The ManicaPost
Syndication Writer
The debate on whether Zimbabwe should adopt the South African rand as the base currency has been raging on for almost two years now with no consensus from industry and Government in sight.
While the Confederation of Zimbabwe Industries and other stakeholders believe that adopting the rand will make trade between the country and South Africa cheaper, government maintains that the fundamentals are not yet right for that.
CZI president Busisa Moyo recently said: “We have been talking about ‘randisation’, individual members of CZI have come out strong on randisation and I think we need to have some sort of action towards this. I do know that companies are already starting to do this and opening rand accounts.
“We also need to move the RTGS system so that it allows for transaction in rand without having to convert to US dollars. It will allow us to benchmark and ultimately correct in terms of devaluation, competitiveness and cost correction.”
But Finance and Economic Development Minister Patrick Chinamasa does not believe this would be the best solution for Zimbabwe right now.
He told Parliament last week that it didn’t make sense to adopt the rand and Zimbabwe will not be involved in any decision making processes regarding its value.
“On the currency issue, we are not going to adopt the rand because we are not involved in the decision making of its value, whether it depreciates or appreciates.
If it appreciates, we become the most expensive country. The route we are taking is that we are working on addressing macro-economic fundamentals such as raising exports, increasing reserves like three months cover and so on. We will not introduce our own currency until we address these fundamentals,” Chinamasa said.
While both parties have presented valid and compelling points, it is important to note that Zimbabwe is in need of lasting solutions to the economic challenges that have resulted in the demise of local industry.
While adopting the rand might bring relief in the short term, will that last into the long term? Will those problems the country is facing with the US dollar not reappear and further destroy the economy?
Economists say the issue of adopting the rand has advantages and disadvantages that need to be weighed carefully.
They believe that solutions adopted today should drive the economy into positive territory even in the long term.
Witness Chinyama says prices of goods and services are bound to rise regardless of which currency is used because of the profiteering mentality in most Zimbabwean businesses which arose during the Zim dollar era.
Because of the hyper-inflation experienced until the adoption of the US dollar in 2009, Zimbabwean businesses were out to get as much profit as they could from their goods and services.
Chinyama says the country should thus continue using the multi-currency system to promote currency competition in the economy.
This he says allows the country to have a fall back plan should one of these currencies show signs of volatility.
“Remember when the rand plunged, we suffered because of our dependence on South African imports. Should we adopt the rand, we would suffer even more. But if we continue with the US dollar we will not suffer so much.
In the unlikely event that the US dollar has problems, we fall on other currencies in the basket,” Chinyama said.
He said the major problem Zimbabwe faces is low production.
Zimbabwe’s industries have not been producing enough to supply local demand and exports as the cost of doing business remains high. The currency shortages have also made it more difficult to do business.
“If we produce more, liquidity will increase and we will not see most of these problems we are facing. But we have to understand that this cannot be done overnight,” added Chinyama.
Government has already said that the problem of productivity cannot be solved overnight. And it has already put in place measures to deal with the problems that impede productivity.
Such measures include the Ease of Doing business reforms being implemented currently.
Another economist, Trust Chikohora, says Zimbabwe has a lot of macro-economic problems that undermine production and Government should address these before considering the adoption of the rand.
He believes the country might continue to have the same problems even if it adopts the rand unless Government addresses these fundamental problems first.
“What we need are policies that will drive us out of this situation.
We need policies that attract foreign direct investment and bring more liquidity to the market.
We need to become an active member of the international community first,” he said.
However, Chikohora says adoption of the rand could be a short term solution to the current cash shortages.
“If we have a formal arrangement with South Africa, the Reserve Bank of South Africa will print enough money for us and we will not experience any shortages. We may also be able to get financing from South African banks if we do this,” he added.
The downside of joining the Rand Monetary Union, as minister Chinamasa has said, is that Zimbabwe will not have a monetary policy of its own.
It would have to be bound by the agreement that binds the Rand Monetary Union member states as appended to a 1974 pact signed as the basis for the formation of the Common Market Area (CMA) agreement.
The other issue is that Zimbabwe does not have a currency of its own which is a requirement to joining the union.
Although the rand is legal tender in all member states, Botswana, Lesotho, Namibian and Swaziland all have their own currencies.
On this backdrop, Zimbabwe does not have sufficient background qualities to fulfil membership requirements within the Rand Monetary Union.
However, since government has already said it will not adopt the rand, what matters now is that it addresses those fundamentals to get the economy going and improve the liquidity situation. – Zimpapers Syndication.
