Reviewing Governments Recent Actions

Currency. They have stated that their objective is to get us to the place where we can go back to using our own currency and de-monetise all the foreign currencies that are legal tender at the moment. When they did this before, the Reserve Bank was used to fund a fiscal deficit that was way beyond what was sustainable. The result, our own currency crashed and became unusable. Inflation soared and this became a tax on everyone by reducing the value of everything expressed in local currency.

Now they have installed a new Governor, and he has done two major things since his appointment – he has sent all the accumulated debt incurred by the Bank in its quasi-fiscal activities across to the Treasury increasing our national debt very substantially. In addition, despite the fact that treasury has adopted a budget that exceeds its revenues by over 15 per cent, its actually doing the right thing and refusing to print money to cover the deficit. The result is a liquidity crisis that has halted almost all bank financing and resulted in the fiscus slowing down settlement of its commercial liabilities with the private sector, transferring the fiscal deficit to the private economy.

These measures have also resulted in the firming up of the open market exchange rate from 40 to 1, to 30 to 1 today. Encouraged by this the bank has now decided (at long last) to allow the markets to price their products at a market rate rather than the one fixed by the bureaucrats in the Reserve Bank. This is a major step forward and might just save many companies that were otherwise facing liquidation. But the cost has been that we have slipped backwards in terms of dedollarisation.

I am often asked why going back to our own currency is so important. Its really quite simple, if you take the example of our own bodies, we manufacture blood to meet the demand of our bodies, no more and no less. An economy needs to do the same and to be able to print its own currency to meet demand. If we do that, we can control monetary policy, establish real market exchange rates, discourage imports and stimulate exports – all good stuff. When we print currency, we create value which strengthens our Reserve Bank balance sheet. Using the US$ we have to import the stuff, and this costs us money and makes money for the USA. It is in effect blood that has to be fed into our economy.

Ask anybody who actually produces something, someone who adds value and who employs people, and you will find that they universally, want us to go back to our own currency. Ask anyone who is a consumer, and they all want to retain the USD because it holds its value, is stable and trusted and they can spend it wherever they want. There are more of the latter and if this issue is left to a contest, the consumers always win but that is not in our best interests. Its like a drug and difficult to throw off but we have to or there is no real future for our economy.

If you want us to dedollarise successfully then you have no choice but to do the following: –

• Fix the fiscal deficit by balancing revenue and expenditure.
• Maintain the new policies of the Reserve Bank.
• Increase demand for the local currency by fixing all state revenues in the local currency without exception.
• Float the local currency and remove price controls of any kind.
• The Reserve Bank to set a target exchange rate that is undervalued and to buy hard currency off the market when this target is exceeded.

When, as a result of these measures, the local currency is stable and seen as an acceptable means of exchange and savings then the final run towards a mono currency economy will be natural and rapid.

Informalisation. I told the President the other day that if I wanted to start a revolution in Zimbabwe, I would start in Mbare. I have watched Mbare for many years and today I think it is responsible for the creation of tens of thousands of jobs and many billions of dollars in GDP. It is almost impossible to estimate how many small businesses operate there and it has a population of nearly a million people on 500 hectares. It is managed, not by the City of Harare but by a well organised and politically connected mafia. The living conditions there are indescribable – perhaps 250 000 people live in the blocks of rooms built for 50 000 single male workers before Independence.

We provide employment for perhaps 1 500 000 adults out of an adult population of 6,5 million – 23 per cent. The rest have to make their living in the informal sector, and they are engaged in a myriad of different enterprises. Small industry, vending, cross border trading, food, farming, building and construction, woodwork and furniture, technical services. Ask anyone and they will tell you we can buy goods and services cheaper in the informal economy than in the formal economy.

The distortions created by past monetary policies have exacerbated this situation and so has the culture of corruption in Government. I asked a runner how he got through the border without paying duties and tax, his reply was two word “we pay”. I estimate that this activity costs the State at least US$2 billion a year – enough to easily cover our deficit and to increase expenditure on critical services. Other forms of corruption involving smuggling and transfer pricing must run to several billion dollars and gold sales via the informal sector costs us at least US$5 billion. Taken together these “shrinkages” are bigger than our national budget.

The problem is that there are so many benefitting from these activities that there is no appetite to deal with the culprits. The recent decision to start by attacking the vendors is simply stupid and dangerous. The venders will fight back and with justification, what else can they do? Anyway they are the creation of our own policy shortcomings – get that right and balance between the formal and informal economy will soon be reestablished. The informal sector is a gestation industry, out of which many successful businesses have emerged.

Property Rights. I told a major western Diplomat that the Government was going to grant all occupying land that was at present State owned or controlled, with title deeds. The reaction was an astonished “what!” There is widespread disbelief but its true, the President announced this program on the 22^nd of December 2022, and it is being implemented and will involve millions of properties throughout the country.

The revolutionary character of this decision will become apparent over the next 5 years, it will create over US$200 billion in urban assets and will underwrite agriculture with land valued at billions of dollars. All of which can be used as collateral for productive activity. But more than that it will result in tens of billions investment in property and productive assets. It will provide incentive to look after these assets which are currently depreciating and producing very little. Zimbabwe will be the first major African State to adopt these measures which, more that anything else, will enable us to become a middle-income State by 2030.