THE Confederation of Zimbabwe Industries (CZI) expects government to adopt a softer currency such as the South African rand next year or undertake an internal devaluation to boost local production and make exports more competitive.
BY VICTORIA MTOMBA
The use of a multicurrency regime means that Zimbabwe cannot devalue its currency to make exports competitive but instead reduce the cost of doing business.
In an interview with Standardbusiness, CZI president Busisa Moyo said the rand would allow the country to achieve cost efficiency in a lot of sectors such as tourism, mining and manufacturing.
“We expect the adoption by the private sector and government of a softer currency like the rand or an internal devaluation process using a currency. Exports depend on a low-cost base. This needs to start by converting the local cash transfers system RTGS [Real Time Gross Settlement System] and government departments to start accepting the rand as settlement for bills,” he said.
Moyo said use of the rand locally could be done without joining the Southern African Customs Union (Sacu) as the country was already in a multicurrency system.
He said in 2016 the most disappointing result from the manufacturing sector lobby group was the lack of consensus around adopting the rand as an operational currency or pegging the bond notes at 1:1 with the rand instead of the dollar.
The bond notes were introduced last month under the $200 million export incentive scheme to grow exports for the economy. To date, bond notes worth $29 million are in circulation.
“The country requires a softer currency to be export competitive across all sectors including tourism, mining and manufacturing. 75% of our exports go to South Africa, 40% of our imports are from South Africa and 80% of diaspora remittances are from South African companies. By using a currency like the dollar, we are defeated before we start,” he said.
Moyo said the country was 45 to 55% more expensive than its regional peers in terms of costs, according to reports by local think tank, the Zimbabwe Economic Policy Analysis Research Unit.
Economists say the adoption of the rand would reduce costs by 60%. Academics too have argued that adopting the rand was the better option for Zimbabwe as countries that had adopted the US$ were closer to the United States and could easily access the currency.
The call by CZI comes as central bank governor John Mangudya has said the country could not adopt the rand as it needed to have its own currency like other Sacu countries.
He, however, said the country was not ready to have its own currency at the moment.
Local economist Rongai Chizema said the country needed to set up a currency commission, which would be a team of experts assigned to look into Zimbabwe’s currency issues going forward.
Moyo said the cash situation had affected most businesses and slowed down growth and expansion, affecting both current production and the retooling agenda as companies could not import the necessary equipment to improve production and meet local demand.
“It probably is the most urgent issue facing the country at present and its full effects will be felt in the first quarter of 2017 before tobacco inflows begin,” he said.
Last week, Finance minister Patrick Chinamasa said there was no quick solution in sight for the cash crisis despite the introduction of the bond notes.
Industry and Commerce minister Mike Bimha said $600 million was invested in industrial production in the past five months after government introduced import restriction measures to reduce imports in the country.
He said new measures would be put in place by government and more success stories recorded in 2017.
Bimha said an estimated $340 million worth of investment was realised in the manufacturing sector and 30 investment proposals worth $91,2 million were approved by the Zimbabwe Investment Authority.
He said the cooking oil sector was at 90% capacity utilisation, yeast (85%) and biscuits (75%) while furniture and detergents industries were at 70% and 60% respectively.
Bimha said a $200 million investment had been made in the cement industry this year due to the support measures put in place by government.
Moyo said measures to curb imports should continue until a competitive currency and general cost regime was in place.
“Government should put minimum local content rules [60-75%]for all enterprises operating in Zimbabwe in favour of indigenisation. This will stimulate and incentivise productivity and entrepreneurship and partnerships within our borders,” he said.
In his 2017 budget presentation, Chinamasa said constraints faced by the manufacturing sector included antiquated equipment, lack of capital, low aggregate demand, liquidity, high costs of utilities and unfair competition from imports.
The sector is projected to register a modest growth of 0,3% in 2017. At its peak, the manufacturing sector’s contribution to Gross Domestic Product in 1980 was 22,1%. It dropped to 7,1% in 2008.
At its peak, the manufacturing sector used to contribute about 42% to export earnings, but as of 2010, the sector’s contribution to GDP and exports was 13% and 27% respectively.