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Harare Bureau

THE widespread prevalence of arbitrage opportunities may continue to threaten economic stability in the country, captains of industry say, calling for permanent solutions to address the primary drivers of challenges instead of legislating against them.

The Zimbabwe National Chamber of Commerce (ZNCC) said this in its submission paper to the monetary authorities and Treasury following a raft of policy measures announced by President Mnangagwa over the weekend to bring sanity in the economy.

ZNCC said the primary drivers to the existing arbitrage opportunities could be addressed through market liberalisation as well as improving policy quality and policy response measures to any emerging threats.

The business representative board said while the Government should be recommended for responding to the economic bloodbath unfolding in Zimbabwe, the downside was that the pronouncements by the Head of State sends the signal that the Reserve Bank of Zimbabwe was not autonomous.

In response to the policy pronouncement that the Government is convinced that the recent exchange rate movements are being driven by negative sentiments by economic agents as opposed to economic fundamental, the chamber of commerce said:

“Government is using short-term financing mechanisms to finance the Emergency Road Rehabilitation Programme, construction of dams and funding critical programmes like census and bi-elections.

“The Zimbabwean dollar being paid by the Government to the contractors is ending up chasing the greenback on the parallel market as they seek to preserve value. There is a hive of activity on the parallel market.”

ZNCC said the Government is presently the major holder of Zimbabwean dollar deposits and lack of strategic disbursements of those funds into the market has been catastrophic.

“The Government has ignored this reality. Therefore, the conclusion from the Government that negative economic sentiments not fundamentals are driving the economy is partially incorrect.

“The fundamentals such as money supply and foreign exchange management are misaligned and those are actually driving negative sentiments not blaming the adverse expectations,” it said.

On the restoration of lost value on bank deposits measures, ZNCC said the currency crisis had become vicious and such a scenario has eroded the economic agents’ savings, pension schemes, medical aid schemes and insurance covers.

Planning for the future has become a nightmare for businesses and economic agents are surrounded by an uncertain and unpredictable future.

“These issues are fundamental for business growth. The compensation of the losses of value on banking deposits to individuals is a welcome measure but it will not be enough to gain back the trust that has been lost and the credibility of Government’s policies.

“Companies would also need to be compensated for value loss; not only individuals and the debt burden to the Government would be unbearable. Taxpayers are being made to pay for ad hoc Government policies.”

Regarding the clearance of foreign currency backlog, ZNCC said the SMEs auction should be suspended and only have one auction market to serve all with a liberal approach. It said the existing forex auction system was mainly serving as a foreign currency allocation mechanism through the priority list, which is depriving other market players’ access to the price discovery platform.

“In the current setup, facilitating the participation of the majority of businesses on the auction is expected to enhance ownership and buy-in from all economic agents. “The players within the telecommunications sector are seeking acknowledgement from the bank to the reality that the internet is wholly imported and therefore, giving them more access to foreign currency on the auction system (in the current setup) is required.

“We also strongly urge the Bank to privately engage all errant business players who are abusing exchange control regulations in liaison with the chamber to instill market discipline and inspire confidence

“What the business community is concerned about is not the quantum of the rate of exchange, but stability in the exchange rate,” said ZNCC.

It said the re-introduction of the Interbank Foreign Exchange Market entails that Zimbabwe has three prices for the local currency as determined on the Foreign Exchange Auction System. On the continuation of the dual currency system, ZNCC said in line with the 2022 Monetary Policy Statement and in the current macro-economic sphere, there is insufficient foreign currency liquidity to support full dollarisation in Zimbabwe on one hand.

“From the chamber’s perspective, fast paced de-dollarisation is not ideal given the prevailing volatile exchange situation and wayward inflation rate on the other hand.

“We, therefore, commend the Government’s stance to continue with the dual currency system,” it said.

Regarding the continuation of revenue collection in foreign currency, ZNCC said there was a complete loss of faith in local currency, and economic agents were desperately getting rid of their Zimbabwean dollar the moment they earn it.

The business membership organisation reiterated the continued enhancement of the confidence building measures for the local currency.

It said the insistence to have duties and taxes be paid in foreign currency is testimony to the fact that the Government itself, the sole issuer of Zimbabwean currency notes and coins, does not have faith in local currency as well.

“The Government should not impose policies on the people; the masses can just choose to ignore them. “Thus, there must be a social contract between policymakers and the implementers through truthful social and formal dialogue before they are effected,” said the chamber of commerce.

The re-introduction of the Interbank Foreign Exchange Market entails that we now have three prices for the local currency as determined on the Foreign Exchange Auction System, the Interbank Forex Market and the Parallel Foreign Exchange Market.

On the review of the willing-buyer willing-seller limit policy, ZNCC said: “To be specific, what this policy measure has done is to lessen the number of times one has to go to the bank to reach US$10 000 per week and increased the weekly withdrawal limit by US$3 000 from US$7 000 to US$10 000.”

“Literally speaking, the withdrawal limit was at US$6 000 per week while withdrawing US$1 000 per day for 6 days as commercial banks do not open on Sundays. Quarterly Reserve Money Growth now at 0 percent from five percent per quarter.

“This entails that the Government has left no room at all for even a slight growth in reserve money supply, a huge statement with regards to controlling money supply growth,” said ZNCC.

The policy that domestic foreign currency transfers now attract an IMTT of 4 percent with firms and individual households are now required to transact mainly in local currency, the chamber of commerce said the four percent tax is huge and adds-up to the cost of doing business.

“This symbolises a fast-paced de-dollarization taking place. Any move towards full-scale de-dollarisation is ill-timed. The punitive tax regime in Zimbabwe is the major cause of the high level of informality in the economy,” it said.

Economic commentator Mr Victor Nyoni who is also the Association for Business in Zimbabwe chief executive officer said the measures pronounced by the President were a step in the right direction.

“The policy statement announced by the President is a step in the right direction in the context of de-dollarisation. We now need to shift to fully adopting the Zim dollar and going by statistics of foreign currency reserves that we read and hear about in the media, the country now has enough foreign currency reserves to sustain imports.

“The Zim dollar should now be allowed to trade freely against the US dollar,” he said. Mr Nyoni said the Government and business need to find each other and engage in addressing the challenges that affect economic growth. “For example, in the financial services sector where a policy has been announced that banks are no longer able to lend in foreign currency, I think that policy should be a temporary one as the Government undertakes and concludes whatever investigations they are carrying out,” he said.

Political Actors Dialogue (Polad) economic committee chairman Mr Trust Chikohora and ZNCC past president said it was imperative that the President had acted and issued a statement to try and stabilise the foreign currency market. “It is important that the President has issued a statement to try and stabilize the exchange rate so the fact that he has recognized this as the major issue of the moment. “It’s really welcome because that is what we have been calling for to say this matter must be dealt with as a matter of urgency as it is the biggest problem facing the Zimbabwe economy at the moment. A number of measures have been put in place including the compensation of those that had balances of US$1000 or less at the beginning of January 2019 which can help to give confidence in the banking sector.

“The fact that the inter-bank rate is effectively going to be the rate that is going to be used for pricing is also welcome because the interbank rate is more related to the market. It is determined by market players, so it will take us closer to reality,” he said.