The Reserve Bank of Zimbabwe (RBZ) is considering putting in place an import priority list to aid the efficient use of foreign currency as it moves to contain liquidity constraints.
BY NDAMU SANDU & VICTORIA MTOMBA
The move comes at a time when RBZ and the African Export Import Bank (Afreximbank) are working on a nostro stabilisation fund to stabilise the liquidity situation that haunts the market every month end.
RBZ governor John Mangudya told Standardbusiness that the measure was meant to instil self-discipline from market players that included banks, consumers and businesses.
“This self-discipline is in the form of utilisation of foreign currency efficiently for the purpose of increasing production,” he said.
“This entails that businesses, banks and RBZ should come up with an import priority list which discourages importation of trinkets, water and smaller products which are readily available and can be efficiently produced in Zimbabwe.
“Such a priority list would favour the importation of raw materials, fuel, capital goods, intermediate goods and communications services, among others.”
Mangudya said the measures would result in a shift to increased local production.
“RBZ is advocating for a make and buy Zimbabwe campaign. We need to change the mindset from an import dependence to a productive economy,” he said.
Demand for cash has been outstripping supply, yet it serves three purposes — transactional reason, contingency purposes and speculative reasons.
Monetary authorities believe Zimbabweans are holding cash for speculative reasons, a reflection of the lack of confidence and trust in the banking sector.
Mangudya said the cash in the economy was not circulating the way it should be doing, adding that banks must play a key role in ensuring that cash was moved through the formal channels.
“The implication of this phenomenon is that banks should provide incentives for the banking public to bank their money, which is the essence of financial inclusion,” he said.
Zimbabwe has been facing cyclical cash shortages as a result of excess demand for cash over supply.
Monthly salary payments compounded by government’s paying civil servants staggered annual bonuses had added to the problem.
Artisanal miners have also demanded to be paid in cash, increasing the demand for cash. The opening of the 2016 tobacco marketing season made the situation worse.
Over the seven years in which the country has been using multiple currencies, tight liquidity has become common place for the country, with no solution in sight.
Between 2009 and 2013, liquidity issues were better as Zimbabwe had lines of credit for various sectors and commodity prices were firm, making the country realise more through its mineral resources, particularly gold and platinum, among others.
A local economist said the root cause of liquidity problems in the country was the trade imbalance which had seen Zimbabwe importing more than it exported, with imports estimated to be over $20 billion since 2009.
“Our imports have been increasing and that means we are losing money. We need more companies that are exporting so that we get cash into the country,” he said.
“The mineral resources such as platinum used to sell between $1 200 to $1 500 per ounce, but the price has gone down to $800 and gold prices have [also] been going down.
“All these issues have been reducing the cash in the economy.”
The analyst said the issue of hoarding was not a new thing as big wholesalers and Chinese business people were not depositing their money in banks.
“The issue at the moment is about confidence, which is no longer there, especially in customers,” he said.
“People are losing confidence in the banks again as what happened in the last decade. When people lose confidence they will take their cash from the banks.”
The analyst said the reduction of nostro accounts from 30% to 5% to help banks bring their money onshore so that the liquidity issue could be solved had not helped much.
Due to the liquidity crisis, some shops are now unable to give customers cashbacks.
“We are now waiting for new deposits as banks to give depositors their money, although in some cases we get cash from other foreign banks that would be liquid. It seems there is a group of Chinese [nationals] that are taking hard cash out of this economy, yet they bring in plastic money and finished goods into the country,” the source said.
Most Chinese shops have goods that cost between 10 cents going up and chances of getting more cash are higher than other companies.
“But the Chinese take hard cash to their country. One of the major manufacturing Chinese companies is banking small denomination notes and we are wondering whether their customers never use big dominations,” the source said.
The biggest source of liquidity for an economy is exports. Other sources include diaspora remittances, offshore credit lines, foreign direct investment inflows and portfolio investment inflows. All the sources have been underperforming.