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Dr Mangudya

Blessing Machiva Correspondent
THE Government’s plans to introduce bond notes in October this year has been under much criticism and attack from the general public but it is also wise to analyse the other positive side of this policy in order to fully explore and understand the policymaker’s intention. The $200 million bond notes

will be backed by a loan facility from the African Export-Import Bank and will be launched at par value with the United States dollar.

According to the Reserve Bank Governor Dr John Mangudya, the bond notes will only work as an export incentive, and exporters will start redeeming their 5 percent incentive that accrued starting May 2016 upon the bond notes launch in October. Dr Mangudya also said the bond notes will be added tothe multi-currency basket that is mainly dominated (to the tune of 95 percent) by the US dollar.

The RBZ boss said “it is well” to launch the bond notes despite the resistance that the authorities have faced. The success of this policy depends much on the central bank’s independence, which is the freedom from the policy maker’s direct political or governmental influence in the conduct of policy. The monetary authorities should stick to their promise of printing only $200 million bond notes and nothing more unless there arises a good economic reason to increase the amount.

It is understood that the US$6 billion Zimbabwean economy cannot be diluted by a mere $200 million worth of bonds, but the major fear of economic agents is on whether the monetary authorities will be able to resist the political pressure to print more, especially ahead of the 2018 elections.

The initial motive of the monetary authorities to launch bond notes in order for them to act as an export incentive scheme makes a lot of sense. Whenever a company exports goods outside the country and brings foreign currency into Zimbabwe, the company will be given a voucher of 5 percent the value of the goods exported that it will redeem in the form of bond notes. This incentive will encourage and attract more firms to employ more resources and be geared on producing more for the export market.

This will increase the amount of foreign currency inflows into Zimbabwe and this can act as a permanent solution to the liquidity crisis that is currently looming in our country. This export incentive scheme is being complemented well by the recently gazetted Statutory Instrument 64 of 2016 that is meant to limit the importation of commodities that can be produced locally. This will go a long way in helping revive local industry that has been facing stiff competition from imports.

Zimbabwe is the only country in Africa that is using the United States dollar as a trading currency and not as reserve currency. Due to the poor economic situation in Zimbabwe including low production levels, many countries had viewed our country as a “fishing pond” for the much needed US dollar by floding the market with imports.

Countries like China has been understood to have been dumping commodities in Zimbabwe like when a wheelbarrow was reported to have been landed here at a cost price of US$2,98. These actions are not healthy for the economy and it was wise for the Government to craft policies that protect our local industries and policies that reduce money flight.

In the United States, it is illegal for an individual to be seen with more than US$10 000 cash as this is deemed to be money laundering but in Zimbabwe individuals were being allowed to withdraw any amount without limit until recently when the central bank boss had to put a cap on withdrawals and the amount of cash that individuals and companies can take outside the country. In support of this, the monetary authorities have launched the National Financial Inclusion Strategy (NFSI) that is meant to promote the use of plastic money.

The Government has over the years tried to subsidise production, especially in the agricultural sector by giving farmers inputs. Recently, Vice President Emmerson Mnangagwa, who is the chairperson of the Food Security Committee, has launched the Command Agriculture Scheme in which the Government is going to identify 400 000 hectares of land in the country’s 10 provinces and empower farmers by giving them farming implements, seed and fertiliser.

Although this is a good policy that is meant to ensure food security, I strongly feel that incentivising production might yield more fruits than subsidising. However, it should be understood that these two policies can complement each other as those farmers who were incapacitated to produce more due to lack of farming inputs can now strive to produce more for export so as to get the export incentive. This will reduce imports of maize and boost exports thereby reducing cash outflows.

Income from exports is a form of income injection into the economy. This income will be received by households which will mean an increase in their purchasing power. This will cause the internal demand of goods and services to increase, firms will respond by employing more factors of production and then boost output of goods and services. National income will increase through the multiplier effect.

When firms are expanding their production scale, they will demand more labour in order to produce more goods and services. More people will be employed hence reducing the current high unemployment rate. Workers employed will receive more income which they will use to buy more goods and services produced. In other words, this export incentive scheme can be seen as an engine to kick-start economic growth.

Although the export incentive scheme through bond notes and agricultural subsidies can be viewed as forms of trade barriers as they give Zimbabwean exporting firms a competitive advantage over other firms in the international markets, it should be understood that the policy isn’t peculiar to Zimbabwe as our trading partner, South Africa, is understood to be giving higher export incentives of up to 15 percent especially to certain selected products like refrigerators. Being optimistic about this policy will help us to achieve our ultimate goal. All economic agents should join hands in upholding and promoting the success of the policy.

Zimbabwe is losing a lot of gold due to traders smuggling it into South Africa where the exporters are understood to be given export incentives. Our export incentive scheme will lure traders to follow the formal way of trading gold, hence increase our gold output and the income received from selling the precious mineral. Increasing income inflow will solve the liquidity crisis and will bring the much needed US dollars into Zimbabwe.

The monetary authorities are advising the nation not to be sceptical about the bond notes as it will help, together with other policies put in place, to boost production and economic growth. Although economic agents suffered a lot during the Gideon Gono era and are still being haunted by those memories, it should be made clear and understood that this economic regime is different and economic agents should place their confidence in the current governor in order to fully harvest the fruits of the policy. If the bond coins have worked, then it is wise to use that same confidence in upholding and promoting the success of the bond notes.

• Blessing Machiva is an economist and he writes in his personal capacity. He can b contacted on [email protected] <mailto:[email protected]> or WhatsApp number +263 773 836 435.