Pressing reset on Zimbabwe’s economy
Zimbabwe’s Reserve Bank governor announced his new monetary policy last week, introducing a raft of reforms. But it’s unclear how far these will go towards reviving the struggling economy
Last year, mine employee Prince Nedziwe received a letter from Metallon Corp informing him that the gold producer had been forced to close its Mazowe mine, where he worked at the smelter facility, due to financial difficulties. He found himself without a job and unable to provide for his family.
"My situation is really hard and we are living in poverty," Nedziwe tells the FM. "I last received a salary in October, and promises from the company to pay our packages have not been honoured so far.
"Management said the mine would be closed until 2021, and this has left us in a sorry state. I can’t pay for school fees for my children and we can’t even afford health care. It is a daily struggle."
When he does get some cash, he buys products from Gushungo Dairy, owned by former president Robert Mugabe’s family, to sell on to zama zamas (also known as artisanal miners).
Nedziwe’s is not an unusual situation: he is a part of the estimated 80% of Zimbabwe’s population that has resorted to informal trading to feed their families.
The Sunday Times reported this month that as many as 96 companies in Zimbabwe’s agriculture, transport, manufacturing, financial services and engineering sectors have shuttered operations since President Emmerson Mnangagwa took power in November 2017. Others have put employees on forced leave in the hope of weathering the worsening economic situation.
Zimbabwe’s economy is heavily reliant on mining, but it’s a capital-intensive business that requires foreign currency to sustain operations. The foreign currency shortage has hit the industry hard: RioZim, for example, has on two occasions had to shut operations at its three gold mines over failure to access forex from its gold sales through the central bank. And Falcon Gold has had to sell off one of its mines. A number of companies have placed exploration projects and capitalisation of operations on hold.
Not that the mining companies themselves seem too eager to speak about it. Several executives in the industry would not comment on the record, while Chamber of Mines of Zimbabwe CEO Isaac Kwesu was not available for comment.
However, Metallon spokesperson Rangarirai Mberi confirms that operations of the company, which is owned by SA businessman Mzi Khumalo, "are not immune to current challenges faced across the industry", including the "delay of payments for gold deliveries and foreign currency shortages for securing key inputs" and other implements.
A mining executive, speaking on condition of anonymity, says: "We have a backlog of three months in unpaid salaries, and suppliers no longer believe in our capacity to pay for equipment in advance to make sure production does not stop."
Another executive echoes the tale of hardship. "December was horrible, we did not get anything," he says. "One would have wanted to see the situation improve in the new year, but we are holding meeting after meeting and only occasionally, when the situation gets to the edge, do we get an allocation of forex [from the central bank] to keep us open."
It’s hoped things will change. Last week, Reserve Bank governor John Mangudya released his monetary policy statement for 2019, bringing with it a range of reforms. For a start, the central bank will now guarantee forex allocations to productive sectors such as mining. Both large-scale and zama zama gold miners will be allowed to retain 55% of their sales proceeds in foreign currency, with the remainder being paid out in a delinked local currency.
Manufacturing and tourism companies will be allowed to retain 80% of their forex earnings in hard currency, but will be required to use these funds within 30 days of receiving them.
Companies that export goods are also required to use their forex receipts within 30 days. If they fail to do so, they risk having the funds offloaded onto the market at the prevailing exchange rate.
So the Reserve Bank is, in part, releasing its grip on the forex market, allowing for liberalisation on a willing-seller, willing-buyer basis. To this end, it has created a separate electronic funds transfer platform for US dollars — the interbank foreign currency exchange market — which will facilitate the smooth transfer of funds.
However, those companies reliant on imports still have to be allocated forex by the central bank to purchase key equipment and raw materials. A backlog in payments means shortages, which drive up prices further.
Zimbabwe recently adopted a new currency, called the real-time gross settlement (RTGS) dollar. But how will this new currency really affect ordinary Zimbabweans - and will it help the country's struggling economy? Business Time reporter, Mudiwa Gavaza gives us the breakdown.
Wheat millers, for example, said this week that stocks were depleted, leaving Zimbabweans facing yet another bread shortage and a probable hike in the price of baked goods. Some manufacturers that rely on imports, such as Delta Corp and the franchise operators of Nando’s, Chicken Inn and Steers, are seeing increasing numbers of consumers opting to pay in forex, which they accept alongside local currency, say industry insiders.
The issue, says Vandudzai Zirebwa, an economist with the Buy Zimbabwe pressure group, is that "the monetary policy statement has liberalised the demand side of forex, but the supply side of forex is still controlled … it still indicates that there is retention of money [by the state]". And, she adds, forex allocations mean exporting companies don’t have full access to their forex earnings.
Central to the changes in monetary policy — and opening the currency trade — has been the introduction of the "RTGS dollar". Until last week, Zimbabwe operated on a multitier system, made up of US dollars, local bond notes and coins, and electronic money (the real-time gross settlement value, or RTGS). While the government insisted that 1:1 parity existed between the US dollar and the local currencies, this was not the case in practice. Now, the different local currencies have been brought together under the "RTGS dollar" label and allowed to float against the US dollar. As of Friday, the RTGS dollar carried a value of 2.5/$.
Not everyone is convinced by the change. "Like Zimbabwe’s toxic quasi-currencies, RTGS$ leave you with a bad taste in your mouth," American economist Steve Hanke tweeted this week.
"Since RTGS$ are simply a cocktail of bond notes & RTGS, nothing has changed."
While business leaders and groupings such as the Confederation of Zimbabwe Industries and the Zimbabwe National Chamber of Commerce would have preferred the full dollarisation of the economy, the government is opposed to the move.
Mangudya says dollarisation would be costly, as it would require further borrowing to pay civil servants, "[moving] the economy into a recession".
The new monetary policy measures — including devaluation — have a long way to go to quell the daily difficulties faced by companies and ordinary citizens. Workers’ incomes are already stretched, dampened by inflation that, for January, stood at 52%. (Hanke puts the number much higher, at 279% a year — the second-highest in the world.)
The result, say economists and business leaders, has been curtailed economic productivity, which is expected to continue hammering Zimbabwe’s economic growth for the year.
An absence of foreign capital, as investors turn their backs, along with the International Monetary Fund’s insistence that Zimbabwe clear its debt to unlock fresh funding, also weighs down prospects for recovery.
A finance manager at a local bank says: "Balance sheets of companies have been compromised because the government was saying 1:1 [parity between the US dollar and local currencies], and all of a sudden it has devalued the local currency."
This has also affected mortgage lenders and financiers who had advanced money to local companies and individuals in foreign currency. Those values have now been transferred into RTGS dollars at the former rate of 1:1.
For Raymond Chatendeuka, co-director for an automotive glass company, there is no reprieve from the challenges his company faces each day. If anything, he says the monetary policy has created even more confusion.
"We have tightened the duration of accounts for our big clients to reduce the risk of currency devaluation to only one month," he says. "We import some of the equipment we use and accessing forex has been an issue. At the same time costs have been rising and we have to absorb most of the cost increases on our margins because clients are already stretched."
But others are optimistic, pointing to possible green shoots in the policy shifts. Denford Mutashu, president of the Confederation of Zimbabwe Retailers, says there are prospects of recovery for some of Zimbabwe’s worst-affected industries, such as retail (though retailers themselves expect a difficult first half due to trade disruptions caused by fuel-price protests last month).
"There is an opportunity for things to change for the better, especially after clarity on the currency situation, and we are optimistic that this may help retailers to operate and plan," Mutashu says.
Zirebwa notes that more companies "now have an opportunity to go into the banks and get the forex they need".
Finance minister Mthuli Ncube says government finances are improving. "Government is cash positive. We managed to pay civil servants’ salaries for the months of January and February from a cash-positive position," he said last week. Mangudya, for his part, believes the government has secured sufficient lines of credit "to enable it to maintain adequate foreign currency to underpin the foreign exchange market".
But there’s probably a long way to go before the average Zimbabwean will feel the effects.
"There have been no salary increases but prices are going up every day," says a 42-year-old teacher in Norton who, like Nedziwe, has taken to informal trading to eke out a living. "Our transport costs have gone down a bit but everything else has been on the increase. I have to go to Zambia and Botswana every weekend to buy clothes, blankets and appliances for resale to my workmates and friends who can afford it."