2 August 2014

Zimbabwe: Rand Switch - No Industry Consensus On Dollar Option

Photo: Flickr
South African twenty rand note.

Industialists have also voiced concern about the adverse impact of the US dollar-dominated multi-currency regime but there is no agreement on whether or not the country should ditch the greenback and what to do after that.

Some company executives have proposed adopting the South African Rand, an option supported by some politicians who include former finance minister and now leader of the opposition leader, Tendai Biti, but there is no consensus in industry over that route.

Zimbabwe ditched its worthless local currency in 2009 in decision that won praise after it helped stop hyperinflation and ended a bitter decade-long recession.

But the country has struggled to move beyond the stability and marginal recovery of the coalition government era with some analysts warning that the economy was now heading back to the dark 2008 days.

Finance minister Patrick Chinamasa recently conceded that the US dollar had done "a lot of damage to our economy. It pitched our cost structure too high and unsustainable".

Even so, the minister however said he would stick with the multi-currency regime in the medium term.

Business executives also discussed the issue at the recent Confederation of Zimbabwe Industries (CZI) annual congress but there was no consensus on the way forward.

Former CZI president Joseph Kanyakanye said Zimbabwe should adopt the South African rand as the United States dollar was suffocating manufacturers due to its high value.

"We should adopt the rand as the only currency," he said.

"A six percent wage increase in USD terms and a six percent wage increase in rand terms are two totally different costs. This is why we are not competitive so the rand is what I am proposing," he said.

Nestle Zimbabwe managing director, Kumbirai Katsande, said South Africa would not allow Zimbabwe to join the rand union because of lack of consistency.

"The South African reserve bank has said no because they don't think we are responsible, that they can trust us or that we are disciplined," he said.

"They will be asking that you are independent, you are a sovereign state and how can you be part of us when we do not know what you are going to do tomorrow. We are on our own."

United Refineries chief executive Busisa Moyo agreed Zimbabwe should ditch the US dollar but not for the Rand.

"I am for a local currency, one that is backed by a resource, gold backed or platinum backed," said Moyo.

Other manufacturers felt that adopting a different currency while the country's "borders are still open" would still make industry uncompetitive. A new currency would need to be backed by a trade and industrial development policy, they said.

The permanent secretary in the industry and commerce ministry, Staneslous Mangoma, said the currency issue had also come under discussion in the region.

"Two weeks ago the Minister of Finance and Economic Development (Patrick Chinamasa) and the Minister of Industry and Commerce (Mike Bimha) were in Botswana discussing macro-economic convergence and in that debate the issue of currency was discussed," he said.

"But the region has not come up with an agreement on whether to use the rand but there's consensus that is emerging that we should not use the rand. A lot of countries in the region are not prepared to anchor their currencies on the rand."

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