Since the President Emmerson Mnangagwa-led new dispensation took charge last November, long-suffering Zimbabweans feel the country’s economy has remained in the doldrums.
The cash crisis, which started during deposed president Robert Mugabe’s rule, has worsened, the illegal foreign currency market is flourishing, while Zimstats recently said Zimbabwe’s year-on-year inflation edged up to 2,71 percent in April, up from 2,68 percent in March 2018. And the struggling masses’ hopes have been dampened by the recent chaotic ruling Zanu-PF’s primaries, which, to them, is a bad omen for the looming 2018 general elections.
Daily News’ Managing Editor, Eric Chiriga, sat down deputy Finance minister Terrence Mukupe to discuss the issues. Below are excerpts of the interview.
Q: Since the new political dispensation last November, how has Zimbabwe’s economy fared? To the ordinary Zimbabwean, life has gotten even tougher, with prices of basic goods going up and inflation increasing by above two percent last month?
A: The economy has actually improved. What you have to realise is that the focus of the Mnangagwa presidency in these past few months has been around strengthening the institutions . . . structures of the institutions.
It’s about making sure that the environment becomes conducive. So you will find that, for instance the announcements in terms of the $11 billion worth of deals, you are not going to reap the benefits of those deals now. The benefits will be felt probably two to three years from now when they start contributing to the fiscus. A quick fix, quick solution is not going to happen. It’s going to be a process.
Q: But to the ordinary Zimbabwean out there, the quick fix starts with addressing basics like the cash shortage. They argue that the new leadership was supposed to immediately address the long-standing cash crisis. But up until today, even after the new dispensation’s much-hyped 100-day plan, there is still no money in the banks.
A: It goes to the source of the problem. The source of the problem is that we don’t have enough foreign currency. And the foreign currency issue is going to be fixed by two things; first we have to have free and fair and credible elections so that we stop being labelled a pariah State and we start having foreign currency coming in through credit lines. That can only happen after the elections. The second one is where the interventions that we are making . . . you have seen Afrexim Bank is giving us a $1,5 billion credit facility, then we have the tobacco season which has just kicked in . . . there is money which is coming from that.
There is also money from our gold. We have been able to unlock some funds out of that. This week alone I think we have released a record amount up to $500 million, which we have pumped into the market. Every importer that had applied for funds from the Reserve Bank (of Zimbabwe) (RBZ) has been given up to three or four times what they asked for.
But the issue is that with such things, you don’t feel the effects straight away. The money we have pumped into the market right now you might feel it three, four, five weeks from now. Then, you will see that things are actually improving in the banks.
Q: But as government, do you have the capacity to keep pumping in such amounts of money so that the market is saturated and there is no cash hoarding? The problem is once money is withdrawn from the formal system, it is never returned.
And the $400 million recently announced by RBZ governor John Mangudya that he said is going to be injected into circulation and help ease the cash shortages is said to be insufficient by experts. They say Zimbabwe needs no less than $900 million in circulation, at any given time, to avoid cash shortages.
A: The issue is not about the amount of money that’s in circulation. Our issue is that we don’t have foreign currency. It’s very easy for us to increase the amount of money that’s in circulation.
Right now we have about $350 million dollars in bonds (bond notes – a unique currency introduced by the RBZ in 2016 to ease cash shortages), it is very easy for us to increase that amount to $900 million, but guess what, it will have inflationary pressures, and what will also happen is that that money is all going to be eroded again by the foreign currency traders. So, it won’t fix the problem.
To fix the problem we have to fix the foreign currency situation. We need to make sure that companies’, which are the ones that fuel the parallel market, needs are attended to. We need to make sure that the money that they need for raw materials is available. And the only way around that is we have to create lines of credit.
That’s why the (RBZ) governor announced that we are getting $1,5 billion from Afrexim Bank in letters of credit, which are good in that they are not physical cash.
They force companies to trade, they force the companies to go out there and get machinery. It’s not hard cash. It’s another way of curbing the parallel market.
Q: Mnangagwa has said since the new dispensation, Zimbabwe has received investment commitments of up to $11 billion. But how much has actually been injected into the country? There is a difference between commitments and actual investments. In the past, during Mugabe’s time, Zimbabweans were told about many investment deals, including the mega Chinese deals, which never materialised.
A: What you have to take into consideration is that they are really mega deals and in all those transactions, the moment you announce them and when you actualise them, it takes a lot. And remember, when you say its $11 billion dollars, it does not mean you are getting $11 billion dollars cash.
For the most part, it’s an issue of whether you are getting equipment, infrastructural development. The physical cash that comes is up to about 20 percent. That’s what will end up circulating. For example the announcement of the construction of the new Parliament building in January, funds are only being released now . . . four, five months later. There is a gestation period. So, for that $11 billion, give it four to six months, then you start seeing things happening on the ground.
Q: Understood. But there is this concern that investors are merely committing because they remain jittery and fearful. The new dispensation has not yet won their lost trust and confidence, and the investors await the 2018 election outcome.
A: What was happening with the Chinese is they would announce the deals, but the deals would not get funded. The deals were not funded because we were in arrears. We were owing money. We defaulted on our guarantees.
I think you have noticed that before the president went to China, (Finance) minister (Patrick) Chinamasa went to the Chinese delegation with the governor and they negotiated repackaging the arrears that we had so that we could get credit lines again. And the repackaged arrears were announced when the president went to China . . . and they are going to start disbursements again.
It is almost the same problem that we had with India as well. India had announced several deals but we were in arrears again. And I am sure you have noticed that CDC in England has announced that they are going to pump $100 million dollars into Zimbabwe.
So, the problem that we had was around our arrears. Now we have managed to go around the issue of arrears. Right now, we are engaging everyone we owed money. We are restructuring the debt. There are entities in Europe that we never used to talk to, but we have decided to reengage.
Q: There is an argument that the new dispensation must scrap the bond notes and go the US dollar, multi-currency basket way, like we did during the Government of National Unity period, and that will eliminate the foreign currency parallel market and speculation.
In any case, the bond notes have significantly lost value against the greenback — they are no longer at par with the US dollar as the monetary authorities purport. Isn’t it ideal to scrap the bond notes?
A: When we did not have the bond notes and there was the multi-currency basket, there was still a parallel market between your RTGS balances and your US dollar on the street. There was also a parallel market between your RTGS dollars and offshore money. When the bond note came in there was a parallel market for RTGS and to US dollars. What you have to realise is this, what was the purpose of having the bond note? Has it served its purpose?
I would want to believe that the purpose it was set out for it has served it. But the problem is that if we are to grow as a country, we actually have to move away from the issue of bond notes, the issue of the multi-currency basket.
We must have our own currency. In essence, that bond note can be converted into our own currency. And we let it float. And the other thing that has to happen is where the central bank is basically fixing the bond note to the US dollar . . . that will have to go away. It should let the bond note or pseudo-Zimbabwean currency find its place . . . let the market determine. That’s what’s supposed to happen.
Q: That sounds like a long journey. And while we travel it, ordinary Zimbabweans will continue to suffer due to the parallel market that fuels speculation and drives basic goods prices up. I am sure you agree the bond note is no longer at par with the US dollar.
A: There is no need for it to be a long journey. Officially it is (bond note at par with US dollar), but when you look at the parallel market, it is not.
What should happen is this. We need to have a situation where . . . let’s go to elections, let’s have a normal economy, and a normal economy is sanctions go away.
Sanctions go away and we are able to get lines of credit . . . meaningful lines of credit support. Then we can scrap the bond note.
Then you can have a situation you can introduce your own currency. I will be shocked if we take two years without our own currency. Zimbabweans are ready for their own currency. People are yearning for it . . . they want their currency to come back.
Q: You recently won the Zanu-PF primaries in Harare East Constituency. But there have been allegations that you rigged the election. And to Zimbabweans, that allegation, among many others in the ruling party, dampened Zimbabweans’ hope for a free and fair 2018 election. What do you say about that?
A: I saw the piece that said that I rigged. What’s actually interesting is that if you were to go and talk to police that were in charge of elections in Greendale they will actually tell you that when I came to Greendale they were people who were bent on stopping elections there, and I had to come and make sure that people voted.
And what’s interesting is that we had over 800 people who had turned up to vote in Greendale and because of the skirmishes that ended up happening there were less than 200 people voting and I had over 99 percent of the vote. So then you heard stories that I took the ballot and ran away with the ballot.
How do I run away with a ballot in an area that is my stronghold? If I was to run away with a ballot I will do it in an area where I know I am weak. And as you saw with the results of the election, I think there were two polling stations out of the eight stations out of my constituency where I didn’t win.
And for those two polling stations, you will notice I did not even spend my time there. If I was bent on doing anything, I would have gone and made noise at those two polling stations which I knew the results were not going to be favourable. Everywhere else, I had over 70 percent of the vote.