Comprehensive commentary for the RBZ 2015 Monetary Policy on a Financial Conundrum

The 2015 Monetary Policy statement came at a juncture were the economy is in much need of care. It is the moment were rhetoric, imaginative and unattainable policing is not welcome. Welcome, it is the fact that the RBZ decided to play in the indents in as much as its hands are untied. I have realized they touched on the most important issues to be addressed. Throughout the statement one would pick the emphasis on dealing with fundamental issues of the market before taking huge leaps to introduce technical and quantitative means. The most sticking moments about the past are the hurting ones but nostalgia keeps us on the fighting lane. I still believe in Zimbabwe and I really subscribe to the vision that there will always be found a solution to the economy if we take a closer look.

Like the governor has explicitly stated the Monetary policy has come at a time the nation is in need of solutions to address the intertwined challenges of uncompetitiveness, low productivity and lack of confidence (or war of negative perception) besetting the economy. Further to that he has highlighted the major causes of uncompetitiveness of local products as the higher costs of production emanating from high mark-ups to sustain high overheads epitomised by high utility tariffs, finance charges and wages and salaries which are higher than those obtaining in neighbouring countries and beyond. In addition the continued appreciation of the US$ against the country’s major trading partners’ currencies has made imports cheaper thereby making local goods uncompetitive. I believe the latter is the the major though and the former can be blanketed in it somehow. 

The monetary policy was on point in stating the problems that the economic is facing, the governer was no too optimistic neither was he persimistic on the future of the economy. He ordained the problems in a fashionable way that made me believe he is really aware of where we are and where we are going as a country not forgeting where we came from. On his solutions to the problems the governor has shown compassion but again he chose to be realistic. The situation in which the RBZ is into is enough to be called a dilemma because one can not expect a troubled institution to help another troubled organisation. The ability of RBZ to contain the economic situation can only be enhanced by taking the decision to solve the internal crisis of which the first initiative has been taken to restore the Interbank market. Then there comes another issue at hand and must be immediately addressed and that's the debt issue. I am of the opinion that the government assumes the debt and take RBZ off the burden to concentrate on more important issues for the revival. If we have to trace down on individuals who owe the RBZ i still believe the same can happen in the hands of the government.

Through the monetary policy statement the Government has also shown commitment to the multiple currency system which is said to be preserved up until the following economic fundamentals have reached acceptable and sustainable levels:

i. Minimum foreign exchange reserves equivalent to one (1) year of import cover;

ii. Government budget;

iii. Interest rates;

iv. Level of domestic business confidence (business sentiment);

v. Inflation rate;

vi. State of (and confidence in) the financial sector;

vii. Consumer confidence;

viii. Ability of wages to keep up with prices; and

ix. Health of the job market.

The reality of the national economy is that all the above economic fundamentals or indicators are weak to even contemplate the return of the local currency, they have said but I believe otherwise here. These signs are a reflection of the absence of the local currency which if it has to be introduced it has to be tactiful. It is not wise to bring back the local currency now i concurr but I believe methods and measures have to be taken to make the level field for it. We can not continously run away from the truth on this issue, Period.

The market outlook for the banking sector was very impressing, profitability in the sector has gone up and deposits are growing. The introduction of ZAMCO has also been welcome but much of the technical work still needs to be done and religiously some measures has to be implemented to curb moral hazard. Distresed banks are not much of a worry as the market is taking is realigning. It has been known and established for quite some time that the market was over banked and those are the signs of adjustment and only sound and efficient banks will beat the test of time.

However, on the Rehabilitation of the Manufacturing Sector the monetary policy failed to provide a soluble solution, DMAF is not such a good solution at this moment because of several reasons that has left some of the companies it wishes to repair irepairable. However, to this end welcome is the issue of Addressing Cost Drivers for Competitiveness. These cost drivers include, but not limited to, municipality tariffs, environmental management fees, and some non-tariff barriers. Such fees and/or tariffs increase the cost of doing business in Zimbabwe. 

Clearly this monetary policy was full of sentiments and it lacked on quantitative and technical ways of addressing economic problems. However, it is not bad as we are slowly moving towards that. The issue of bond coins is one of the steps taken but RBZ through this monetary policy has shown it has been incapacitated to deal with, Inflation rates, Interest rates and liquidity issues. I urge they keep on looking around on how best to deal with those issues. Finding a solution to them it is in my belief that we will have the economy solved and restored. Pleasing in this regard however, is that a number of local financial institutions have adjusted interest rates downwards to levels below 10% per annum for their performing customers in the productive sectors of the economy. Such development is greatly appreciated and should be intensified.

Candid about the monetary policy was evidenced by the calls to address market fundamentals of which it's a first good step to take.....Keep on the track Mr. Governor we believe in you!!

Open Letter to RBZ Governor

Dear Dr. Mangudya

Your address to journalists was on point and you articulated on most of the issues affecting the economy. You spoke so gloomy about the problems but the solution side left a lot to be desired especially in the wake and spiralling of the said problems which are continuously eating away our chances of stabilizing the economy let alone growing. Sir, you announced a salary freeze, not to my surprise because obviously you can’t increase salaries on a contracting economy. You called for investments in the three sectors you have named, maybe on this one you meant FDI if not such calls are doomed with cash strapped Zimbabweans. The only affordable business to many as it stands is importing and selling and yes that’s the cheapest thing to do. You also called for value addition of resources before exportation to balance BOP. Of note Sir, you also pointed out on the issue of the appreciating US$ which is proving to be a more expensive currency for the economy compared to our trading partners making imports cheaper in the process. On this I believe the short supply of the US$ is again exerting more pressure on the situation and it is in our watch as the situation deepens.

You made a good note of the problems sir, but the problems will always remain if we navigate the root of the problem. All these economic problems you have stated are not but signs of a chronic liquidity crisis that is growing day in day out. Maybe it’s because we have lost courage as a country to solve our problems but not to an extent of disillusioning ourselves in the pretext of a comfort zone that is non- existing. The major and main problem to the situation is the currency and only the currency I repeat. Finding a solution to the currency problems will see the situation remedying itself without further efforts. You cannot tell a lowly paid person to opt for a locally made expensive good. Yes local goods are expensive and you have mentioned it, it’s a currency problem. Yes we are lowly paid because there is no production in companies; they cannot produce where there is no demand. It also balances back on the currency problem. Companies are always crying if they could find cheaper lines of credit they would expand and with a borrowed currency obviously we cannot do anything. On this issue and for the second time, when asking for advise please go for people who have knowledge about the situation and stop asking fear-gripped people, they will obviously say no to our own currency but that is the only solution. Speaking of which, I am not ignoring the blackened past with our own past but I thought we had picked a lesson from it and this time we might do things the right way. One honourable thing I also continuously call for is to draw the lines between politics and economics at least for this case. How about establishing an Economic Intelligence Unit to carry out the task and you put some of our brightest minds in there to tackle the problem. I think this one works and I have the confidence. Looking at Germany today you won’t believe they once crippled like we have done

To take back the economy on track, I think this will definitely work and I am 100% confidence it will. Yes we need policy documents to support our vision and goals. We need a budget as a country. We have the budget; we have the ZimAsset which I barely read because of the following reason: It might have been the best of the policy document ever penned but without political will and financial capacity it doesn’t make any sense. And on financial capacity, if almost all government collections are going to paying salaries, for the people you have said not to be productive then we are just experimenting with the economy sir. I heard you vowed you won’t do so but you are already in it.

Sir, our economy misses our own currency period. http://263chat.com/open-letter-to-rbz-governor/

Francis Chinjekure

ZimDollar Return Plausible

February 2015 marks six years since we have adopted the muliti-currency system in Zimbabwe. The move was intended to curtail the hyperinflationary forces and the liquidity crisis that have haunted Zimbabwe for more than a decade. It's only four years remaining and we are about to close another decade without any substantial economic gains since we adopted the dollarization system. The much hyped 2011 11.9% GDP growth was not as enormous as it sounded in actual fact. For the record double digit economic growth is celebrated worldwide but in our case maybe we forgot we were counting from zero, and counting from zero any number can translate to bigger percentages. We were oblived to believe the economy was back on track, but the truth is the economy will only be back on track if we find the courage to reintroduce the Zimdollar (Period).

We can not deny that dollarization brought about some positive changes to the economy. Major gains were the ability to buttress the macroeconomic environment. Inflation has been reduced and at some instances in 2014 we went through negative inflation (Deflation). I have mastered the relationship between Inflation and Interest rates in my previous studies and experience and I have been surprised by the way interest rates became adamant to changes in Inflation in 2014. The forces of demand and supply are no longer applicable in Zimbabwe as a matter of fact, of which a market is a sphere in which those two forces takes influence for every good, commodity or service. You can not talk of a market without such forces.

The most insinuating thing is that the economy is on a free fall and it does not take the eyes of a rocket scientist to confirm that. In the news everyday and in social interactions you can tell no single person is even happy with the way our economy is perfoming and also no one would tell were we are heading with the mediocristy created over the years. It has come to my attention that, It's not like the government does not want to solve the economic crisis but they are faced with such an enormous and complex challenge that takes not reading the books or taking example from others but getting down with reality to be solved.

Of note, one thing that the Dollarization of the economy has succeeded is to make Zimbabwe a defunct market guided by survival principles instead of market principles. It has become very hard in such a market to instigate market growth or else to guide the market to expand or contract in quest of growth. Clearly in the process we have surrendered our powers as a country to have a say in our economic functionalities. We have been reduced to optimists and persimists in as far as our future is concerned and hope is our last line of defence. But for how long should we go both the government and the governed citing hope as that which will take us to better days.

Unless we return to the Zimdollar our economy is doomed.

Why has it become difficult to reintroduce the Zimdollar when it is the only solution to Zimbabwean woes

Zimdollar is the only solution and i repeat, but as long as the situation is handled by politicians we will never live to see it coming back mainly because the masses have some snake bite effect with it. politicians guns for the hearts of the populace so that they may be voted into power by the same people. So as a matter of fact confronted with a situation they would take a bad decision if it is in favour of the people and at the expense of the same people and generations to come just because those people had no knowledge how the other side of the story they have pressumed to be bad was going to solve the situation. We are taking advice from the wrong people on this matter. Why the hell should you be found in the street asking a grade seven dropout if they want Zimdollar back and because they have seen the dark side of it definitely they will say no. For the record if you are a politician and 99% of the people say no to Zimdollar you will definitely say no with them so that they will vote for you.

Therefore, once we find a way of separating politics and economics I am very sure an economic turnarround will be plausible. If this means offloading the monetary functionality from the RBZ and create an independent Economic Intelligence Unit to solve the situation then it is woryh considering to do it.

The only loud arguement I have heard so far on why not to reintroduce Zimdollar is people are afraid of the inflation and lose of value in the currency but I am sure even if this can be solved people will still hate it.

If you have any economic view on why we shall not bring Zimdollar back please I am very much available to hear your views and discuss on how best to handle the situation because I believe the is a solution to every situation.

Let's discuss
Twitter: @FrancChinjekure
Email: Fchinjex@gmail.com

The Love for My Country Zimbabwe & The Imaginations of it being an Economic Haven

The reason why the economy of Zimbabwe has stagnated in growth for the past few years after a boom in the years 2010-2012 is that the ugly forces of market liquidity crisis are now sprouting into life. The signs of the problems have been seen and ignored because of the much hyped boom which peeked at 11.9% growth in GDP recorded in 2012. Since then the country had an unprecedented fall in GDP beyond expectations of the government forcing the government to adjust their growth estimates not less than 2 times in 2013. The adjustments clearly have shown that we have been caught unaware in the midst of hyped but not worth a hype moment. 

The reason why 2010 has been a good year in our economy's history was because we had adopted multi-currency regime in the previous year. The decision was a good one in stabilising the once volatile monetary regime and the gain in GDP over the years was just a manifestation of the stability that has been brought henceforth. As an Analyst and economic instigator those years in which our GDP recorded some highs are the years I believe we have mishandled things to bring about some of the economic misharps we are experiencing in this day. We lost it in our own senses to believe that we had found a solution to the liquidity crisis of which we only had make the situation stable. Therefore, the growth gained as evidenced by the increase in GDP was just a stabilization gesture of which real growth was to be expected from 2013 going forwad if and only if we had strategized and planned for it.

Seriously, we have a very serious problem that is life threatening to the economy and is rearing ugly in our watch. We have a serious liquidity problem in Zimbabwe and if we don't find a solution today trust me we are doomed. In 2012 I made very similar calls in one of my articles( http://www.herald.co.zw/insight-into-zims-multiple-currency-liquidity-crunch/ ) and maybe it fell on deaf ears and in this day I am repeating the same calls due to the continous fall in our GDP levels and the distastefull environment our economy and industry are in. 

Some of the manifestations of the Ugly Liquidity Crunch

• Companies are downtooling and closing down
• Corporates are downsizing and retrenching
• Unemployment rates are ever-increasing
• The economy is on a freefall
• Capacity utilization continues to fall
• High interest rates and short term loans
• Emerging of non-perfoming loans
• Short tenor mortgage loans
• Depressed GDP values
• Falling living standards
• Poor service delivery
• Industrial output very depressed
• Non-payment of employees
• Disinvestment
• Property auctioning to repay debts
• Borrowing to repay debts or to pay employees

The bigger question is then, Shall we continously look on as the situation gets out of hand and maybe expect black magic to solve the problem

It seems the government is now waking to try and contain the situation, but let me hasten to say Bond coins are only a drop in the ocean and they will solve the Liquidity crisis maybe by 0.001%. 

Here are some of my suggested solutions to the problem

We need to separate economics from politics

 I have read some of the economic blueprints penned used by our policy-makers on issues related to the economy and I failed to fall in love with any of them because they sounded more like political blueprints instead. Unless we put a separation in those and chose a progressive way instead of populist ways then we will never get it with the economy. Zimbabwe needs a urgently an economic think tank dedicated to solving economic issues without political influence and affiliation.

Creating a new economy

 It is a fact that many of the companies that have not closed doors yet are operating in the negative with just a few being able to make profits in their operations. Trying to restore most of them in this cash strapped environment will take a light of years to accomplish. Take for example the government that is struggling to pay it's workers faced with a challenge to revitalize a company that has made a US$1 million loss in the previous year, had not paid salaries for the past six months, has a gearing of 2:1.7 and the company's management is further being investigated for a clandestine of fraud and that requires hiring some of the most expensive auditing companies. In that situation what would you chose given the other option of supporting entrepreneurs who have some small viable business to enhance their growth so that maybe at some point in time in the future they would buy the struggling company and revitalise it. 

Securitization of Resources

 Kinda lame a suggestion is to securitize our mineral resources. It's quite lame because we need first to establish our resource base to do that and it requires a lot of time and money. The most immediate action is the long overdue securitization of unpaid dues and to be paid dues to ZESA and also the securitization of non-perfoming loans which has been on the cards for quite a long time now. Prepaid meters for ZINWA are very necessary and provides more avenues for securitization. However, for such to be attained there is need to bring new and vibrant skills in those and all other organisations.

Identity

There is also need to restore our identity as a nation that has a culture and a strong standing for itself. A nation full of love, undivided and with a vision. We have to reclaim our status and be supportive of each other. We should at least buy Zimbabwean made products and support each other on this cause.

Restoration of Law and Order

There is need to make it a punishable crime for private and public office handlers to break codes of conduct or ethical behaviours within companies especially to churn out corruption and other corporate governance issues affecting the industry.

Finally,,,

Liquidity Crisis 

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We need to find a solution here.

Of RBZ Bond Coins......& my views and other people's in context

Well, Christmas is coming twice this year. Thanks to the RBZ Governer Dr. Mangudya for presenting earlier on the onset of this month that on the 18th of December the nation should brace to grace a solution to liquidity woes that had already mounted to the summit.

I understand the bond coins have been received with mixed feelings, and I also understand people subscribe to different opinions to every subject matter the above included. If there is something which I hate with passion is to encounter someone who critic things by taking sides. I do hate such conspiracies because I understand individuals who always do that are guided by dogmatism and whichever seems to be diverging from what they believe they then rule out as a fallacy. I love people who are analytical and they are those who approach every situation with indifference till they establish all facts for them to make a conclusion or thereof to make an assertion.
Before, I give my own view on the above matter let me share with you what Amelia Johnson had to gather on the same by quoting her full text.

Government Plans to Raid U.S. Dollars in Banks

By Amelia Johnson|
Now Daily|

The bankrupt Zimbabwean government of president Robert Mugabe has hatched a secret plan to raid the U.S. dollar accounts of citizens and give the owners worthless coins.

Central bank governor John Mangudya announced Friday that the ‘special bond coins’ would go into circulation on December 18.

What the governor did not tell the public, government insiders told Now Daily, is that on the same day, Mangudya will also announce that account holders will no longer be permitted to withdraw more than $200 at a time.

Mangudya claimed the coins would be a “good store for value”, a claim dismissed by economists as false.

“These coins will only be accepted as currency in Zimbabwe. Why would that be if the coins are at par with U.S. currency?” queried economist Phillip Maregere of FMG Capital in Johannesburg. “There is no law which says banks are under obligation to exchange the coins for U.S. dollars, or that the RBZ will immediately compensate the banks for their trouble. Mangudya may have sugar-coated bringing in the coins with good intentions, it may even look good on paper, but implementation will be problematic.”

Government sources said the Reserve Bank will create artificial shortages of U.S. dollars to make businesses accept the so-called ‘bond coins’ or centavos as some now call them.

“If you have any foreign currency in the bank, now is the time to take it all out, before the withdrawal limits are imposed. A lot of people are going to lose money in the banks when the accounts are frozen. This has happened before, when Gono slashed the zeroes and when Zimdollars were rendered worthless upon adoption of the multi-currency regime,” said a senior government source.

(c) 2014 Now Daily. All Rights Reserved.

 Allow me then to express my opinion on the ascertained views as substantially wrong mainly on the basis that, the coins as they are presented are not worthless as been said in the analysis. For such a long time it has been a norm here in Zimbabwe that due to shortage of coins we had an option that we can be issued with credit notes which I do equate to the same bond coins as not different in functionality.

Therefore, if it is tried and tested that the system works on a micro basis then it will also function the same on a macro basis and the coins will be able to carry the same value compared to the paper note we used to carry and somehow it had the potential to wear and deteriorate before you even used it. Let's take as an example that we have 500 supermarkets in Zimbabwe and each of them issues 50 credit notes a day on an average price of 15 cents, then it means monthly they are borrowing $112 500 without our knowledge. Now that our government through the RBZ is thinking of doing the same we then open eyes and say it's bad because we lack trust on it i bet.
Yeah,,, in terms of trust I sympathize and bear with you the people of Zimbabwe that yes the money has to be used on good, progressive and building oriented  platforms.
We should be busy now trying to advise our government on the best way to use the money in a way that the situation ever changes we should not be found in a precarious position. One thing I am very much against myself is to be told that the money was raised to pay salaries or to pay up government debt. Let me take this time again to share with you If I was part of the team propelling the programme, what I would suggest the money be used for. Firstly, maybe for the establishment of the State Sovereign Fund starting with the $10 000 000 would make some sense and invest in some of the risk proof investments in Zimbabwe and abroad. This will only keep the fund growing and more other ways of raising more capital will come. The other option is to restore the lender of last resort functionality of the RBZ and this would go a long way in solving liquidity challenges and I believe that's the major reason you issued the coins. Then my last shared opinion is to invest in startups by working hand in hand with incubators and accelerators or investing in some of the informal business that have a future and potential.
Let me also hail whoever who is behind the idea for taking the decision to start with only $10 000 000 I am sure this will give room to appraise the project as we go on.
Liquidity is a real issue we are facing as a nation and without finding new ways to inject fresh capital and at the same time managing currency risk we can not expand the economy...