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Liquidity crunch necessary to save Zim dollar – The Zimbabwe Mail

Prof. Gift Mugano

POLICY interventions by authorities to deal with resurgent inflation and currency depreciation have inadvertently put many businesses under the cosh, but the measures remain necessary to restore macro-economic stability, industry observers say.

A number of industry executives, including from the Confederation of Zimbabwe Industries (CZI), have expressed reservations on the impact of some of the interventions, especially the steep interest rate policy stance, which promoted a spike in bank lending rates.

The central bank, following a meeting of its Monetary Policy Committee earlier this year, hiked the bank policy rate to 200 percent from 80 percent, in an effort to stymie speculative borrowing amid then rapidly weakening domestic currency and rising inflation.

Zimbabwe’s annual inflation rate reached a post dollarisation high of 837,5 percent in July 2020, before plunging to a two-year low of 50,1 percent 12 months later, after the central bank introduced the foreign currency auction market to ensure structured exchange rate determination.

Amid the skyrocketing prices, Zimbabwe’s annual inflation rate quickened to 285 percent by August 2022, although this partly reflected the impact of the macro-economic dynamics of the recent past, given the monthly rate is now trending down.

After Zimbabwe reintroduced its local currency in February 2019, following a decade long hyperinflation induced hiatus, at $2,5/US$1 the domestic unit has depreciated considerably; and now exchanges at around $800/1 on the black market and $613/US$1 on the interbank market.

Notably, central banks across the world have raised interest rates to record levels to rein in raging inflation caused by tremors of disruptions to international trade after Russia launched a special military operation in neighbouring Ukraine.

Ukraine and Russia are major producers of commodities such as grain, fertiliser and oil and have been locked in a war since February 22, 2022, blocking crucial shipments and disrupting normal trade while the western Europe sanctions on Russia have sent energy prices soaring.

Zimbabwe has also seen tight liquidity conditions after the Government demanded that all line ministries, departments and agencies (MDAs) implement value for money audits to prevent overpricing in public contract invoicing.

This was seen as one of the major factors driving the flow of excess liquidity that upset the exchange rate and drove a run in inflation.

Zimbabwe National Chamber of Commerce chief executive officer, Takunda Mugaga, said the policy interventions by fiscal and monetary authorities to address problems in the economy were necessary, even though they had created new challenges for businesses.

“What we need to guard against is a spirit and culture of cry-babies,” Mugaga said.

“Honestly, for years I think our problems were clear. We had all been crying to say (excess) liquidity is causing challenges and in fact I want to compliment the central bank for doing that (hiking lending rates).

“This is what we wanted; unless people do not know what they are talking about. For me, the hope is that we continue maintaining a tight grip (on liquidity) into the last quarter of the year. People were used to cheap money; that is why they are crying.

“Conditions prevailing at the moment are quite commendable, those who are building a ‘cry-baby” kind of culture will end up losing credibility whenever they push the Government to act. Honestly, I do not see a challenge by that (hiking lending rates).”

Mugaga said dealing with excesses such as high inflation had standard instruments in economics, which explains why central banks across the world have hiked bank policy rates to decades long highs. “Go to Germany; the strongest economy in EU.

“They have the strongest currency; there’s nothing called a Deutschmark, they use the Euro, I am not telling you this from theory, I was in Germany, I came back three days ago, I was also monitoring the developments in that economy.”

Mugaga dismissed as baseless complaints that the tight liquidity situation had decimated aggregate demand, saying a volatile situation where demand is high while production is low, the case in Zimbabwe for many years, was not a sustainable situation.

He said if demand remained high while production was low “it builds inflationary pressures”, meaning there was no justifiable reason to “send out an SOS or cry out” for the Government to reverse its policy interventions.

“They (Germany) are posting trade surpluses, they are so efficient, while the exchange is (one) of the strongest in the world (but they have hiked interest rates). I think people are missing something here. This should be a wake-up call for us to measure ourselves to see where we are as an economy,” he said.

Economist, Professor Ashok Chakravati, who sits on the Monetary Policy Committee and also advises Finance and Economic Development Minister Mthuli Ncube, said the stringent fiscal and monetary policy measures were critical to contain inflation.

“Do not forget that there was a business community that was borrowing for speculation and arbitrage; in undisciplined ways. They were just using those borrowings to speculate on the currency market; so that (outcry) is not justified.

“Business must be done in a proper way not through speculation and arbitrage. So, now that speculation and arbitrage have come down; we have seen the impact of high interest rates and the parallel market and official exchange rate have almost converged,” he said.

Another economist, Professor Gift Mugano, however, differed saying that no business could borrow and make enough revenue and profits after borrowing at 200 percent, the lowest banks must lend in Zimbabwe dollars, in order to finance their operations.

“It is not sustainable; it is not profitable; it is not viable; it is not cost effective. In actual sense, it takes you out of business,” he said, adding that borrowing that cost could further fuel an inflation resurgence because the borrower has to “factor that in” the cost in the final price to customers.

“If you use the right business model; you can not pay back a loan on a 200 percent interest rate. The problem we have is inflation; we need to push inflation downward to guarantee a positive real interest rate, even at a lower (lending) rate”.

The problem also emnanted from the excess liquidity that found its way into the market after the Government settled overpriced public contract invoices who pegged prices using front loaded parallel market exchange rates.

But Professor Mugano said much as economic agents were wreaking havoc in the economy, the solution was not to drastically reduce or stop payment on public contract invoices, but to ensure competitive bidding for supplies to public entities.

He said suppliers to the Government charged extortionate prices by taking advantage of monopolies, “but if you bring in many players you have the luxury  to choose from those who are cost effective”.  Further, he said public entities should desist from using middlemen and buy straight from manufacturers.

“Honestly, if you buy from Mugano Holdings to supply dairy products; without bringing Dairbord and Nestle directly; you are looking for trouble; I will charge you a lot of money,” he said.

Prof Mugano also said the Government needed to push for a market led economy in agriculture.

“So, the commodity exchange becomes a vehicle for marketing and financing of agricultural commodities. The Government minimises involvement in funding commercial agriculture.

“The Government should only support vulnerable people through Pfumvudza and the Presidential Input Support Scheme; it is a common practice (globally), even in Malawi ‘’.

“I am not advocating for the Government to release money simply because people are crying; I am simply saying let’s fine tune these areas so that business takes place in a normal and market led way,” Prof Mugano said.

He said the Government must pay for supplies to public entities, but needed to keep an eye on the rate at which it pays (timeously), adding the authorities should also focus on making sure the parallel and official exchange rates converge.

“Because the reason why people are using the forward (exchange) rate is because the rates are not converging. Number 2, the Government is delaying to pay (suppliers); so the Government must also pay on time,” he said. – Business Weekly

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Zimbabwe’s sanctions a smokescreen – Bulawayo24 News

LAST week, the United States updated targeted sanctions against Zimbabwean individuals and entities responsible for committing grave human rights abuses, undermining democracy, or contributing to corruption on a massive scale.

The targeted sanctions regime, introduced in 2003, was intended to pressure and isolate those most responsible for political violence and the collapse of the Zimbabwean economy.

Policymakers hoped that establishing concrete disincentives for the worst excesses in the country would stem the tide of authoritarianism and kleptocracy, creating more space for the many Zimbabweans who wish to express their political views without reason to fear, and who support genuine democracy, accountability, and the rule of law.

Nearly two decades on, the sanctions regime has succeeded in inconveniencing some of the most odious actors in Zimbabwe.

But it has not stopped Zimbabwe’s seemingly endless descent into dictatorship and despair, in which a small circle of elites enrich themselves and protect their access to power while the rest of the country suffers.

At the same time, sanctions serve as a handy scapegoat for the elite, who often mischaracterise them as a blanket ban on trade and investment in Zimbabwe and assert that these restrictions, rather than their own mismanagement, are to blame for the country’s troubles.

The result is a disheartening stasis. The individuals and entities on the list continue their repression and self-dealing, offering neither justification for lifting restrictions that target them, nor hope that those restrictions will be sufficient to disincentivise further brutality.

Instead, as the 2023 elections draw closer in Zimbabwe, the situation in the country seems to be getting worse.

Opposition parliamentarians Job Sikhala and Godfrey Sithole are languishing in detention on dubious charges, while their family members find themselves targeted by security services.

Political activists have good reason to fear even worse treatment.

An eyebrow-raising report about the State’s recent harassment of visiting US congressional staffers suggests that the Zimbabwean authorities have no interest in even affecting a façade for outsiders.

They want the sanctions lifted, but also openly intend to continue down a path of violent, repressive, ultimately ruinous governance.

The sanctions have also become something of an irritant in Washington’s relations with other African nations and the issue was among the items on South African President Cyril Ramaphosa’s agenda during his bilateral meeting with US President Joe Biden last week.

Xenophobia is on the rise in South Africa and attempting to address upstream factors pushing migrants across the border makes sense.

But it is difficult to imagine that Ramaphosa or other southern African leaders really believe that Zimbabwe’s economy will recover due to a decision made in Washington.

Would Zimbabweans who fled their dysfunctional country wish to return if only leaders responsible for political violence could do business unencumbered by targeted sanctions?

Would Zimbabwe’s business climate have a positive reputation if only the entities siphoning off State resources were not on a sanctions list?

For too many African leaders, pretending to believe in these unlikely propositions is apparently far more comfortable than acknowledging the rot at the heart of the State, or their own role in enabling it.

All articles and letters published on Bulawayo24 have been independently written by members of Bulawayo24’s community. The views of users published on Bulawayo24 are therefore their own and do not necessarily represent the views of Bulawayo24. Bulawayo24 editors also reserve the right to edit or delete any and all comments received.

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Zimbabwe strikes gold in US – Bulawayo24 News

President Mnangagwa returned home triumphantly from the United States (US) yesterday where he received the backing of dozens of African countries for the unconditional removal of illegal sanctions imposed by Washington and other Western nations, while a group of investment fund managers is lining up multi-billion dollar projects for Zimbabwe.

The group of billionaires and fund managers from the US is expected mid-next month after being charmed by President Mnangagwa who outlined abundant opportunities in the country during an oversubscribed business indaba in the heartland of New York, the world trade and commercial hub.

The President, who was welcomed at Robert Gabriel Mugabe International Airport by Vice President Constantino Chiwenga, Cabinet ministers and service chiefs, said the support from other African states was heartening.

“This time around we had several heads of State from Africa, and in their statements to the United Nations General Assembly, they implored the United Nations to persuade America and Britain to lift sanctions. I think we had about 11 Heads of State who spoke about sanctions that were unjust and illegal and must be removed. So for the first time we had several Heads of State including the chairman of African Union, President Macky Sall of Senegal, and most of the presidents from Sadc made the statements and others from other regions, we are very happy with that,” President Mnangagwa said.

During the UN General Assembly, African countries, notably South Africa, Kenya, Senegal, Botswana, Namibia, Malawi, and continental bodies, Sadc and the AU, spoke strongly against the illegal sanctions that were imposed by the US and her allies at the turn of the millennium to punish Zimbabwe for daring to give land back to its rightful owners.

Apart from the politics, the President’s itinerary also included high-level business meetings with elite investors who now appreciate the true story of Zimbabwe, away from the exaggerations of Western capitals and their local puppets.

The President said billionaire investors and fund managers from the US were eyeing the country’s mining, agriculture, and ICT sectors and will arrive in the country on October 11.

“The group of investors, they were really big boys in the American economy, most of them are very anxious to come to Zimbabwe and invest. They run various funds and the biggest fund was a Mr Davies who runs a US$222 billion fund at his disposal which he wants to come to Zimbabwe with and invest. They were able to analyse the opportunities that are available here in Zimbabwe. I am so happy that a group of them may be coming on the 11th of next month to come and look at the opportunities available in the country both in agriculture, mining and some in ICT.

“We are very happy that there is huge interest in Zimbabwe by the American business community”.

CBZ chairman Mr Marc Holtzman, who facilitated the meeting between

President Mnangagwa, CEOs, company presidents and fund managers, said in his engagements there was a global appetite to do business with Zimbabwe.

“We have several highly important United States based investment fund managers coming to dinner with His Excellency. People in the room will represent billions in investment capital.

“There are people who are really inspired by President Mnangagwa and his Vision to transform Zimbabwe, his openness, opportunities in agriculture, and natural resources. It’s a wonderful occasion,” said Mr Holtzman.

Representatives of the multi-million dollar Mabetex Group, who also met President Mnangagwa, said the President’s “Zimbabwe is Open for Business” policy has piqued their interest and they will soon set up shop in Zimbabwe, to build conference centres, tourism facilities and houses.

In his address at UNGA 77 , President Mnangagwa called for the reform of global financial institutions that have fallen short in addressing challenges faced by developing countries such as climate change, Covid-19 and conflicts.

The President also outlined measures that have been implemented by Zimbabwe, such as massive infrastructure development projects which include dams, energy plants and roads that have broadened the national economic asset base as well as production and productivity enablers, while enhancing regional connectivity and integration.

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Fuel abuse rocks Zimbabwe municipalities – Bulawayo24 News

SEVERAL local authorities are failing to account for thousands of litres of fuel allocated and disbursed for specific projects in an exposé that confirms how corruption is now rife within councils.

Just like parastatals, local authorities have also become havens of corruption that have since been red flagged by Auditor-General Mildred Chiri in her latest report on municipalities and town offices across the country.

According to a report by Chiri on the financial year ended 31 December 2021 presented to Parliament this week, several local authorities have failed to avail books of account for auditing while others failed to account for resources, mainly fuel, given to them for specific projects.

Marondera was one of the many found wanting after failing to account for over
10 000 litres of both petrol and diesel.

“On fuel management, the Council maintained a register for liquid fuel where recipients were signing as an acknowledgement of collection. However, 3 783 litres of petrol and 6 896 litres of diesel were issued without being signed for in 2019,” Chiri said.

“As a result, I could not verify whether the fuel was collected and used for council business. The risk or implication is financial loss due to misappropriation,” the report added.

The Auditor-General recommended that issued fuel be signed for while the local authority management, in response, acknowledged the observation and attributed the lapses in control to a staff shortage in the stores section.

In Bindura, the local authority is struggling to account for fuel meant for the Zimbabwe National Roads Authority (Zinara) projects amounting to 1 054 litres for other council business.

“However, I was not availed with reconciliations or evidence of reimbursement of the fuel. The risk or implication is poor service delivery due to shortage of fuel.

“Council should ensure that fuel is used for the intended purpose,” Chiri said. In its response, council management said a reconciliation of the Zinara fuel usage will be conducted and a reimbursement will be made.

It also emerged the local authority used devolution fuel for its administration purposes and did not maintain a register, exposing the fuel to abuse.

“Devolution funds are meant to spearhead development in communities and as such the council is required to maintain separate records to ensure accountability.”

At least 8 109 litres meant for road maintenance were purchased  using devolution funds, with Chiri insisting there was a risk  of misappropriation of fuel.

He said there was also a risk of failure to meet devolution targets.

In its response, the local authority’s management said the fuel purchased using devolution funds was meant for road maintenance.

“A fuel reconciliation will be done and the fuel meant for devolution used for other administration functions will be reimbursed and redirected towards service delivery.”

In Redcliff in the Midlands province, the local authority has a murky fuel disbursement plan manned by an individual and Chiri said this was subject to manipulation and thousands of litres could be lost in the process.

“There was no segregation of duties as the procurement officer was responsible on the procurement and distribution of fuel. Fuel was distributed through the Trek card system which was administered by a procurement officer. The procurement officer had the rights to move fuel from one card to the other without the cardholder’s knowledge,” Chiri said.

She said the risk of this is financial loss due to fraud and recommended that the procurement and management of fuel be performed by separate individuals.

In Mwenezi, Chiri said the local authority was processing fuel benefits for heads of department outside the payroll and therefore not subjected to tax.

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