Against economic challenges of the past few years, Zimbabwe enters 2016 with focus on transforming the economic environment. On top of that, Government is working on a raft of measures to help business delegations which are visiting the country in search of investment opportunities. Our senior reporter Lloyd Gumbo (LG) speaks to Reserve Bank of Zimbabwe Governor, Dr John Mangudya (JM), about these and other issues.
LG: Governor what is the economic outlook for 2016? We are coming from a year where the main topic were economic challenges?
JM: As you are aware, we will be presenting our monetary statement at the end of this month. What I can tell you is that from the outset as far as I am concerned, this year, as I have said many times, should be a transformative year. We need economic transformation, social transformation and those two will help to increase the welfare of the people of Zimbabwe.
We need to transform usage of foreign exchange, because I do believe a number of people in this economy and economic agents are using foreign currency inefficiently. So we need to transform that. For economic transformation, we need to talk about investment climate. We are happy that Government has now put in place what we believe to be clear frameworks on indigenisation.
So there are many areas to transform and I feel the time to do it is now because I think Zimbabweans now understand where we are coming from and where we are going. After dollarisation in 2009, people were full of short-termism. People wanted to say we are an arbitrage economy. But now people know that the multiple currency system is here to stay and therefore we need to behave within the multiple currency system. This is why we are always talking about discipline.
LG: Talking about discipline, if we look at the trade deficit now, we seem to be spending more on consumables and things that will not grow the economy. How do you intend to transform that area in terms of expenditure?
JM: When I talk about transformation it is not only the Reserve Bank that we need to transform. We are only an agent to cause transformation. What it means is that Zimbabweans need to transform themselves from micro to macro businesses.
We need to transform ourselves from being retailers to being producers. The reason why we are importing more than we are exporting is because of the short-termism approach. People want to buy somebody’s finished product and resell it.
So we now need to increase production. The missing link in Zimbabwe is production. We need to produce goods and services so that our shops are full of Zimbabwean products. The Buy Zimbabwe campaign starts with production.
Once we produce goods as opposed to importing them, people will buy. We also need to produce goods at a competitive price. We talk about production, if your production is high it means there will be lower costs. You are going to spread your costs because of economies of scale.
If you are in the United States for example, where the dollar is printed, their mark ups are low, their interest rates are low.
But here in Zimbabwe where we don’t print our own currency, the prices are very high and the mark ups are high, including the interests rates. It is that which we need to transform. So it’s not just us who need to transform, we are saying to the Zimbabwean business community, to Zimbabwean consumers, let’s change the way we are doing business. Transformation is beyond reform and the time to do it is now.
LG: But the biggest challenge is South Africa, which is our biggest trading partner. Because of their falling Rand against the US dollar, people and businesses prefer to import finished products from South Africa and re-sell them here because it’s cheaper. How can we balance that?
JM: I think I have said this many times that we should also look at the depression of the Rand as a benefit to us. Because if you have transformed your mindset, it means you are going to be able to import capital goods from South Africa at a cheaper price and invest in Zimbabwe and also produce at a lower cost.
So I am saying this might be the time for Zimbabweans to import capital goods or raw materials from South Africa at a cheaper price and then utilise them here to turn around the economy.
Yes, people are always going to import, but the question is what are they importing? We need to take stock of that. If they are importing tomatoes, I am saying that there are tomatoes in Mutoko. We need to do an analysis, do we import more raw materials and finished products or do we import raw materials and capital goods?
If it is capital goods and raw materials, then it means the depression of currency is to our benefit and therefore it means we need to utilise it to our benefit. But if it is more of products such as madhorofiya (prickle pear) from South Africa, those are things we can grow here. We need to transform both the mind-set, economic and social transformation.
Transformation is change, fundamental change of the economy and we are there to help that process and we have said to ourselves we need to see it through.
LG: Debt has been an albatross to economic revival. A deal was struck in Lima on a clearance strategy. Now we are about three months from the deadline. How far have you gone with mobilising the funds or addressing the issue?
JM: That is not the issue. The issue is that, yes we are now in January, and we promised the nation and the people and the creditors that we will clear the arrears between April and June this year, but there are other things that need to be done before that clearance.
You are aware that Zimbabwe is in the International Monetary Fund Staff Monitored Programme, which is basically targets which we have set for ourselves that are monitored. Those targets were for end of December and we are verifying on the performance of those targets.
The IMF will be in town at the end of February and beginning of March to see whether those targets we have set for ourselves are achievable.
It is only after the review that we then go into a financing programme with the IMF. Once we are in the financing programme that is when the funding or the arrears will be cleared. You can’t clear the arrears before the review of the SMP because the SMP is more like a barometer measuring Zimbabwe’s performance which will now give impetus to the rest of the institutions — IMF, World Bank and AfDB to support us.
So you don’t go and pay them. Even if today we have got the money we can’t pay them until that process is done.
LG: But would you say we are on track?
JM: Yes, we are on track. The other measure that I am talking about runs outside our control, but those ones which are within our control, which is basically putting aside the money and looking for funding, that’s our job as the central bank. So we are on track.
LG: There was an outcry about the yuan. I am sure the way people received the message about the yuan is not what Government meant. What is the position on the Chinese yuan?
JM: Let’s put it into context and correctly. What happened was that some people on social media sent a wrong message, it did not come from Government. The social media was saying that Government was going to change or exchange dollars for the yuan and therefore it was advising people to withdraw their money before it had been converted to yuan.
That is not Government’s position. Government’s position is very simple and straightforward. We are saying within the batch of currencies, the multi-currency system in Zimbabwe which you want to call dollarisation, dollarisation means when you don’t use your own currency, so in the multiple currency system in Zimbabwe, we have got nine currencies in the basket of which the yuan is one of them. The US dollar is also there, the British pound, the euro, the Japanese yen, the Australian dollar, the rand, the Botswana pula, they are all there. So what we are saying as Government is that, we have noticed that whilst the rand is being utilised in Zimbabwe because it is already being used in South Africa and the demand in Zimbabwe is high. Why the US dollar is being utilised it is because it is an international reserve currency.
Why the euro is also being used in Zimbabwe is because when you are conducting business you can pay in euro. We wanted to see how best we could promote the Yuan within the basket of currencies because there is plenty of trade between Zimbabwe and China.
If you look at tobacco, most of it goes to China, if you look at most of the capital which is being imported, it comes from China, if you look at all these telecommunications companies, all the equipment comes from China.
Zimbabwe right now has zero trade in Chinese yuan yet we import goods from there. We spoke about the rand going down, but people are using it. If you go to Bulawayo or go to Matabeleland people just cross the Limpopo to purchase in rands and they bring their goods.
But we don’t have a similar thing with China and that’s what Government was talking about, how we can promote use of the yuan within the multiple currency system. Then it was taken out of context.
There are people who are in this economy who always want to cause panic and discord in the economy. Those are the people who are dangerous. So when we say this is a year of transformation, it is not just the economy but also the mindsets. We are Zimbabweans, we owe it to ourselves and we need to work really hard for the economy.
Some people are now saying we are doing it because we were given a grant of $40 million. That’s not true. That propaganda of economics, we don’t want it. Some of us are not politicians, we are bankers and we worry about the economy when the economy is not doing well. It pains me when people lie about things that are so fundamental. It shows that people don’t understand and we should pray for these people to understand so that they transform and think positively about this economy. This economy needs Zimbabweans who are mature, serious and disciplined.
LG: The financial services sector plays a critical role in any economic transformation. Would you say the banking sector is stable?
JM: In my monetary statement of 2015, I said we are going beyond stabilisation. What I meant is that the banking sector is now stable and has remained so because we have put in place a number of policy measures. In a normal economy, we use monetary policy tools like printing of money. But because here we use a multiple currency system, which is the new economy, it means we need to create our own tools used as new monetary policy tools, so you talk about your AFTRADES (African Export Import Bank Trade Debt Backed Securities), you talk about ZAMCO (Zimbabwe Asset Management Corporation).
So what these instruments have managed to do is to stabilise the financial services sector. We now need to move beyond stability, which means production, which means transformation. We can’t continue being stable. It’s just like if one is a patient, and people say you are stable every day, but we want improvement. So we are saying let’s move beyond stabilisation to improvement of the economy. As you have said, banks are supposed to be the fuel that transforms the economy. If banks fail then the economy will also fail. So we are saying the banks are the impetus which drives the economy.
That is why we have these guidelines on interest rates. The idea is the interest rates must go down so that the cost of doing business is lower, so that the economy can expand. We want quick wins which are our low hanging fruits. So we now need directed funding to those areas that the banks will have identified.
LG: But the interest rates are still high compared to other countries in the region.
JM: Yes, l already said so even here, that if you look at Zimbabwe there are high mark-ups, high interest rates. If you compare where the money comes from, it’s cheaper than that. I also know the reason, it’s because of cost of funding. Where the banks get the money from they get it at high premium because of high country risk. That is because of our economic conditions and perceptions.
That perception translates into a higher cost of funding. So we are saying let’s work as a team, as team Zimbabwe, to ensure we reduce country risk elements that see in us in this. Let’s rectify all these areas. Let’s do what the people who want to invest in us are saying, even local investors. But going forward, we are saying yes, interest rates need to continue to be reviewed to ensure that we provide a good product to the business community. But overall people also need to have a culture of repaying.
LG: The major reason some banks collapsed was because officials abused depositors’ money. What mechanisms have you put in place to ensure that doesn’t happen again?
JM: We are quite happy now that the Banking Amendment Bill has passed through Parliament. It is these amendments that are going to deal with all these delinquencies whereby directors who abuse people’s funds it becomes criminal offence.
It talks about governance of banks and shareholding and all those things. So yes, the Bill is now there. It was approved by the Parliament. What is left now is for it to be implemented.
We have dealt with it decisively to improve governance in banking. We now have teeth to deal with the matter.
LG: The major reason some banks collapsed was because officials abused depositors’ money. What mechanisms have you put in place to ensure that doesn’t happen?
JM: We are quite happy now that the Banking Amendment Bill passed through Parliament. It is these amendments that are going to deal with all these delinquencies whereby directors who abuse people’s funds it becomes criminal offence.
It talks about governance of banks and shareholding and all those things. So yes, the Bill is now there it was approved by the Parliament. What is left now is for it to be implemented.
We have dealt with it decisively to improve proper governance in banking. Therefore that is the thing of the past. We now have teeth to deal with the matter.
LG: We have had so many delegations coming here and expressing interest to invest in Zimbabwe. But when are we going to see those expressions of interests coming to fruition, with something practical happening on the ground?
JM: I think something is happening. I think as Zimbabweans, we now need to have something called self-pride. I think it’s missing in our DNA. Maybe in mine it is there because I’m very optimistic. Therefore maybe I see things more positively than others, so when others see drizzle, I see rain, when they see a canal, I see a river.
Yes, delegations have come to Zimbabwe and we have seen investment taking place. You talk of Blue Ribbons, Cairns Holdings, Surface, they have invested here and the companies are now operational. These are moving. You should not expect a quantum leap of investment in a dollarised economy. With the US dollar, we need real planning because it is not easy to come by. We need to earn it not to print it and therefore because of that reason, to some people, the pace might be slower to them, but some of us, maybe because we are in an apex position, we see that investment is coming into this country. Investment is not an overnight phenomenon. You take some time, you do your feasibility study, analyse and invest. We are quite happy with all these people who have come in, it has been very fast.
I think the economy is changing but maybe the rate of change is what people are complaining about. We sympathise with that because we are coming from almost a hole, we need to come out of it. It’s more like when you are 100 metres in a hole and you are almost 50 metres, it’s so far away from the ground. I think that is why people may see like there is no change in terms of investment or getting employment.
LG: One could say we are probably losing it at the feasibility study stage where prospective investors get to learn about some of the bottlenecks, or our local challenges that may deter them from investing here. Have you attempted to look at some of the problems?
JM: This is why even the President’s Office has come up with this Rapid Results Approach. The idea is to ensure that we assist the business community that come to Zimbabwe with efficiency in terms of timing, ease of doing business and removing bureaucratic arrangements. We are doing it and it’s in the same vein with what the President said in his 10-point plan. He was very clear on the direction of where we are going. So you are right, we need to continue.