‘Scrap bond notes, attract investment, create jobs’

HARARE – President Emerson Mnangagwa must pursue a package of comprehensive reforms aimed at underpinning the sea political change won in the military-led intervention with economic gains, economic experts said yesterday ahead of the National Budget presentation today.

Scrapping bond notes, attracting investment capital, widening the tax base and creating opportunities and jobs are a constant demand by younger Zimbabweans frustrated that economic progress has not matched the political transition ushered by the uprising that ousted autocrat Robert Mugabe as president.

It is a delicate balance for the new government. Mnangagwa swore in his new Cabinet on Monday, attracting much disappointment on the make-up of the team.

But economists are mostly interested in the medium-term moves of under-fire Ignatius Chombo’s successor as Finance minister, Patrick Chinamasa.

Chinamasa, who had previous experience as Justice minister, was sacked from the Finance portfolio in early October after four years in the job over his vocal opposition to the most destructive policies in the late stages of Mugabe’s time in office: the bond notes and the Indigenisation law.

On Monday, as his Cabinet took office, Mnangagwa was emphasising the importance of economic progress.

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“I want (Zimbabweans) to be united, we must grow our economy,” he said.

A military operation undertaken in Harare in the second week of last month, which resulted in the stepping down of Mugabe, ignited a heavy stocks sell-off on outlook optimism.

The initial shock saw industrials shed 40 percent in value before partial recovery.    

NKC African Economics analyst François Conradie said while expectation was that Mnangagwa will seek support for his policies at the Zanu PF congress on December 12, he said Chinamasa will give some clearer indication of what can be expected in terms of policy changes when he presents his 2018 National Budget today.

Government spending in Zimbabwe has been out of control in recent years: with a budget deficit forecast of $1,5bn in 2017 or 8,7 percent of GDP as the government continues to pay out high amounts in wages to a bloated civil service while it struggles to tax the slow-growing economy. Problems with “ghost workers” on the State payroll make matters worse.

Government has had trouble borrowing money from abroad as prospective lenders have had doubts over Zimbabwe’s ability to repay.

“This explains the rapid loss of value of the bond notes in September and October: Government simply printed notes that were not backed by hard currency, and traders started charging premiums to shoppers using the notes.

“The International Monetary Fund said last week it will dispatch a staff mission to Zimbabwe in the coming days to meet with officials of the new government and assess the country’s fiscal and economic situation, IMF spokesperson Gerry Rice said.

Rice told a news briefing the regular staff visit to Harare “will update our assessment of Zimbabwe’s fiscal position, foreign exchange developments and enquire about the new administration’s economic plans.”

In late November, some automated teller machines were again issuing US dollars — a clear indication that Mnangagwa’s transition team has been able to borrow something.

“We expect that means he has made some promises on policy reform to potential investors, and that he will announce these reforms on Thursday (today),” Conradie said.

Former Finance minister Tendai Biti told the Daily News that Zimbabwe’s “bond note” currency must be scrapped pronto.

“Bond notes should be demonetised, nobody has confidence in anything that resembles the Zimdollar,” Biti said.

“It has become an instrument of arbitrage, we don’t need bond notes, we must stick to the multiple currency regime, perhaps join the Rand Monetary Union. We should stimulate exports, earn more.

“You can’t have an instrument not backed by any value. Zimbabweans were traumatised and raped by the Zimdollar. You can’t put a tanker against the economy.” 

Businessman and financial engineering expert Mutumwa Mawere said: “They (bond notes) should be dead. However, there is a physical problem of cash in motion. What is the most durable cure?

“The moment that people in government realise how powerless they are and should be on matters that fall outside their control, the better.

“Cash is a product of effort and willing buyer and willing seller transactions.

“Cash that is a consequence of value addition should never be stolen in the name of a mistaken and self serving interest.”

Introduced by Mugabe’s government last November as part of a desperate bid to starve off a cash flow crisis, the notes are supposed to be traded 1-1 with the US dollar but are trading at anything up 1-1,3.

Zimbabwe abandoned its own currency in 2008 and officially adopted the American currency.

But continued economic uncertainty led people to stash dollars outside the country, prompting a critical shortage.

Mnangagwa has proclaimed an amnesty for people to return money stashed abroad in the country.

Conradie said: “Although we have reservations about Mnangagwa, who stands accused of a lot of crimes that happened under the Mugabe government, and we worry about the prospects of a free and fair election in August, we are fairly confident in our expectation of economic reforms that will improve the business environment and attract investment.”

Conradie said he expected that Chinamasa will announce some reforms that aim to attract investment capital and to widen the tax base.

“Key target areas should be reforming or repealing the Indigenisation law, which has hampered investment, and scrapping the bond note scheme in favour of hard currency borrowed abroad,” he said.

“Economic policy to attract foreign direct investment and build up a tax base should focus on agriculture — which produces far below potential and where much land is essentially lying fallow, mining, where a parallel State under Mugabe kept production secret to avoid paying any money to Treasury and services in general — tourism is an easy early play here.”

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