Several publications have recently been awash with a story about Zimbabwean businessman, Strive Masiyiwa’s Facebook Post in which he opined that Zimbabwean goods should be priced in Rand as opposed to RTGS dollars in order to stabilise prices. I have not been able to independently verify whether Strive actually posted about this. I tried to search for the post on his Facebook account but I couldn’t find it. I am therefore assuming that Masiyiwa indeed posted that statement.
I totally disagree with Masiyiwa on this one. Pricing goods in rand will not stabilise prices. The first point I want to make is that Zimbabwe is using a Multi-currency system and the South African rand is part of the regime. Why are businesses not voluntarily pricing their goods and services in rand, yet it is part of the Multi-currency regime?
In addition, let’s suppose that all prices are converted from RTGS dollars to rand with immediate effect, what effect will that have on price stability? According to Masiyiwa, prices will stabilise, but I beg to differ. The issue is that an ordinary worker is being paid his or her salary in RTGS dollars. Therefore, if prices are converted to rand, that same worker has to look for the rand elsewhere. Unfortunately, he or she has to go to the black market. We will then have a situation whereby everyone wants to purchase the rand. What this means is that the demand for the rand will increase. Holding supply constant, this will lead to an increase in the cost of acquiring the rand on the parallel market. In other words, the rand will appreciate in value or the RTGS dollar will lose value. People will now need more RTGS dollars to purchase the rand than before. This will create more problems to the ordinary consumer.
What Zimbabweans need to understand is that currency is the least of our problems. We need to correctly diagnose our problem; otherwise we may waste a lot of resources trying to address a non-existent problem. Trying to adopt a new currency at this juncture is like prescribing tissue paper as a remedy for cholera.
The question then is why is Zimbabwe in this current economic mess? The answer is very simple: We are not producing sufficient goods to meet our demand. More so, we are very inefficient when compared to our neighbours. Most of our industries are using archaic machinery and equipment. Our costs of production are very exorbitant. This is killing our competitiveness on the international market.
Because of the above mentioned reasons, the country’s demand for imports is very high. It is very embarrassing that our country is importing goods such as matches, toothpicks, diapers, onions, bricks, tinned beans etc. This is totally unacceptable. These unnecessary trinkets are chewing up the few foreign currency resources we have. Furthermore, why do we import steel when we have a World Class parastatal like ZISCO? Why is it taking centuries to retool this strategic company? Are all the universities and agricultural colleges in Zimbabwe failing to produce a wheat variety which is suitable for the production of bread? Why do we continue importing electricity when we can expand local production? The equation is very simple, if we produce these things locally, we will free up some foreign currency resources to purchase important goods and services. This will reduce our import bill.
Apart from Zimbabwe’s unsustainable import bill, the country’s exports are not competitive on the international market. The country’s exports are dominated by goods which are more susceptible to external shocks. The problem is that most of our exports are primary goods. We need to promote value addition and beneficiation in order to boost our export proceeds.
Moreover, some of the policies by the government discourage exporters. A good example is that of tobacco farmers and gold miners who sell their produce in US dollars but are only allowed to retain a portion of the proceeds in foreign currency. The remainder is converted into RTGS dollars at an unrealistic ‘market rate.’ Why do we have a foreign currency allocation committee? Who generated the foreign currency which this committee allocate? Is there anyone from the mining or agricultural sectors among the committee members? This is clear daylight robbery. Those who generate foreign currency must be allowed to retain 100% of their income in foreign currency (the government will benefit from the tax which they will also pay in foreign currency). We must not kill the spirit of our exporters.
Conclusively, to address Zimbabwe’s current economic challenges, the government must address the production side. Any attempt to introduce a new currency under the current conditions will be very futile if not suicidal. Let’s reduce our import bill, boost our exports and build sufficient foreign currency reserves before we harbour any ambitions of introducing a new currency.
Luckmore Chivandire is an Economist, Chartered Secretary, Author and Blogger. He can be contacted at luckmorechivandire@gmail.com.
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