The ManicaPost
Kudzanai Gerede Business Correspondents —
As the country draws closer to the introduction of the bond notes, which are expected to be in circulation by end of this month, there is fresh optimism from both business and the public that the bond notes will ease cash shortages.
A snap survey by Post Business revealed that there has been an improvement in the comprehension of the bond notes concept among the general public and this has been mainly inspired by the worsening cash shortages that have continued to characterise day to day business across the country leading to the realisation that there was need for monetary authorities to curb externalisation of the US dollar.
Zimbabwe has experienced severe cash shortages since November last year as a result of a number of factors key among them is the hoarding of US dollars for externalisation purposes by business players, excessive importation of goods and services and weakened exports to counter an annual trade deficit of over US$ 3 billion.
The Reserve Bank estimates over US$ 50 million has been externalised via wire transfers since the beginning of this year and recovering such huge amounts back into the economy when production levels are very low was a daunting task.
Due to the country’s high import bill, bond notes are therefore expected to curb financial leakages from the economy. While the country’s primary sectors continue struggling to increase export earnings to sustain the multi-currency system due to a variety of factors such as low capacity utilisation and unavailability of capital to retool, the RBZ was prompted to introduce the bond notes as a strategy to improve liquidity within the economy by “bonding’ the $ 200 million facility provided by the Africa Export Import Bank (Afriximbank).
This entail that the bond notes will trade at par with the US dollar on the local market.
“The coming in of the bond notes will usher in a competitive alternative currency on the domestic market that will relieve excess concentration on the American dollar.
There should be a balance of some sort to sustain a healthy multi-currency system but lately we realise that due to the volatility of the South African Rand and strengthening of the US dollar, the multi currency system is in great threat,” said Mr Pepukai Chivore an economist.
He noted that despite the Monetary Policy statement by the Central Bank Chief Dr John Mangudya pointing towards migration to a cashless economy basing on the increase in plastic money usage, the high level of informality in the economy has resulted in resistance of plastic money usage.
“Zimbabwe still needs hard cash to transact because most the businesses operating in the CBD can be categorised under the SMEs sector which largely transact small amounts due to the size of their businesses. Payments are usually preferred in hard cash or through mobile money transfers so liquefying the economy through bond notes will help ease doing business in the country,” he added.
However a survey by Post Business has shown that mobile money agents have been the most affected by the cash shortages. They say both cash deposits and withdrawals have taken a dip as the public is holding on to the US dollar notes with some viewing the introduction of the bond notes as a timely solution to the crisis.
“Our only hope is in the speeding up of introducing the Bond notes because business is very low these days. There are very little cash deposits coming in due to shortage in the US dollar currency yet the demand for cash withdrawals has been overwhelming and we cannot sustain it,” said one Ecocash agent located in the central business district who identified himself as Don.
The situation has been worsened by the capping of daily withdrawal limits by most banks whose nostro accounts have been depleted. Barclays Zimbabwe managing director Mr George Guvamatanga recently hinted that bond notes would be a game changer on the country’s financial services sector.
“There is need for confidence in the whole area around the bond notes because they are a good initiative when one considers that the country is still grappling with increasing its foreign currency earning owing to very weak production levels. Bond notes will simply boost liquidity into the economy but more so it will relieve the banking sector that has endured cash imports from their nostro accounts,” he said.
Recently the Reserves Bank highlighted that most of the local banks nostro accounts had been depleted due to excessive reliance on this external facility as a way of addressing cash challenges. Central Bank says about US$ 750 000 worth of bond notes should be in circulation by end of the year through the Export Incentive Scheme which means bond notes issuance will be based on export performance of the country.
Analysts have welcomed the move by Central bank to issue the bond notes through incentivising exporters as the bonus can help industry to boost production, improve capacity utilisation and retooling.
Under the export incentive scheme, a 2,5 percent bonus will be awarded to productive firms for exporting their produce whilst small scale miners will attract a 5 percent bonus for delivering gold to Fidelity Printers.
Deputy Governor Kulupile Mlambo said a higher export bonus for small scale miners was a deliberate measure meant to capacitate them to mechanise operations and improve gold production in the country.
He also said the bond notes under the scheme will also help to cushion the mining sector from the effects of declining international commodity prices which has seen export revenue from the sector plunging.
The cash shortage has also been identified as the major cause for low aggregate demand on the domestic market as it has suppressed consumer power. Most retail outlets have seen a decrease in consumer spending, a trend likely to suppress the growth of the economy.
