By Jonathan Maphenduka
THE foreign currency auction announced by the Reserve Bank of Zimbabwe recently appears to have started on a high note, but there is a nagging fear that those favourable comments by observers may have sacrificed objectivity in order to give an impression that all was well with the auction and what it is expected to yield.
There is also some fear that their choice may have been designed to give a favourable impression. There is no shortage of well-known individuals in the field of economic affairs who might have been asked to give their impressions about the first two auctions.
The introduction of currency auctions as a means of stabilising the country’s beleaguered currency is a rare phenomenon in the economy. It remains to be seen therefore whether or not the auction will not prove a hit-or-miss strategy for a beleaguered economy in urgent need of stabilisation. In the face of what we now know about the purpose of the auction, it is difficult to avoid the conclusion that the auction’s hit-or-miss focus may fail to deliver desirable results.
This conclusion comes in the wake of the strong possibility that it will not deflate consumer prices in the face of spiralling fuel and food prices. The aim of the auction appears to be a design to enable fuel importers adequate and affordable access to foreign currency to avoid the crippling loss of man-hours in fuel queues in an economy which is already suffering from the effects of the unavoidable lockdown to counteract the growing fear of a threat to human life posed by the Covid-19 pandemic.
While disclosing three levels of expected offers from traders or buyers, Reserve Bank of Zimbabwe governor John Mangudya was careful to keep close to his chest details of the auction’s scope and what a successful auction should yield. During the first two days of the auction which has been hailed as a great success, the energy sector immediately announced a rise in the price of fuel.
How can this be justified while at the same the aim is to bring prices down, particularly those pertaining to food prices? Is the aim not to deflate rather than inflate commodity prices? If not, how then can the need to reduce the cost of procuring fuel be justified if the whole idea of the auction is not to push down consumer prices?
Zimbabweans are living with austerity and are in desperate need of relief. If the idea of an auction is not to halt the spiral in commodity prices, then what is the whole purpose for it? One element of problems with which the economy is faced is the supply of foreign currency in the parallel market. There is so much of it in that sphere one could purchase the right to own every inch of land in this country with the money. The problem is that this money market is elusive and cannot be tapped.
Government, however, has already failed to control its destabilising effect on the economy and must therefore live with it. One of the questions regarding the auction is the qualification of participants in the auction. Is there no danger that the auction can be used as a money-laundering facility? Most money (if not all of it) which potentially can be laundered can be found in private underground vaults and can easily be used to service the auction.
During the hyper-inflation days of the early 2000s it was found that new bank notes were already circulating in the parallel market two days before the Reserve Bank announced the issuing of the new denominations.
There is a question that occurs to an observer: What is it that we commonly call money or currency? Is it a piece of paper on which is printed a promise to tender it to buy goods or services? No. Money is confidence in a currency.
Let me give a rather radical example of what money is. If a miner cuts lithium stones into small pieces, the stones could be used as money if both the tenderer and the market have confidence in the value of the stone. The same principle applies to a timber merchant. He can cut wood to become a currency as long as there is public confidence in the value of the pieces of wood. But nothing can alter the principle of confidence in a currency. This is why gold undergirds currencies of the trading world.
The point I want to drive home is that the currency of Zimbabwe has lost public confidence and it remains to be seen how the Reserve Bank of Zimbabwe auction move can stabilise the currency.
For nine years I covered the Southern Africa Development Coordinating Committee (Sadcc) when Simba Makoni was secretary-general of the body. In those days the Botswana capital Gaborone was what I called the acacia capital. Except for the Sadcc headquarters, there was hardly any buildings in the capital and the acacia tree covered the terrain of the future metropolitan.
Then diamonds were discovered and set in motion an explosion of development and, with Botswana’s population of two million people, the per capita, earnings of Batswana shot to the sky as high-rise buildings replaced the acacia on the desert landscape and Botswana became an uncontested example of a well-managed economy in Africa. The country’s foreign currency reserves shot to the sky and the country could import all its food and other requirements without straining the reserves.
There is a trading phenomenon which has been spawned by the country’s inability to produce enough food for itself. It is operating under a cloak of online shopping, which in a self-sufficient economic situation can be a creator of new employment by providing delivering services. In Zimbabwe, however, it is wreaking havoc in both employment and the pressing need to alleviate food shortages and hunger.
It has been developed from the diaspora including South Africa and appears to be under-cutting supermarkets without at all fulfilling its intended service of providing staple food to the people. Whereas last December (when the craze started) US$100 purchased enough food to last an average family up to four months, the same amount cannot buy the same family enough to last a couple of weeks.
Four weeks ago, the rate of exchange between the US$ and its Zimbabwean equivalent stood at around Z$4 100 and was still declining against the US$. Last Monday the price of a loaf of bread was retailing @ Z$68 against Z$26 ten days earlier and the price is still rising and expected to hit the Z$100 mark before the end of June.
It is clear that the value of the US$ is not changing, but the Z$ is taking a heavy knock.
l Jonathan Maphenduka contact 263 772 332 404.