Cash crisis: understanding the story behind

money loss

Morris Mpala
BY and large when you have excess money you put it in a bank hoping to readily access it whenever you need it.

There is gnashing of teeth when one fails to access their cash, worse so for small players or little known individuals.

The year 2008 is still fresh in our minds and any relapse will be comatose to the economy including those that do not understand economics. Zimbabwe is still a cash economy and unfortunately without hard cash it means misery.

Facts are stubborn
The cash crisis is not the problem but a symptom of the real problem. A doctor is privileged in that he/she can prescribe isihaqa or anti-biotic if he/she cannot diagnose the actual disease.

Unfortunately in economics you need to diagnose to offer a precise, relevant and real time remedy. What we are experiencing now is a deep-seated challenge that needs solutions.

You cannot point to one thing on this crisis. It is a cocktail of wilful and unconscious actions that, if nor reversed, will serious damage and cripple confidence in banking. Once trust is lost it is not easy to mend it.

What’s causing cash crunch?
Illicit outflows. Authorities have complained about illicit cash outflows. Money is being taken out of the country’s borders and that depletes our cash reserves. Inflows are virtual entries not cash. Banks receive money through transfers and yet pay out using cash in most of their transactions, for example salaries, which are transitory in nature.

Cash smuggling
There is literal cash smuggling by small informal and big formal players for outside transactions. These transactions add no value to the economy.

Informal mineral resource transactions
Most of cash rich mineral resources such as gold, diamonds, platinum are just sold as primary products instead of expensive final products. This is selling at huge discounts and drains the financial resources. We also import very expensive finished products of the same primary products. Some of the mineral sales are done on the parallel/informal market with no trace of a cent to the treasury or banking.

Legal imports and illegal imports
Zimbabwe has a huge import bill that has widened the trade deficit. Legal importation drains cash and illegal importation deprives both cash and taxes to the detriment of the entire economy.

Low capacity utilisation
At average 34 percent capacity utilisation in the manufacturing sector, this in itself encourages imports as local goods and services are relatively expensive compared to regional and foreign goods. We cannot even fathom statistically significant export proceeds. The situation has been compounded by low foreign direct investment and subdued diaspora remittances.

No savings
With most transactions done in hard cash many people do not have the culture of savings at all. How can the economy function without reserves? I know it is difficult to but that is a requirement for a sound economy to lessen demand for cash. The government has also been mopping cash to cover expenditure through local funding.

Nostro accounts
Low balances in foreign based bank accounts for banking sector causes less importation of cash for use in Zimbabwe. This also affects international transactions due to lack of adequate funding by respective banks. With low exports and more imports it means we take more money outside the country and that spells disaster for the country especially in the absence of significant FDI. The government should also work on clearing its debts, both domestic and international.

Way forward
Chief on the to-do list is the ease of doing business, which would restore trust between the country and potential investors, the Diaspora, business, labour and full policy implementations. We need to plug leakages. It goes without saying and we have many ways as detailed by technocrats, experts and policy makers.

We need to revisit our production models from human capital, financial, retooling and have a change of mindset towards strategic production. Our businesses should go back to basics and we need to revitalise the agriculture sector. Without farming we have no economy to talk about.

We also need strategic partners as a country. We need foreign, regional and local economic partners as we move into uncharted territory. This entails having both expertise, financial and investments inflows. As such the country needs to enhance its international relations focus.

We cannot overemphasise the need to urgently embrace the use of plastic money. Let us encourage use of plastic money and strive to be cost effective.

Zimbabweans need lower transaction costs on money transfers to fully support the banking sector. Cost effective and reliable systems will bring financial inclusion. Real-time gross settlement systems usage must be made to be real time and cost effective too.

We need to level the playing field for local productive industries. Companies do not need protection but a fair, level playing field to compete with external players for great competition, which increases production and competitiveness for a better economy.

To attract money into the banking system we need to encourage deposits through rates increase and reducing transaction costs on deposited funds. We need to redevelop the culture of savings through attractive innovative banking products.

The banking sector needs to be strengthened through capitalisation and strategic partnership. Adherence to good corporate governance is always golden and we need to improve on this to achieve efficiency in our businesses.

Finally Zimbabweans need to have will power to tackle economic issues in a holistic manner with a sense of urgency. We need not trade blame on each other but action time as one economic unit with a single purpose.

None but us can free ourselves from economic ills and mental slavery. The time is now or never.

The biggest asset is our ubuntu where people think and have a culture that sustains Zimbabwe as an economy.

Morris Mpala is an economic analyst based in Bulawayo. He writes in his personal capacity and can be contacted on 0772256235 or [email protected]

You Might Also Like

Comments