The use of the South African rand for transactional purposes can make the local industry competitive in the short term, but will not take the economy beyond the horizon, industrialists and economists have said.
BY TARISAI MANDIZHA
The Bankers’ Association of Zimbabwe (BAZ) told a parliamentary portfolio committee last week that the use of the South African rand as the major transacting currency would reduce concentration of the risk associated with heavy reliance on United States dollar transactions.
“It is clearly not sustainable to use the United States dollar as the major transacting currency. It is recommended that the South African rand be used as the major transacting currency,” BAZ president Charity Jinya said.
Confederation of Zimbabwe Industries president Busisa Moyo said the industry was in agreement with the proposal by BAZ for the country to adopt the South African rand for transacting purposes as this would address the current trading challenges and make the industry competitive.
“We are in agreement to use the bottom currency, because we need to have a softer currency so that our cost is in line with our competitors,” he said.
“This will make us more competitive. The general consensus [is that] we have decided to convert to the rand so that it will benchmark our costs so that our exports are competitive by using a softer currency. Using the rand for transacting takes care of the trading side, so we need also to look at the cost side.”
RBZ statistics as at March 2016 showed that Zimbabwe’s major trading partner is South Africa. Exports to South Africa represented 78% of Zimbabwe’s total exports and imports from South Africa constituted 33% of the total imports.
BAZ also recommended that the United States dollar be reserved for offshore payments and local electronic payments only. They also recommended the formalisation of the informal sector and said the circulation of bond notes alongside the South African rand would force the informal sector to open bank accounts, thereby increasing deposits in formal banking.
Jinya said there was need to put in place measures to formalise the informal sector.
“According to the World Bank statistics, current banking penetration in Zimbabwe is 7,3% of adult population banking and only 7% of the bottom 40% of adults in relation to income earned possess a bank account,” Jinya said.
A local economist Kipson Gundani said BAZ’s recommendation was noble but would not take the economy beyond the horizon.
“BAZ’s proposal provides a noble option in the sense that if you look at our trade figures, Zimbabwe trades significantly with South Africa. But it is purely a short-term measure. There is need to come up with a structured and agreed form of currency, favourably weaker against the United States dollar. We can get an agreement with a country whose currency is favourably weaker,” Gundani said.
He said Zimbabwe should join the Rand Monetary Union which was a better alternative than the status quo.
Former Economic Planning minister Tapiwa Mashakada said an MDC-T government would adopt the rand as legal tender for Zimbabwe.
“This will increase money supply and reduce externalisation and capital flight, which is induced by arbitrage and premiums from the depreciation of the rand against a strong US dollar. It is common because South Africa is Zimbabwe’s largest trading partner,” he said.
“Many argue that Zimbabwe will lose control of its monetary policy to the South African Reserve Bank. So what? Since we dollarised, the RBZ lost its monetary policy functions anyway. All we want is an arrangement that will increase the availability of the currency and allow our industry to retool.”
He said adoption of the rand would catalyse the process of macro-economic convergence, which entailed the harmonisation of financial and economic benchmarks such as the budget deficit and exchange rate.
The South African rand is part of the multicurrency basket introduced in 2009 to stem hyperinflation. But the currency was last year rejected on the local market due to its continued depreciation against major currencies, posing headaches to retailers on conversion rates.