Industry calls for devaluation

HARARE - Zimbabwe must facilitate for a devaluation process of the United States Dollar to lower basic commodity prices and improve the country’s export competitiveness, the Confederation of Zimbabwe Industries (CZI) has said.

In 2009, the country ditched its infamous local currency and adopted the multi-currency system, dominated by the United States dollar and South African rand.

However, the country is failing to compete with its regional peers on exports due to the strength of the United States dollar.

Addressing delegates at the Buy Zimbabwe Retailers Conference on Wednesday, CZI president Busisa Moyo said there was a pressing need of internal devaluation in the country because consumers were bearing the cost of overpricing.

“The US dollar has a lot of positives… but there are also negatives and the negatives are the process of dollarisation was not guided and we carried our Zimbabwe dollar paradigm into the new system.

“There are huge price differentials in the country because of this. That is why you see Zesa charging 14 cents or 12,5 cents for the cost of two. The landing cost for fuel is 60 cents but we all pay for diesel at $1,10, per litre” he said, adding that government had to take the initiative and address the situation.

Devaluation is an official lowering of the exchange value of a country’s currency relative to other currencies.

The CZI boss said that the United States dollar was grossly overvalued in Zimbabwe, hurting export competitiveness with exports remaining subdued against a huge import bill and urged government to undertake internal devaluation to promote competitiveness.

The greenback has appreciated by close to 45 percent against the South African rand in the past six years, making South African imports relatively cheaper in Zimbabwe.

Moyo also took a swipe at the recently-appointed Indigenisation minister, Patrick Zhuwao, saying the country’s empowerment laws needed to be “fixed as they were discouraging new players from entering the Zimbabwean market”

“There are also other policies that protect players and don’t allow other players to enter. Indigenisation, for example, is scary for whatever reason, but it is the elephant in the room. The minister does not like it that we say this but if something is a challenge it is a challenge,” he said, adding that the policy discouraged competitiveness.

Zimbabwe’s Indigenisation law compels foreign owned companies to cede majority shareholding to black Zimbabwean, and has been blamed for low investor confidence by market watchers.

“That process of competition we don’t have in Zimbabwe so we need another mechanism in the form of devaluation,” he said.

 

Comments (8)

I think we lack competitiveness due to the lack of vision of the business leaders. The day we have a pro business govt, a cmpetent business leadership and a shrinking corruption industry is the day zimbabwe begins to rise. I think devaluing of another country's currency requires a thesis so will wait for the thesis.

bornfree - 9 October 2015

let the law of economics do its part law of supply and demand

simz - 10 October 2015

Is this economic illiteracy or what? How does Zimbabwe devalue the currency of another nation, or he was misquoted?

Mbongeni Sakhe - 10 October 2015

Correct me if I am wrong but I thought Zimbabwe is under valuing the American dollar not over valuing it! If we were to give the dollar its true value then the cost of most goods should surely be lower. Take the case of fuel. Swaziland is selling 50 pp diesel for 11.25 Rands per litre, this is equivalent to approximately 0.82 cents per litre at current exchange rates. When I was home in August ordinary diesel at the cheapest service station in Harare was selling for 1.27 which is equivalent to 17.78 Rands per litre. I picked fuel deliberately because every product that ends up on the Zimbabwean market has a fuel cost at some stage or another. How then can we expect industry to compete when one of the key inputs is costing almost 60% more in Zimbabwe (Do the match with SA fuel costs and see how it comes out). Diesel is the driver of economic activity and that is why the clever Ian Smith had all kinds of subsidies on this fuel. Look at the cost of petrol in Zimbabwe and compare it to regional prices. Blend petrol does not go as far as unblanded petrol simply because per unit volume, ethanol is not packed with as much energy as pure petrol yet Zimbabwe is selling blend at par cost of unblanded petrol in the region. To make it worse blend has a downside to modern engine and fuel systems. The ZANU PF government has no clue what to do except stealing and violence. The government of Murgabage destroyed all the major sources of revenue and they find themselves in a very desperate situation and thus resort to exorbitant taxes and duties on things like fuel which is stupid because this simply feeds into the vicious cycle of economic decline. I am no economist but one does not need to be to decipher this is as stupid as a dog chasing its own tail. Mugabe has paper degrees which were donated to him while he was in prison but has no clue of economics. Zvino zvoti baba fake degrees, mai fake degrees, bva hameno mukore uno!

Bingo wokwaGutu - 10 October 2015

DEFINITION of 'Devaluation' A deliberate downward adjustment to the value of a country's currency, relative to another currency, group of currencies or standard. Devaluation is a monetary policy tool of countries that have a fixed exchange rate or semi-fixed exchange rate. It is often confused with depreciation, and is in contrast to revaluation. Devaluating a currency is decided by the government issuing the currency, and unlike depreciation, is not the result of non-governmental activities. One reason a country may devaluate its currency is to combat trade imbalances. Devaluation causes a country's exports to become less expensive, making them more competitive on the global market. This in turn means that imports are more expensive, making domestic consumers less likely to purchase them. While devaluating a currency can seem like an attractive option, it can have negative consequences. By making imports more expensive, it protects domestic industries who may then become less efficient without the pressure of competition. Higher exports relative to imports can also increase aggregate demand, which can lead to inflation. Granted the facts here above, how does Mr Moyo propose that we devalue the US dollar?

Farai Mtshaka - 10 October 2015

There is no way that Zimbabwe can influence the US Dollar, period, lets not even talk about it. The solution is actually quite simple, we should use the RAND as that will eliminate 90% of the currency problems that we have. In fact if it were possible, we should join SACU. Immediate use of the RAND would peg goods and services at a "fair" rate were we simply adopt South African standards and eliminate exchange rate problems. South Africa is our neighbor, the biggest economy in Africa and our biggest trading partner so our use of their currency protects Zimbabwe better against world economy volatility risks. Our economy has to move in tandem with the South African economy not against it because we cant win, ever. If a 2L of Coke in RSA is R15, then it would be R17 in Zim (factoring transport) not R30 (US$2xR15) as it is now and also automatically, we would also know what to pay a teacher, a solder, a nurse and so on. Right now an average house in Harare's northern suburbs is US$200000.00, ie R3000000.00, what nonsense is that? R3000000.00 buys you double that house in JHB's northern suburbs. We must swallow our pride and start taking practical and concrete steps to get ourselves out of Mugabe's mess.

Common Sense - 14 October 2015

I think root cause analysis was not estabilished by the writer. I quote the writer as saying 'However, the country is failing to compete with its regional peers on exports due to the strength of the United States dollar'. On the issue of exports, the government tried its best by protecting local industry through import limits and import duties. However, the local companies didn't take this opportunity to improve through economies of scale. 'The landing cost for fuel is 60 cents but we all pay for diesel at $1,10, per litreā€ he said, adding that government had to take the initiative and address the situation.' Did the writer took note of the taxation , running expenses and profit element? I dout .

King P - 16 October 2015

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