Over the past 18 months, the country’s economy has rebounded, helped by the better performance of the agricultural and mining sectors, an improvement in the balance of payments and the position of the external sector, as well as the introduction of an auction system which improved access to foreign currencies for productive sectors.
All credible institutions, including the International Monetary Fund (IMF) and the World Bank, predict that Zimbabwe’s gross domestic product (GDP) will increase by 3-7%, which is also in line with the forecasts of the Ministry of Finance and the Reserve Bank of Zimbabwe (RBZ).
These projections did not take into account other positive elements such as the injection of $ 961 million from the IMF to support the country’s recovery from the disruptive Covid-19 pandemic, as well as the authorities’ laudable efforts to maintain their vision of achieving collective immunity at the end of the year, at hand.
Yet the Zimbabwean dollar continued to lose ground against major alternative market currencies despite these positive fundamentals.
Currency instability which has seen black market rates exceed the internationally acceptable range of 15 percent up to 40 percent, has already been blamed on the country’s dual economy, where a larger portion of the population does was not able to access foreign currency. of the main auction.
But after the monetary authorities further liberalized the monetary regime by introducing a small and medium-sized enterprise (SME) auction for small bids and allowed exchange bureaus to sell foreign currency to everyone, this argument is fell flat.
A helicopter view of the events seems to suggest that there may be more than meets the eye. Without even digging deeper, I’ll focus on three possibilities.
First, the strong demand for foreign currency in Zimbabwe originated in the economic crisis of 2007/08 when all the population lost confidence in the Zimbabwean dollar, causing it to be banned from circulation.
Fearing this could happen again, every penny earned is now spent on buying foreign currency to hedge against inflation, despite the fact that the authorities have since September 2020 managed to tame the inflation monster, which fades.
Second, there are a few large companies that are wreaking havoc by funding third-party institutions to bid foreign currency on their behalf at both SME auctions and main auctions.
When they do end up selling their products, their pass-through rate is based on parallel market rates, which is criminal. Such greed and selfishness clogs the main auction system and contributes to the foreign exchange backlog, which at one point reached US $ 175 million.
Third, entrepreneurs undertaking infrastructure projects in Zimbabwe unload large amounts for Zimbabwean dollars in the illegal parallel market where they do not hesitate to buy greenbacks at any price.
The irony is that these entrepreneurs who are mostly foreigners are paid large sums of Zimbabwean dollars by the government for infrastructure projects. Instead of returning the favor by acting in the best interest of their host, they stab the government in the back by fomenting instability.
It is also quite revealing that for such entrepreneurs to offer high exchange rates for their Zimbabwean dollars which are scarce in the formal market, they would have inflated their prices when bidding for the projects, perhaps to create a margin from which they could grease the palms of those who would have facilitated a good deal.
In a way, the government is shooting itself in the foot by paying these companies handsomely without first putting in place safeguards to prevent them from dabbling in the black market where any slight movement in interest rates erodes the purchasing power of the majority of its citizens.
Ultimately, the government’s vision of transforming the nation into an upper-middle-class economy by 2030 may not be realized within the allotted timeframe because of those few greedy entrepreneurs who prioritize their self-interest over self-esteem. national interest.
For the country to produce, the exchange rate must be stable in order to inspire confidence and allow for long-term planning.
Such recklessness on the part of entrepreneurs must therefore not go unpunished. Without further ado, the authorities must track down the culprits, disqualify them in the future from participating in government tenders, and report these bad apples to the RBZ Financial Intelligence Unit so that they can be hit where it matters. hurts for ruining the country’s economy.
The exposure and shame of the foreign currency abusers by the RBZ should be broadened to include the offending entrepreneurs and large corporations who face their surrogates because their shenanigans are a cancer on society. Participation in both auctions as well as tenders for infrastructure projects should also be reserved for law-abiding corporate citizens, with banks religiously adhering to the Know Your Customer principle in the allocation of foreign currency and oversight of foreign exchange. suspicious transactions.
In countries that practice Sharia law, such acts of sabotage are punishable by death. It also cannot be ruled out that there may be questionable political motives behind this, given that the 2023 elections are fast approaching. History has taught us that Merchants of Chaos usually come to life before landmark polls.
Having said that, it is also up to us, the citizens of Zimbabwe, to avoid negative and unnecessary behavior that is not supported by evidence; we can heal such negativity by first believing in ourselves and considering 2nd Corinthians 5 verse 7, which says “for we walk by faith, not by sight”.
More importantly, there must be categorical efforts to produce for local consumption and exports to stop the bleeding of foreign currency by importing trinkets that might otherwise be produced locally.
â Dr Tim Rainhard has studied the work of some international financial institutions in developing countries. He is an economist with in-depth knowledge of African financial systems. He can be contacted at [email protected]