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The
vices and virtues of a multi-currency economy
Rejoice Ngwenya
August 25, 2010
The first learning point I have encountered is that
adopting the use of 'foreign- currency as legal tender
in one-s country has very little impact on a country-s
failed state or HIPC status. Viewed through the prism of political
judgement, almost two years after Zimbabwean authorities outlawed
the discredited Zimbabwe Dollar [ZimDollar] in favour of the Greenback,
the South African Rand and to a limited extent, the Botswana Pula;
we are yet to emerge from our rogue state category. Conversely -
at least with my experience as a student in Kenya in the Kenyatta-Moi
era of governance - a dysfunctional political system has no
bearing on a country-s economic performance. That is why Colombia,
Egypt, China and Saudi Arabia still attract more Foreign Direct
Investment [FDI] than my country, when in fact those countries are
'less democratic- than Zimbabwe.
If therefore asked the question: has the adoption
of a dollarisation enhanced in any way, the personal and corporate
lives of Zimbabweans, one is bound to get an array of diverse answers
depending on which prism of interpretation is used. When I visited
CATO University in July 2008, one student intern wanted to know
how it was like that I am alive coming from an economy whose lowest
unit of currency was one billion dollars! My answer then was simple:
we have adapted. In the same manner, if you asked me how it is to
live in a country outside USA where legal tender is USD dollars,
Rands, Pounds and Pulas, I will still reply: we have adapted! But
there is more to it than what meets the eye.
The biggest tragedy is that Zimbabwe-s export
capacity, its international reputation and 'security status-
was decimated by Robert Mugabe-s intransigence, impunity and
selfish arrogance. This means that we completely ran down our strategic
reserves and could not replenish them because of diminished export
capacity and inability to attract FDIs, multilateral support and
tourists. And so even if Diaspora remittances continue to flow in,
they are insufficient to sustain liquidity, money supply or capacity
of banks to offer long-term credit. As economic consultant Dr Phineas
Kadenge puts it, Zimbabwe now has no monetary policy!
Picture it this way: before dollarisation, business
was operating at 10-15% capacity because the ZimDollar was not 'exchangeable
enough- to recapitalise the productive sector. In other words,
a typical clothing factory would not be able to go to its bank to
exchange two hundred trillion ZimDollars for one hundred thousand
US dollars to import better machinery or apply for letter of credit
since banks did not 'recognise- the ZimDollar. The situation
has somewhat slightly changed because the same clothing company
is receipting its sales in US dollars although consumers do not
make enough money to sustain retain sales. Because of this 'timid-
liquidity, manufacturers have neither access to credit nor sufficient
funds to recapitalise, so productive capacity or utilisation remains
a bit static.
There is also inability of infrastructure to sustain
anticipated increased productive capacity. Let me use the electricity
utility company Zimbabwe Electricity Supply Authority [ZESA] as
an example. The Business Council of Zimbabwe - an umbrella
body of local business associations - has always insisted
that our country-s electricity demand at full productive capacity
is in excess of 3000 megawatts. Since energy is an 'enabler-
and the country would require more than US$ six billion to get ideal
electricity supply, the fact that we are producing just under 1000MW
means that it is impossible to sustain a substantial increase in
capacity utilisation because of what Kadenge terms the forward and
backward linkages of energy and economic growth. Ironically, before
dollarisation, ZESA complained that the worthless ZimDollars could
not be converted into capitalisation and debt relief. I pay an average
of US$40 per month to the public utility, but still get only 6 out
of 12 hours of electricity in my home. Why? Zimbabwean electricity
consumers are not generating enough personal [USD] income to sustain
ZESA. Now politicians have joined the rising crescendo of criticising
ZESA for being corrupt, inefficient and over staffed. They have
coerced the Competition and Tariff Commission into a fifty percent
reduction in electricity tariffs. With no alternative independent
energy suppliers in sight - barriers to entry are high -
I do not see how ZESA will be able to recapitalise let alone pay
its import bills to SNELL of the DRC, ESKOM of South Africa and
CAHORA of Mozambique. So much for dollarisation!
The Coalition
government itself is in deeper trouble. Remember the heady days
of 'Emperor- Gideon Gono - the last monarch of
the central bank of Zimbabwe [RBZ]? Mugabe used to print as much
money as he wanted to finance his political misadventure -
the 'land reform- and a bloated civil service of 200
000 teachers, 50 000 soldiers, 20 000 police, 6 000 prison officers,
hundreds of diplomats and millions of 'black farmers-.
All this under the tutelage of 'King- Gono.
There is not enough space to say the best of my
post-dollarisation experience [certainly without serialising the
treatise!], but my conclusion is that both social and economic 'indicators
of success- point towards improved lives of citizens. The
prevailing situation is much better than when the truant Gono and
his arrogant boss Mugabe drove our inflation figures to billions,
supermarket shelves emptied by price distortions, long caravans
of migrants streaming out of Zimbabwe, creaky factory machines and
empty hotel beds. Latest reports are that we are on single digit
inflation rates [4%], productive capacity is edging upwards 40%,
and industry is experiencing less power outages while Zimbabwe-s
vaunted human capital is showing sides of home sickness. Corporate
budgets are more predictable, however, public utilities still struggle
with uneconomic tariffs [or is it inefficiency?], and while the
large, obese coalition government that works on a cash budget gobbles
the little revenue there is. Mugabe has not stopped praising 'successful-
black tobacco farmers, but they have kept their money from the formal
banking system because they no longer trust banks. On the opposite
income scale, villagers have no viable economy to access US dollars,
except when they sell cattle. However, they still have access to
farm inputs and groceries whenever their liquidity improves. Ironically,
even when they make it to the nearest grocery shop, they encounter
stone-faced shop assistants who cannot offer change in coins!
*Rejoice Ngwenya is director of coalition for
liberal market reforms in Zimbabwe, and affiliate of AfricanLiberty.org
Please credit www.kubatana.net if you make use of material from this website.
This work is licensed under a Creative Commons License unless stated otherwise.
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