Prof Welshman Ncube This Week - RBZ Governor transfers monetary headache to skeptical citizens

Dr John Mangudya is an eminently reasonable and sincere fellow. Passionate and intense about his country. I know this because I worked with him closely during my days as Minister of Industry and Commerce. However it is difficult to understand what demon has since possessed him given that he is one I would have vowed would be aware of the West African saying that, 'a child whose fingers have been burnt by touching a fire fears a fire'. The road that John has decided to tread on was well trodden by his predecessor at the Reserve bank Gideon Gono, who not only burnt his fingers but burned the bodies of virtually every citizen of this country. Our memories are painfully fresh of the consequences of the monetary and fiscal policies that wiped the savings, the pensions of Zimbabweans and hence it is shocking that John has decided ostrich style to unlearn the lessons of our recent history. That the cocktail of measures announced by John will lead to our collective ruin as a people is as certain as the fact that the sun will rise and set tomorrow.

The conflation of politics with monetary policy in Zimbabwe is nothing new, but when John looks corporate and private citizens straight in the eye, without flinching, and claims that printing 'bond notes' is good for them, one can only express shock. When I was heading the Industry and Commerce ministry in 2009, the country had just emerged from unprecedented and bruising economic experience. The economy was brain dead, battered by a combination of political patronage and history-making incompetence on the part of then Reserve Bank Governor of Zimbabwe (RBGZ) who had dedicated his career to diverting millions in foreign currency into ZANU PF political programs. In order to cover his tracks, the willy governor unleashed a torrent of worthless paper on the market which drove inflation figures to millions of percentage units. The 'agri bills' set Zimbabweans on an irreversible and accelerated course of obscene and abject poverty. The trend of economic self-immolation benefitted only ZANU PF's political cronies, extended President Robert Mugabe's disputed reign and made us the laughing stock of the financial world. After being rescued by the GNU, we are heading back again to the monetary abyss as Dr Mangudya re-introduces 'local currency' in another form – Bond Notes.

It is not even a year since the ZANU PF dominated Parliament frog-marched Zimbabweans into accepting a law to pay back a billion - dollar debt accumulated by Dr. Gideon Gono on behalf of that party. A week ago, Zimbabweans woke up to Mangudya's decree that he would introduce Bond Notes to mitigate Zimbabweans deteriorating liquidity situation. This triggered an avalanche of protests from all quarters, not least that President Mugabe had already 'confessed' that fifteen billion dollars' worth of diamonds had been spirited out of Zimbabwe. Ironically President Mugabe is himself one of the biggest exporters of the US dollar. Each time he travels out of the country, which is often, he uses up hundreds of thousands of dollars. And as usual it is the rest of us Zimbabweans who have to pay the price!

In a feeble attempt at pacifying angry Zimbabweans, Mangudya confronted stakeholders at a ZNCC breakfast meeting on Thursday with a message that they have to trust him because he could not deliberately lead Zimbabweans into another tailspin of hyper inflationary insanity. There was no doubting of Mangudya's sincerity when he repeatedly pleaded that the nation should trust him, but equally there can be no doubting that were we to trust him we would be doing so at the certainty of our own peril.

Our people have been hurt, plundered and savaged before by monetary policies concocted by individuals who advance the political cause as their core mandate. In all successful economies that I know, monetary trust is earned, not demanded. The RBGZ is blaming citizens for discarding the Rand and 'hiding' what he referred to as an over-valued United States Dollar from formal banking circulation. I do agree that we Zimbabweans never truly emerged from the 'currency burning mentality', however, the central bank boss was supposed to first engage stakeholders for consensus on how to re-gain their trust in a new monetary matrix. His colleague, Finance Minister Patrick Chinamasa embarked on a more 'civilised' course of engaging the international financial sector, which is why we ended up with the IMF's Staff Monitored Program (SMP). The dialogue and engagement that Mangudya referred to in his Thursday meeting was only a result of anger on the part of citizens.

His assertion that we are recklessly using the phrase 'liquidity crisis' to instigate a rebellion against his policies has no substance, because both individual citizens and companies are hamstrung by the lack of cash. Assuming he is right that bank queues are a natural result of month end pay-outs, how is it that when you eventually get to the teller, she 'tells' you that there is not enough money for a withdrawal? My point is that in order to deal with the cash shortages, we should not be emphasising dealing with the haemorrhage but encouraging more exports, import substitution and of course, turning Zimbabwe into a tourist and tax haven. Whatever conditions people are pursuing in Panama we should re-create them here to attract that money. Regaining our leadership position as a tourist destination and also ensuring that investments by foreign companies are safe will guarantee inflows of a reasonable stock of hard currency.

I also refer to investments because I watched with animated horror as our ZISCO Steel deal fell victim to political bickering, thereby jeopardizing the welfare of thousands of Redcliff citizens. Dr Mangudya has no capacity to stabilise the economy by promoting investments. That is a political problem. ZANU PF ministers are so contradictory that any one investor listening would wonder if they are from one country. Investment money follows the trail and scent of security and safety, not predatory bravado. Indigenisation laws in their current form will repel the most adventurous of all potential investors. Over relying on commodities like tobacco, gold, diamonds and platinum without value addition again is leaving us too exposed to volatile international commodity prices. Even with the best of all export incentives, as long as capacity utilization is stifled by high operating costs, our exports will never be competitive.

There are quarters that were, at the Thursday meeting, proposing anti-free trade tariffs in order to 'protect local industry'. My point can be better explained with the South African car industry. It is not possible to import a second hand car into South Africa because there is enough variety and financial support to back up local manufacture. That country has the right elevation in plant and equipment to manufacture latest models even for export. Their government does come in with export subsidies, but the industry has the depth to sustain local demand. If that country has a problem with the value of their rand, they do not change currency but tamper around with interest rates. Dr Mangudya mourned a lot about liberalization, but does it mean leaning towards authoritarian centrism will solve our problem? As one economist put it, over the past twenty years, Zimbabweans have been inundated with one form of control or another and nothing has prevented mischief. I am for a well-managed economy, not an obsession with control. Human innovation thrives in a free environment not stifled by primitive bureaucracy.

I have always intimated that the fact Zimbabwe has three million citizens in the Diaspora has very little to do with our 'education exchangeability' but bad governance at home. Nonetheless, the same conditions that attract foreign direct investment are more or less what incentivizes Diaspora remittances. My government would make them participate in governance, voting and think tanking, so that they use that umbilical connection as a conduit to invest back home.

I want to conclude that if RBZ was truly an independent institution immune from political influence, we would have faith even in their printing of money. The Zambian Kwacha and Mozambican Meticash at one time were almost as worthless as Gideon Gono's bearer cheques, but Zambians retained confidence in their use. A currency printing machine in the hands of a political governor becomes a weapon of mass monetary depreciation. Commercial banks in a functional economy have enough depth to manage their affairs with minimum supervision. For now, we will simply treat Bond Notes like Bearer cheques – with the contempt they deserve.