The Zimbabwe Chamber of Commerce (ZNCC) says government should liberalise the foreign exchange system and maintain the dual monetary arrangement – involving use of the Zimbabwean and United States dollar – post the Covid-19 pandemic to stimulate economic growth.
The Reserve Bank of Zimbabwe eased foreign exchange controls when it allowed retailers to start charging for goods and services in hard currency following the outbreak of coronavirus which has claimed hundreds of thousands of lives across the globe.
A managed forex auction system would create a false equilibrium between the Zimbabwe dollar and the greenback, the commerce grouping said in its 2021 national budget submissions.
Market forces should be left to determine the exchange rate. As long as the priority list is in existence, stability will only be for the prioritised products that are supplied through the auction, but goods that do not make the list are imported through foreign currency sourced elsewhere.
Finance minister Mthuli Ncube has lately been heralding price stability and a stabilised local unit as the spin-off benefits from the cocktail of measures he introduced last year.
Analysts say Ncube’s optimism is misplaced.
ZNCC said continued policy flip-flops; conflicting signals on policy interventions/pronouncements; for example – establishment of the Victoria Falls Stock Exchange which only trades in US dollars, is sending a wrong signal on the ZSE status.
Many companies have announced their plans to delist from the local bourse as it emerged that it was playing a limited role in raising foreign exchange for their operations.
The national budget is expected to be presented next month.
Most local companies import throughput from neighbouring countries, mainly South Africa and abroad.
“There is need to decentralise the auction system so that it can be done by individual banks rather than the central bank because banks have better visibility and interaction with clients. This means that banks should be made accountable and results should be published across the market which will also allow customers to evaluate their positions on an online/live system,” ZNCC said.
“The delay in settlement to T+5 or more is wiping the relevance of the auction market and giving it a fixed exchange (rigid) look when it is supposed to move to a market-determined system. The delays in settlement also create room for fall back to the parallel market. Frequency combined with decentralisation is key to achieving a market determined rate.
“All players, banks, bureau de changes etc should become active and until over the counter transacting of forex is made possible, we will continue to have unstable local currency. Though there has been a stabilisation of exchange rate, there is need for a reduced role of the RBZ in buying and selling forex, and have everything done by the market so that the rate is seen to be market determined for more confidence. The market has to be truly liberalised, RBZ should not influence the exchange rate. As long as the market is not truly liberalised we will continue to have a false equilibrium.”
ZNCC said most companies have not benefited from the ZW$18 billion economic stimulus package announced by Ncube to the economy them from Covid-19 shocks.
President Emmerson Mnangagwa’s administration should immediately craft a new post-Covid 19 economic blueprint to save local industry, it said.
Government has already announced that it would introduce a new economic programme, National Development Strategy, to succeed the Transitional Stabilisation Programme which comes to an end this year.
“The ZW$18bn stimulus package cannot be an affair between banks and private sector players alone; the credit guarantee arrangement with the government is not offering enough comfort to banks to lend to the private sector. Government has to offer significant tax relief to businesses or set a fund for drawdown by businesses,” the ZNCC said.
“Non-availability of both the minister of finance and the permanent secretary for engagement with the members of ZNCC; this has somewhat complicated the acceptance and adherence to some of the measures by business given their scant knowledge and appreciation of some of the policy interventions Submissions that we are making will not be effective as long as the policy environment remains unfriendly and inconsistent.”