The Matrix Of Deepening Liquidity Crunch in Zimbabwe
The current liquidity crisis in Zimbabwe keeps worsening with each passing day and citizens now struggle to access their hard earned cash from local banks and other mobile money services. In my observation and opinion, there are four dimensions to the problem.
By Harris Madhuku
The first is that the country is failing to attract enough foreign direct investment (FDI) into the country and generate enough foreign currency inflows to sustain the multi-currency system.
Second is that the economy is importing more than it is exporting recurrently pushing huge volumes of money outside the country with only a tiny drop coming in. The majority of the business people who are involved in trade are our friends from the east (China) and they do not bank or use point of sale swiping facilities. Our friends treat Zimbabwe as a supermarket for their economy. They come to Zimbabwe with stock and when the stock is finished, they transport hard cash from the country back home to bring other wares and this has been happening since the adoption the multi-currency regime in 2009.
The third issue points to the fact that the informal economy in Zimbabwe is huge and does not trust the banking sector anymore. This maybe a result of a lack of smooth transition from the Zimbabwean dollar era to the multi-currency system that led to many people losing their money kept in Zimbabwean dollar accounts.
The problem of having a huge informal sector that is unbanked is what has partly contributed to the limited availability of cash in the country. Cash is available on the streets and people are now paying premiums to get it.
On the other hand, lack of confidence business community has on the banking sector and central bank has been a quite significant factor why the majority of the country choose to keep money at home.
The forth and the last in the thinking of this paper is the grand corruption from the side of our politicians and their huge appetite for foreign services and goods.
Just recently, Grace Mugabe was involved in a $1.6 million diamond ring scam involving a dubious business operator. President Mugabe travels countless times to different countries, carrying with him a huge delegation in the process spending millions of dollars outside the country.
The issue of corruption by government ministers goes far to allegations that they own properties overseas and other foreign countries, all that has been sweeping and cleaning the cash base in the country without a response in the sense of investment and cash inflows through either exports or foreign direct investment.
The government of Zimbabwe has responded to the crisis through an alternative or home currency coming in to compliment the United States dollar which is the dominant currency in the system. The emergence of the bond notes was basically to compliment and stabilize the money supply in the country. However, that initiative failed dismally.
The coming in of bond notes was mainly aligned to promotion of exports and the money was said to be only given to those who are into exporting as a stimulant but that has not been the case as they have unofficially become the currency of exchange in the country. The issue is that the country is weak and not producing cheaply whilst using one of the top or strongest currencies in the world. When you do not produce cost effectively or cheaply it means your products will not be able to compete on the international market.
Zimbabwe is battling against low confidence from both the international community and citizens who no longer trusts government policies.
What is needed in the country is the re-installation of the lost love and faith. Unfortunately the election coming in 2018 worsens the situation especially with signs that Zanu PF is likely to retain power.
Although the cash crisis has been worsening, citizens remain uncomfortable with a return of the Zimbabwean dollar. Considering the failure of the country to grow and re-industrialize during the multi-currency period, it looks like the current monetary policy has overstayed for an economy which is not growing and exporting.
Some economists are starting to consider and see it better if the central bank begins processes of returning of the Zimbabwean dollar. However, with the lack of independence in the Reserve Bank, there will be lots of temptations to print the Zimbabwean dollar to fund different policies obviously in a partisan manner like we saw during the Gideon Gono tenure.
To conclude, I would allude to the fact that the country is in dire need of fresh ideas and a government that is ready to tame corruption and maladministration.
The country strongly needs to invest in building confidence in the citizens and investors so that they can begin to consider bringing money back into the banking system. A government that recognizes that small to medium enterprises and the informal sector is the focus of any developing nation is what Zimbabwe needs at this juncture. It is important that government design strategies that nurture and promote growth and success of small businesses. Zimbabwe needs a realistic government especially on expenditure but as it stands there is little hope for discipline as far as government spending is concerned.
Far from the talk of economic policy reforms, without citizen and investor confidence, every effort to turn things around will be in vein.
The author, Harris Madhuku is a PhD Economics candidate at the University of Zululand in South Africa. He can be contacted on firstname.lastname@example.org