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'Zimbabwe slowly but surely re-dollarising'

26 Jun 2020 at 07:39hrs | Views
GOVERNMENT last week announced a 50% increment and a Covid-19 allowance of US$75 for civil servants and US$30 for pensioners. This is despite government earlier banning the multi-currency regime and making the Zimbabwean dollar the sole legal tender through Statutory Instrument 142 of 2019.

The move by government is widely seen as an indication that the country is re-dollarising.

Zimbabwe Independent acting business editor Kudzai Kuwaza (KK) this week caught up with Employers' Confederation of Zimbabwe president Israel Murefu (IM) on dollarisation, the impact of Covid-19 and the ZW$18 billion stimulus package put in place by government to mitigate against the impact of the scourge, among other issues.

Below are excerpts of the interview:

KK: Government recently announced a United States dollar-denominated Covid-19 allowance for civil servants. Will this lead to payment of salaries in US dollars by business?
IM: As business we note the action and move by government to pay US dollar allowances as part of remuneration for its employees. This is commendable from a point of view that civil servants consume some services and products that businesses produce and this allowance boosts civil servants spending power and therefore the economy benefits from the circulation of that money.

The payment of US dollar salaries by business and employers is dependent upon the currency in which they generate their revenue. If the business is generating foreign currency denominated revenue then we encourage that it also pays salaries or part salaries in foreign currency.

Equally, when one goes to a shop they should be free to use the currency of their choice and not compelled to utilise one currency only. If the business is generating local currency revenue likewise it should pay in local currency because there is no market from which they will be able to buy foreign currency to pay salaries. No one should be compelled to pay in a particular currency as the circumstances of businesses differ.

However, government is not the first employer to pay remuneration or part thereof in foreign currency as a few players in the market were already doing it especially the extractive industries as well as other exporting businesses.

KK: With the rapid depreciation of the local currency. Does this, in your view, make dollarisation inevitable?
IM: I would think that de facto (as a matter of fact) what is happening is dollarisation, but de jure (as a matter of law) we are still in local currency. We are slowly but surely gravitating into dollarisation. The pronouncements by the authorities have always been paradoxical in that each time they move towards dollarising they deny it and as they intensify dollarisation manoeuvres they also vehemently deny it.

Well, seeing is believing. While the accounting currency remains the Zimbabwean dollar, the reality on the ground is that the US dollar is fast and surely becoming the transacting currency. Where it is not the transacting currency the pricing mechanism is premised on the US dollar and so that is still dollarisation.

What we observe on the ground is a gradual re-dollarising process and this seems to be gathering momentum by the day. I think what is slowing the dollarisation is the small amount of US dollar in circulation. Most of the US dollars are either stashed in bank FCAs or held by individuals in their houses as an asset of value preservation rather than a currency for transacting unless circumstances so dictate.

People will only transact in US dollar when it is absolutely necessary or when they see that it is cheaper to do so in that currency. With the continuous devaluation of the Zimbabwean dollar on the alternative market it is becoming more and more difficult to find enough Zimbabwean dollars to buy anything and so some who have access to US dollar are now transacting or purchasing in hard currency.

My view is that, as a nation, we are gravitating towards dollarisation and its probably a question of time before we see full dollarisation. Unconfirmed reports we are getting are that in some areas traders, particularly in the informal sector, are refusing either to accept the small denominations of Zimdollar notes and coins or transfers and opting for US dollar only. This, if true it could signal serious problems with the local currency.

KK: With the advent of Covid-19, what impact has it had on the revenue streams of companies?
IM: Covid-19 and the attendant lockdowns have had serious negative impact on businesses in that it disrupted the normal business flows, cycles, value chains, markets, suppliers, productions processes and destabilised the normal business environment. Some sectors were disrupted more than others, for example the hospitality, tourism and travel industries including the airlines were disrupted more than most businesses.

Surveys done by some of our associate business member organisations reveal that the level of disruption in some cases will need some external stimuli package or financial injection in order for the companies to be revived. With that disruption employment was also lost particularly for industries that traditionally employ seasonal workers or other fixed term contract employees. Most companies saw their sources of revenue dwindling or even disappearing and this means a lot has to be done to assist the recovery process or the coming back on stream of these industries or businesses.

KK: What has been the impact in as far as job losses are concerned?
IM: While I do not have statistical data reports of job losses, there are many and it will take a while for the same number of workers that were employed in the prelockdown era to be employed again, let alone to create more jobs.

Whilst many employers have done a lot to try and protect jobs in some cases the circumstances were such that job losses were inevitable and this applies to both the formal and the informal sectors. Job losses I believe are still happening now and will probably be seen in foreseeable future because of the magnitude of disruption to businesses in almost all sectors.

Some employees are still sitting at home waiting to be recalled and hopefully this will happen so that we do not see the unemployed increasing to unprecedented levels.

KK: In your view how and when should the current lockdown be lifted?
IM: We think that the lockdown should continue for as long as the pandemic is still increasing in terms of the number of infections. Currently, the graph is still going steep and only when it flattens or begins to significantly decline should the lockdown be lifted.

As the situation stands, I think it is important to maintain the lockdown but simultaneously allow more and more business to operate including the informal sector which is probably the biggest sector in this economy in terms of employment numbers.

Measures to protect both lives and livelihoods are necessary, meaning businesses must be allowed to operate so that we save jobs but the health and safety standards and measures to guard against the spread of the pandemic must remain in force for now until we begin to see what we are seeing in other countries in terms of progress in fighting the pandemic.

Once the pandemic is irreversibly on the decline, I think that will be the time to end official lockdowns. But as a nation, we should still be very alert and careful to avoid the risk of the pandemic coming back even assuming the lockdowns end because there is no known cure for the disease.

KK: You have had disagreements on the minimum wage in your negotiations with government and labour in the Tripartite Negotiating Forum (TNF). Have you found common ground on this issue?
IM: We have not yet found common ground in terms of the minimum wage policy and approach.

Our view which is unwavering is that minimum wages should be determined by national employment councils (NECs) in each sector as they are better placed to engage in collective bargaining than the TNF which is a broad negotiating and consultative platform.

TNF is a platform for social dialogue and not collective bargaining. TNF should not usurp the role of NECs, which are institutions that both employers and employees in almost every sector are funding through the injection of financial resources.

The NECs employ qualified people to manage and administer CBAs (collective bargaining agreements). We cannot render these institutions with all the arsenal of resources and skills they have redundant by allowing TNF to take their role. NECs know their sectors in and out. They know whether the sectors are doing well or not. They know the ins and outs of their sectors and therefore are best suited to negotiate minimum wages. The TNF and responsible authorities must allow them to play their role without interference.

The TNF must only provide broad policy guidelines in terms of labour market policies and direction and not descend into the arena. We hope the responsible authorities will take heed and allow NECs to play their role including the determination of minimum wages that are sectoral. NECs have served us well in terms of collective bargaining since free collective bargaining started in the early 1990s and why usurp their powers now?

KK: The Reserve Bank of Zimbabwe has this week introduced a forex auctioning system, ditching the fixed exchange rate to improve the availability of forex for business. What is your view to this?
IM: The auction system is not new. It was there before dollarisation in 2009. I think what determines the exchange rate or the price of the US dollar is a function of supply and demand. If the supply is low and the demand for foreign currency is high the price will go up.

I am not sure if the auction system will increase the supply of US dollars in the market and if it is we would need to be educated as to how it does that. If the amount of forex in the formal market does not increase against the already high demand, I think the exchange rate of the Zimbabwean dollar against the US dollar will continue to fall unless there is some intervention by the authorities to determine a price.

If someone today is prepared to buy US$1 at ZW$100 on the alternative market, why would they not come to the auction today and offer that price? What this tells us is that if free market forces are allowed to determine the exchange rate, then the official rate and the alternative market rates will converge.

However, if the auction system does not operate on the principle of free market forces, the official rate will remain lower than the alternative market rate in Zimbabwe dollar terms. What is required is the availability of forex so that everyone who needs foreign currency to import or pay foreign obligations can go to the auction or interbank market to buy it.

Unfortunately, demand is much higher than supply and so those that fail to get it will find an alternative market. What is required is for this economy to produce and therefore cut on imports. We are not producing enough and are not doing sufficient value addition so that we generate more forex from exports or minimise imports because we can produce on own.

Unfortunately, this brings us to a situation where the country has an insatiable appetite for foreign currency to import and consequently demand remains unfulfilled leading to a falling exchange rate. Production is required across the whole value chain from agriculture to manufacturing so that we import less and lessen the demand for forex.

We wait and see how the auction system will work but as to how it provides more foreign currency, I think it could be expecting too much. The foreign currency available if finite and therefore we need to reduce demand for it by import substitution and buying local.

KK: What in your view should be done to resuscitate the economy in the short to medium-term?
IM: I think as a result of the effect of Covid-19 we need a much bigger stimulus package than the ZW$18 billion (offered by government). Even that ZW$18 billion itself is not in the form of cash. A significant portion is in the form of guarantees which means the liquidity required to lend has to come from somewhere and presumably the banks.

The banks have their own risk management criteria which they may not be able to relax because their money comes from depositors and so they have to protect depositors' funds by applying good risk management criteria which some businesses may struggle to satisfy. I think we need much more concessionary funding to support bank lending to the business sector so that businesses may be able to recover. Without adequate resources to provide to businesses at low rates of interest, recovery will take painstakingly long to recover.

We also need industrial harmony and less disruptions to work as well as higher productivity for the economy in general to recover. We also need to improve our attractiveness to foreign direct investment if we are to lure foreign investors into the country so that this can help in boosting the economy.

KK: Will Emcoz hold its congress this year given the impact of Covid-19?
IM: We are planning on the premise that we will hold our congress this year yes, but we may have the majority of members participating virtually and probably only a handful attending physically as we have to comply with social distancing and other general health and safety requirements in line with prevailing lockdown related legislation.

KK: What progress has been made in the setting up of the National Productivity Institute?
IM: What is left is the operationalisation of the institute through a legislated Act of Parliament. The draft legislation has been circulated to social partners for input and as Emcoz we have made our input and suggestions on what should be contained or improved in the legislation or enabling act. We await the Ministry of Labour's input in terms of capturing our submissions and those of other social partners and for it to do what is necessary to ensure the act is promulgated through parliament.

An interim board of directors has been put in place and we have nominated three representatives who have now been appointed by the responsible Minister to sit on that board. The board needs the enabling legislation to be put in place so that it is empowered to execute its mandate.
While it has taken long for the enabling act to be put together, I believe the greater part of the work is now done and what we need is a bit of traction to see this coming to life.

Source - the independent
All articles and letters published on Bulawayo24 have been independently written by members of Bulawayo24's community. The views of users published on Bulawayo24 are therefore their own and do not necessarily represent the views of Bulawayo24. Bulawayo24 editors also reserve the right to edit or delete any and all comments received.

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