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Confederation of Zimbabwe Industries Is Right: It’s True Dollarisation Is Bad For Our Economy

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It is not a secret that I am not a fan of the current government’s economic policies and choices. I especially find it reprehensible that they continue to avoid solving the prevailing currency crisis choosing to focus instead on bizarre projects such as building a new capital city- talk about fiddling while Rome is burning.

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It seems they are just going to let fate decide to bring back the US dollar. I am however not convinced that us using the US dollar as our main currency is a good thing. I think it’s part of the reason why we are in this mess. Believe me I am not trying to absolve the government of any guilt. They certainly had a hand in landing us in the quagmire.

Businesses gravitating towards the US Dollar

According the CZI president,  Sifelani Jabangwe:

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We see more companies wanting to sell in US dollars, but the issue is that we don’t need dollarisation as an economy. The economy will shrink by as much as 50 percent if we dollarise so for me it is not the right way to go. We have seen it with US dollars in the past that we won’t be competitive when using the US dollar.

I am not sure about that 50% claim this guy is making. It seems like a made up number meant to make people pay attention. “Experts” do it all the time and it’s unlikely this is accurate. If anything any shrinkage will be a result of inflated GDP prices created by the bond note 1:1 exchange rate delusion the government likes to maintain.

I however totally agree that using the USD will make Zimbabwean goods expensive in the Southern African region where we have weak currencies such as the Rand, Metical, Namibian dollar ( pegged to the Rand) and the two Kwachas. Conversely it will make imports from these countries cheaper and with rampart smuggling ultimately destroy the very small industry that we have.

It is understandable that people are nostalgic about the short lived boom that we had  back between 2009-2013. After a hyper-inflationary period that saw people lose faith in their currency people took comfort in the very stable very widely accepted USD but apart from the fall of the GNU in 2013 something else happened to create the current liquidity crisis. The Rand, South Africa is our largest trading partners in the region, went on a slide.

YearUSD to Rand
20098.4440
20107.3324
20117.2702
20128.2206
20139.6588
201410.8605
201512.7721
201614.7129
201713.3209

Source Nedbank South Africa

The result South African imports became even cheaper and people started importing everything and I mean everything. I would go to Mbare and see people selling oranges from South Africa, potatoes from South Africa, clothes from South Africa, drinks from South Africa, rice from South Africa, chicken bits from South Africa, shoes from South Africa. Remember the Twizza craze?

South Africa already has a well developed industry that can make a lot of things cheaper than we can ever hope to, add to that the boost they got as their currency depreciated against the USD dollar and the Zimbabwean industry had no chance. By the time the government moved in to levy tariffs and ban certain items the damage had already been done and the industry never recovered. The fact that Robert Mugabe’s government was going ahead with confusing Indigenisation exercises did not help.

I know it’s difficult, but it is not impossible, to join the Rand Union but this is the reason why I have been an advocate of us taking that route. It will at least make sure that our local industry is not at a disadvantage merely because of exchange rates. The least the government could do is depreciate the bond a bit otherwise there is zero point in us having a local industry especially given the fact that the local population now has a taste for imported matches and whatnot!

Berate me, but the adopting the dollar is not going to change the fact that we consume more than we produce. It will see whatever little USD we have being vacuumed by our neighbours. It will not change the fact that we have an increasingly Command economy. It will certainly not improve our fortunes. I am afraid.


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16 thoughts on “Confederation of Zimbabwe Industries Is Right: It’s True Dollarisation Is Bad For Our Economy

  1. Well. i tend to agree with certain points you have made there. 1. Our economy will not largely grow in essence if we dollarise. However, our biggest problem, even if we remain with the bond or any other local currency that may be decided upon, is that our industry is dead. So no matter how much we may try to avoid all these issues of importing, they will still continue, and more evenly when the foreign currency is scarce

  2. Joining the Rand Union would be adding confusion to an already confused gvt. First bring back the dollar then consider the rand at a later date.

  3. IMO, either way the bond needs to go, sure the economy will shrink badly but afterwards the economy may begin to stabilize. The main problem i see with the bond notes is that they allow spending that is beyond someones means. With the state our economy is in there is no reason why we should be demanding so much fuel (diesel & petrol), its just all of us living beyond our means and one thing i know is that there is o such thing as a free lunch. Very likely it is the economy which is paying for it through the nose and it will never recover for as long we continue to bleed it the way we are and its the future we are eating. Sure USD is too powerful but and the Rand comes across as more attractive for our trade etc. So which ever way it goes i don’t want to see the bond even if it means shrinking the economy, even if it means i lose my job, i can’t drive my car etc, but at least the economy will direct me towards a more productive use of my time while retaining a currency that is stable and people have confidence in.

  4. Production for local and regional consumption is key. Economies of scale can diversify away currency disadvantage especially if we consider that Zimbabwe is closer to most other Southern Africa countries than SA. The lower transport cost and shorter delivery times can counter the exchange rate difference if well planned. Of course there is the issue of branding in the face of a de-faced country image. But there are ways around all this. Manufacturing under license of various good brands is an option. Attracting good brands to manufacture from Zimbabwe and giving them the requisite incentives is another possibility.. and the list goes on. Some ACTIVE EFFORT needs to be put it. Some WORK !!

  5. Keep it simple. Zimbabwe needs stops overcharging taxes, rates, rents, electricity, nec, manpower levies, expensive blended fuel and a host of other high costs such as banking charges to lower the cost of manufacturing. Then as adoption of the USD will benefit everyone.

  6. My heart wishes for USD but my brain knows it’s wrong…. We need to export but USD will make these extremely expensive… We also have another problem no one in this country would trust a bank… And people mainly want USD as a store of value… That’s it not because they going globe trotting out want to spend wantonly… There has to be a way to maintain value in investments in this place then the demand for USD will come down … One option would be for us to buy good with our USD so that would unlock liquidity and allow us a store of value…

  7. The issue at the moment is the 12 billion plus of worthless bond dollar treasury bills that the markets are holding and cannot just be converted to real USD or ZAR. I see zeroing of balances coming soon.

  8. I quite agree.
    I am talking as an industrialist and shut down because of the pricing distortions. We just could not compete with an import .
    Furthermore with the rampant smuggling and legal smuggling using sadc certificates there was no way in hell that we could be competitive.
    No recapitalization or economies of scale can make us that competitive where prices are 50% cheaper to import.
    This scenario got us to this point as there was plenty of goods but nobody left employed to buy these goods.
    Take for example cotton. We produce a good quality cotton lint but all farmers stopped producing because the world price of cotton was not enought to cover their costs.
    Yes industry is dead but will revive itself once the costing is viable where it is cheaper to make it local then to import.. This then creates employment and adds to the value chain.

    So yes, I do agree with the CZI president

  9. I think I 100% agree with you Garikai. Aside from all other issues which need to be fixed, the immediate solution is to join the Rand Union. The USD got us into the mess we are in, it did not help also that we had weird indigenization policies, a revenue collection system that is very porous, blatant corruption, etc. Dollarising will not help the economy. Never mind those that cry for return of USD, give children what they need, not what they cry for.

  10. Very stupid solutions!!! It doesn’t matter what currency we adopt, the government has bad economic policies that kill industry.

  11. My two cents is that Gvt should stop pretending that Bond is 1:1 with the US dollar and allow business to openly adopt a multi tier pricing system. What is killing the economy is not the Bond per se, but the artificial rate which created loopholes for manipulation. For example by keeping fuel at current prices Gvt is just subisidising black market dealers and pushing up the cost of production through man hours lost in fuel queues.

    1. The biggest problem is when they introduced the bond the pegged value was 1:1 so it’s were the headache is, who wants to loose. When you took my USD you gave me a bond at the same value so if you want me to abandon it you need to give it back at original value. Gov dsnt have 12B $ to replace. Zimbabwe problem is crooks who finance their party and living those printing fake money at Jongwe printers and buying real ones back door without having to work for it

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