lift sanctions or restrictive measures on Zimbabwe.

 The Zimbabwe Democracy and Economic Reform Act (Zidera) has been a thorn in the flesh for authorities in Harare.

Soon after his ascendancy following the November 2017 coup, President Mnangagwa broke rank with his party’s ideology when he said sanctions were of little effect on Zimbabwe’s economic outlook.

When he made this statement he had the goodwill of the international community following former president Robert Mugabe’s ouster. That goodwill was short-lived. Post-election violence, which claimed the lives of seven people and left several injured blemished Mnangagwa’s reengagement with the international community.

Quite predictably Mnangagwa had to sing from the same hymn as his predecessor after western powers lost faith in him. The impact of US sanctions has been felt in both public and private spheres. At UNGA, Mnangagwa will take the anti-sanctions message to global leaders when he takes to the podium. Already some people are picketing in New York and the late Coltrane Chimurenga is conspicuous by his absence.

Zimbabwe’s anti-sanction drive is not peculiar to the Mnangagwa’s administration. Here lies the problem. One cannot expect a different result after doing the same thing over and over again. Conditions for the lifting of sanctions have been spelt out and government should focus on these conditions.

The idealistic path of institutionalising Zimbabwe’s problem on a global forum cannot work in a world where realism prevails. The United States will not move an inch when a group of developing countries call for the lifting of sanctions. That is a sad reality of international relations.

 President Mnangagwa should have a defined foreign policy after his return from the US. As it stands Zimbabwe’s foreign policy has been ambiguous and that will not serve to protect her interest. Zimbabwe’s economic policies are anchored on reforms—political and economic and the anti-sanctions are against reforms. This disjointed narrative will only serve to extend the status quo or probably lead to more international isolation given recent developments in Zimbabwe.

One of the reasons why Zimbabwe has remained a member of the UN despite trying in vain to force the US to lift sanctions on Harare is that she has powerful allies—China and Russia who can veto any aggression on Harare. This cooperation has helped Zimbabwe survive but it has also come at a cost. Zimbabwe will remain a source of chrome and other primary products to these super powers and she will find it difficult to unshackle poverty using such a development model.

rtgs rates

The Zimbabwe dollar this week crashed against the United States dollar, a development that immediately ignited debate on the currency issue. After abandoning the multi-currency system for the introduction of the domestic currency, authorities have over the past few months grappled to defend the value of the local unit.

When Finance Minister Mthuli Ncube said the introduction of the Zimbabwe dollar would make local exports competitive and this monetary reform would stabilize inflation not many believed him. Studies have shown that countries that have re-introduced their currencies after dollarisation have often failed. Zimbabwe’s experiment could be the latest case study. The balance of payments position of the economy is weak albeit with some improvements.

Official figures show that the current account deficit narrowed to US$1.4 billion last year from US$2.7 billion in 2011. We contend that this year it is expected to widen further due to some of the factors we highlight in this analysis. Demand for the greenback keeps increasing and foreign currency receipts are not being used to grow local industry but import basics from neighboring countries and abroad.

Annual inflation which we now project to be around 390 percent from 175.66 percent in June keeps soaring and discourages domestic savings. Savings are key in any country’s development, more so for Zimbabwe which has no budgetary support and limited concessionary loans to stimulate growth.

As authorities craft the 2020 National Budget, more focus should be put on formalizing activities of artisanal miners who now contribute more than 50 percent of gold deliveries. Health and safety and better mining practices are but some of the immediate issues that should be addressed to promote output. Structural reforms to the cost of doing business are required to stimulate exports and in the absence of this Zimbabwe will not develop.

In our view, government programmes like Command Agriculture should be led by the private sector to reduce rent-seeking behavior by some of the contractors. Speculation is ripe that the plunge of the local unit has been attributed to some government contractors who are on the market buying foreign exchange to finance critical projects. Private sector participation should lead the import substitution programme which has been mired by controversy.

The end of the tobacco marketing season, power imports have also piled pressure on the scarce foreign currency reserves and in the process the Zimbabwe dollar has lost its value.

At this rate, Zimbabwe’s economy will certainly contract by 5.7 and could weaken by up to 8 percent. Reversing this trend requires a multi-pronged approach which requires strong political will and critical economic thinking. Clearly the use of high interest rates to discourage borrowing has not achieved the desired results and it could create arbitrage opportunities for foreign currency dealers. A new approach is needed which should be anchored on domestic production and exports.

 

 

Wednesday, 18 September 2019 13:55

Treasury in a fix as High Court outlaws 2% tax

High Court judge, Justice Happias Zhou yesterday set aside Statutory Instrument 205/2018 which gave legal effect to the Intermediated Money Transfer Tax which is commonly known as the 2 percent tax on all electronic transactions.

Last October Treasury introduced the tax to widen revenue streams and narrow fiscal deficits. Years of fiscal indiscipline left government walking on a tight fiscal rope. With no budgetary support government has struggled to finance capital expenditure and fund social spending. Official figures show that as of January this year, government was collecting nearly $100 million a month from this tax.

The introduction of the tax immediately attracted public outrage after prices of basic goods and services shot up the roof. Authorities said revenue collected from the tax would be vital in upgrading the country’s infrastructure. There were few takers on this narrative.

Pro-democracy activist, Mfundo Mlilo through his lawyer Tendai Biti challenged the lawfulness of the statutory instrument, which was also widely criticised for being inflationary.  Before this latest development the High Court in February reserved ruling in an application by pro-democracy activist Mfundo Mlilo, who is seeking an order to suspend the imposition of the two percent electronic transactions tax introduced by Finance minister Mthuli Ncube last year. Law experts argued that the statutory instrument should have been debated in Parliament.

Zimbabwe annual inflation for June this year reached 175.66 percent this year, the highest in 10 years and this has piled pressure on authorities to tame the soaring prices. As prices soared so did political temperatures. Government, which introduced austerity measures in its 2019 National Budget was left with limited fiscal space when civil servants pushed for a salary hike.

The High Court ruling comes nearly a week after the Reserve Bank of Zimbabwe governor John Mangudya last week announced his Monetary Policy Statement.

The policy statement came at a time the economy is facing inflationary pressures emanating from a litany of factors such as the lagged effects of monetisation of past fiscal deficits, market correction, spiralling parallel exchange rate premiums and speculative pricing.

Premiums on the exchange rate on bank notes and electronic money have been widening reflecting on increased demand for the notes. The central bank said it would drip-feed new notes into the economy to ease cash shortages on the market.

To arrest rising inflation the RBZ, among other measures introduced high interest rates which will curtail speculative borrowing to buy foreign exchange on the parallel market and a flexible exchange rate will assist in absorbing external shocks and ensuring that the external position is sustainable.

While these measures are key in containing inflation, Zimbabwe’s economy continues to face structural deficiencies and headwinds which stifle domestic production. As bureaucrats at the Finance ministry burn the midnight oil, crafting the 2020 National Budget, we anticipate that government will increase taxes to offset losses resulting from the High Court order.

Monday, 16 September 2019 10:38

MPS: RBZ inflation tools will be ineffective

INFLATION RATES

Reserve Bank of Zimbabwe governor John Mangudya last week announced his Monetary Policy Statement while the country was mourning the death of former President Robert Mugabe.

The policy statement came at a time the economy is facing inflationary pressures emanating from a litany of factors such as the lagged effects of monetisation of past fiscal deficits, market correction, spiralling parallel exchange rate premiums and speculative pricing.

Premiums on the exchange rate on bank notes and electronic money have been widening reflecting on increased demand for the notes. The apex bank said it would drip-feed new notes into the economy to ease cash shortages on the market.

This development also comes at a time when reports show that crispy new notes are finding their way onto the parallel market. The central bank denies these claims. The current shortage of physical cash has led to a supply and demand disequilibrium, and arbitrage opportunities for differential pricing models, depending on the mode of payment.

In February this year, the central bank formalised the trading of foreign currency by introducing the inter-bank foreign exchange market and licencing of bureaux de change. Back then trades where managed and there was a huge discrepancy between the parallel market and the formal sector.

RBZ governor John Mangudya now sees inflation softening in the short to medium term mainly due to the discontinuation of Central Bank financing of Government deficits to curtail money supply growth; high interest rates which will curtail speculative borrowing to buy foreign exchange on the parallel market and a flexible exchange rate will assist in absorbing external shocks and ensuring that the external position is sustainable.

While these measures are key in containing inflation, we contend that Zimbabwe still has to address its external sector as well as stimulate domestic production. The latest figures from the RBZ show that South Africa and Singapore are still the country’s major sources of imports. Imports from South Africa reflect on the state of the country’s manufacturing sector while fuel imports from the south east Asian country contribute the bulk of imports.

 Currently most companies are facing bottlenecks in buying foreign currency for their raw materials and their balance sheets have weakened following the introduction of the mono-currency regime. Early this year, the central bank committed to take over legacy debts resulting from the monetary reforms. The bank is yet to settle these debts and companies are already feeling the heat.

It is our view that the country’s monetary policy statement is not being effectively being complemented by the fiscal side. As the local currency weakens, inflation soars, public spending is also gradually rising. Civil servants are demanding higher salaries and with no budgetary support the central bank will be forced to inject more liquidity into the market, a decision which is inflationary. The onset of the summer cropping season and a push for more support on the Command Agriculture programme will also result in sharp spike in money growth.

It is our view that under the current circumstances, the central bank’s tools to manage inflation will have a limited effect.