Cash shortages stifle economic activity

HARARE - Zimbabwe’s liquidity constraints are now stifling economic activity, with  the impact of the currency shortage extending beyond everyday consumers and seeping into other sectors of the economy.

This comes as most service stations in Harare have run out of fuel amid a worsening economic crisis, and long queues have formed at the few outlets that are still selling it.

The few retailing the fuel are rejecting debit cards, preferring cash or mobile money.

So bad is the situation that the Reserve Bank of Zimbabwe (RBZ) has been forced to double weekly foreign currency allocation on fuel imports to $20 million.

Central bank governor John Mangudya claimed the fuel situation will return to normal soon in the wake of monetary authorities doubling weekly forex allocations for the commodity imports.

The Zimbabwe Energy Regulatory Authority (Zera) has claimed the shortage of fuel in Harare and other parts of the country has been caused by high demand of the commodity, which is putting pressure on prices.

Zera chief executive officer (CEO), Gloria Magombo, told our sister paper the Daily News last week that suppliers were finding it difficult to meet demand for fuel and this was contributing to panic buying and artificial shortages that are emerging throughout the country.

“The demand of fuel has increased significantly, also affecting supply demand balance since the coming in of the new dispensation with demand of petrol increasing by over 20 percent and that of diesel by over eight percent in Q1 (the first quarter of 2018) as compared to (the same period in) 2017 based on the consumption statistics captured by Zera,” said Magombo.

Meanwhile, the cash shortages have markedly worsened, with almost all banks stopping disbursing cash on ATMs.

A shortage of greenbacks has hit businesses hard, with many saying they are now critically short of forex for imports of goods and the raw materials to make products locally.

The latest Confederation of Zimbabwe Industries (CZI)’s composite Business Confidence Index (BCI) for the first quarter of 2018 stood at minus 14,4 for quarter-on-quarter basis and 20,9 for a year-on-year.

“What motivated this pessimistic result was that most manufacturers have been failing to get foreign currency for their operations to a point where their production has been greatly affected,” CZI president Sifelani Jabangwe was quoted in a local daily.

“Almost every manufacturer we surveyed complained that they were receiving little or no foreign currency so I would say it has been mainly due to foreign currency shortages.”

Since adopting a multi-currency regime in 2009, the US dollar has established seniority as the country’s preferred legal tender, but local banks have run out of hard currency as the government attempts to accrue forex in exchange for second-rate IOUs (i owe yous).

In 2016, Zimbabwe introduced “bond notes” which were meant to be on par with the US dollar, but have since managed to lose comparative value.

Currently, for every US$100 bill, Zimbabweans pay $127 in bond notes or $145 in Zimbabwe’s electronic currency known as “Zollars”, an arrangement which has come to be known as the three-tier pricing system.

The liquidity situation has escalated to such an extent that ATMs are empty and banks only allow customers to withdraw $20 in so-called bond notes a day.

This means people have become unproductive wasting their days away queuing in front of banks.

The impact of the currency shortage has not been limited to everyday consumers and has seeped into other sectors of the economy.

Local manufactures are unable to fulfil the most basic of functions. For example, earlier this month Zimbabwe’s biggest beer brewer, Delta Corporation, caused a media frenzy after announcing that it was running out of ingredients used in the manufacturing of alcoholic beverages and soft drinks.

The company said that it is unable to import concentrates and other ingredients that are required for its manufacturing lines due to complications in paying foreign suppliers.

Delta Corporation owes its suppliers in excess of $46m, which it is unable to pay.

The financial director Matts Valela recently stated that “We are currently sitting on a cash pile of more than $210m with approximately $60m belonging to our foreign shareholder in (the) form of dividends which we have not been able to repatriate.”

Consequently, reports have emerged of some companies starting to use Bitcoin to make international payments.

Naturally, more and more Zimbabweans have also started seeing the appeal of crypto-currencies as a practical work-around for the liquidity shortage. However, to this affect the Reserve Bank of Zimbabwe (RBZ) has ordered financial institutions to cease processing any virtual currency payments.

According to the circular signed by the RBZ registrar of banking institutions, Norman Mataruka, the central bank has said that it is taking these measures to protect the public and safeguard the integrity, safety, and soundness of the country’s financial system.

This means banks are prohibited from investing or trading in cryptocurrency, offering cryptocurrency exchanges and creating platforms for cryptocurrency trading.

They are also banned from allowing clients to use credit cards to buy cryptocurrency, and from advising customers on investing or trading in cryptocurrency.

The central bank has said cryptocurrencies were not legal tender in Zimbabwe and it was worried that they may be used in illegal activities such as money laundering or supporting terrorism.

The ban in the use of cryptocurrencies comes only a few days after Finance and Economic Planning minister Patrick Chinamasa announced Zimbabwe’s economy was now 96 percent cashless.

Under this regime, EcoCash, One Money, Telecash, Zipit, bank cards, credit cards, debit cards or Internet have become more and more prevalent and have taken the place of cash transactions.

Many have emphasised the seriousness of the situation, and the Zimbabwean unit of Standard Bank has stated that it would avail producers by covering up to 60 percent of their working capital needs.

The bank said that it is trying to help minimise company closures by providing funding support. Nedbank that also operates in the country offers similar facilities.

More recently, the British government has announced that it will extend a $100m loan — for the first time in over 20 years — towards Zimbabwe’s private sector.

According to Mangudya, this goes a long way in improving the competitiveness of local producers.

The UK’s Development Finance Institution (DFI) is coming onboard and will share the default risk on planned loans.

Nick Donohoe, the chief executive of the DFI, said that the organisation has been formulating a loan facility since President Emmerson Mnangagwa took office, but added that credit advances are intended for the private sector, and not in support of the presiding government.

Currently, the companies that are still operational only run at 20 percent capacity. “Without US dollars, businesses cannot pay for spare parts or inputs,” Donohoe said.

NKC African economics analyst Jee-A van der Linde said Zimbabwe’s lack of liquidity is a serious concern.

“It inhibits economic activity, which makes normal day-to-day tasks almost impossible for ordinary Zimbabweans and companies alike. It also creates a sombre risk-off environment,” Linde said.

“This liquidity shortage has grown into an imperative issue and recent funding and support facilities, although admirable, are mere drops in the proverbial bucket.”

In his Independence Day address, President Emmerson Mnangagwa claimed government was speeding up implementation of measures to resolve the shortage of cash in the economy.

Among the measures being taken to ease the cash crisis are the mobilisation of foreign finance from regional and international institutions, increasing foreign currency importation, opening up the economy to investment and increasing exports.

“We are well aware of the great hardships caused by the lack of availability of cash,” Mnangagwa said.

“This is a painful and poignant issue for so many individuals and families across the country and a problem we are working tirelessly to solve.”

MDC Alliance presidential candidate Nelson Chamisa has said Mnangagwa has no capacity to repair the damage done to the once-thriving economy over recent decades by his predecessor, adding politics matters in the economy.

He said in South Africa for example, banking stocks rallied more than eight percent and the rand firmed after Cyril Ramaphosa became the newly-elected leader of the ruling African National Congress (ANC), buoyed by optimism that he will push through policies aimed at putting the economy on a stronger footing.

Ramaphosa, a 65-year-old union leader turned businessman, is South Africa’s new leader after a no-confidence vote in Zuma.

“Ramaphosa, when he was announced president (of the ANC), the rand firmed by four percent. When president ED was announced president, prices skyrocketed, the market panicked,” Chamisa said.

Mnangagwa acknowledged to members of his ruling Zanu PF party at a December extra-ordinary congress that  they would have to start fixing the economy if they wanted a chance of winning the do-or-die vote.

“We will only win at the ballot box if we can show signs that we are reviving our economy and at the same time we will only be able to make economic gains if we can secure re-election,” Mnangagwa said.

The MDC Alliance presidential candidate has called on voters to rally behind him, saying he has the credentials to quickly turn the economy around.

“Even during the GNU (government of national unity), it took just a few days after Prime Minister (Morgan) Tsvangirai announced the government work programme for the whole market to smile and foreign capital started coming in, with the country oozing US dollars that were marching into our pockets and bank accounts,” Chamisa said.

After briefly stabilising under a 2009 to 2013 power-sharing government, when Mugabe was forced to work with the opposition, the economy has once again collapsed, with hard currency short, inflation rocketing, imports running out and bank queues lengthening.

The 40-year-old presidential candidate who is attracting thousands to his rallies, said the Zanu PF government has mismanaged the economy and unleashed hardship on the people, adding that retaining it in the mid-year elections would constitute a threat to the nation’s future.

As the economy continues to grapple with shortages of US dollars, Chamisa said an MDC Alliance government will end this crisis soon after taking office.

“In a new Zimbabwe, cash shortages and bank queues are going to evaporate immediately and overnight,” Chamisa said, adding it was possible for Zimbabwe to have the strongest currency in the world.

“We will prioritise the politics of business, not this useless and perennial, profitless business of politics. We talk more politics than we talk the economy, we talk more divisions than we must be talking about vision of a united Zimbabwe; too much sloganeering. We must debunk that misbegotten mindset.”

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