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Bond notes

Keith Guzah Correspondent—

November 28, 2016 marked the introduction of $2 and $5 denominated bond notes in the “basket” of multi-currencies to be used as legal tender in Zimbabwe.A number of idiomatic pronouncements have been coined using a variety of fruits to describe the development, and this is not to mention the glut of parodies and Internet and social media memes — some of them unsavoury — that have characterised discourse around bond notes.

For the purposes of this submission, and from a constructive standpoint, one imagery that has been used in seeking to understand the bond note phenomenon is the “carrot and stick” idiom.

Carrot and stick generally refers to “a policy of offering a combination of rewards and punishment to induce behaviour.”

According to one explanation, carrot and stick is so named in reference to a cart driver dangling a carrot in front of a mule and holding a stick behind it.

“The mule would move towards the carrot because it wants the reward of food, while also moving away from the stick behind it, since it does not want the punishment of pain, thus drawing the cart.”

It is thus a process of weighing and/or deciding whether a desired behaviour would be better induced via the enticement of benefits or the threat of punish.

The introduction of the bond note has met resistance from some circles of usual confusionists, who have chosen to ignore the basic rationale behind the initiative.

That is not to discount fears about the past that are genuinely and sincerely held.

However, there is a world of difference between looking at history for vital lessons about the present and future and mischievous and self-defeating cynicism and confusionism.

Following the debate around the bond note issue, one aspect that has been offered by the central bank, namely bond notes as an export incentive, is worth discussing.

In comes the Reserve Bank of Zimbabwe Governor Dr John Panonetsa Mangudya with the bond notes as an incentive for production. What a welcome relief to farmers in particular and exporters at large.

Dr Mangudya has explained that: “The bond notes are fully backed by the US$200 million facility from Afreximbank, and are, therefore, fungible and fully convertible. The major point here, though, is not more about the bond, but about the 5 percent export incentive facility to be given to exporters, including tobacco and gold producers in order to stimulate production and exports.

The bond notes, like bond coins, will be at par with the USD and would be banked in USD accounts just like what is happening with bond coins at present.”

Not only does the bond notes regime come as an incentive to exporters in all Zimbabwe’s economic sectors, clarifies Dr Mangudya, it also acts as a plug against externalisation as foreign companies and enemies of the state were coming into Zimbabwe selling their goods and services and mopping up the hard currency, thus creating shortages.

Dr Mangudya further states that, “The risk of injecting US$200 million directly into the economy is externalisation, which is now a cause for concern to the Reserve Bank of Zimbabwe.”

An analysis of these explanations will draw attention to the critical nature of the RBZ intervention.

The carrot-reward approach is mightily welcome as it incentivises exporters in all sectors of our economy and allows for free circulation of these bond notes in Zimbabwe without the fear of unscrupulous people hoarding hard currency for speculative and economic destabilisation purposes.

This is also coming against a backdrop of flailing economic fortunes that were induced by largely external factors and hit a critical export sector — agriculture.

On the other hand, Zimbabwe has endured unparalleled exploitation of its natural resources from former colonisers, who continued to hold the economic reins of our country even with the advent of independence in 1980.

When Government started initiating its empowerment programmes, beginning with the agrarian reforms in the late 90s, Britain and its allies quickly moved in with an assortment of salvos to try and reverse these sovereign economic gains Zimbabwe sought to achieve.

Chief among this bombardment was the imposition of sanctions that targeted key economic sectors and state enterprises, including but not limited to the likes of Agribank, Zesa, Cottco, Ziscosteel and so forth.

The sanctions almost decimated the social services sector and led to the flight of skills from Zimbabwe.

Sanctions against Zimbabwe prevented trade in Western markets while the country was denied balance of payments support.

The cumulative cost of these sanctions has been estimated at over $40 billion and massive de-industrialization, lack of export edge and the general ill-conditions are a result of the punitive sanctions on Zimbabwe.

A look at one critical sector in agriculture, tobacco production, is illustrative.

According to TIMB statistics, during the eight-year period beginning 2000 to 2008, Zimbabwe’s tobacco production levels plummeted from a high of 236,9 million kilogrammes to an all-time low of 48,8 million kilogrammes.

This gradual decline in production was as a result of so many challenges the country faced. Despite the unavoidable drought, newly resettled farmers were yet to grasp the political dynamics that come with the transfer of power through affirmative action from the former white farmers to them.

The indefatigable underhand work of the former colonisers, who spiritedly worked in the cover of darkness with their sponsored outfit MDC, came up with a plethora of strategies to destroy our agro-based economy through wanton sabotage.

This resulted in our “new farmers” losing quite sizeable investments in farming and thus negatively contributing to their capacity to produce.

The cost of production became prohibitive to the extent that the only alternatives left were to either scale down production or ship out.

Government came up with a variety of stop gap measures that included contract farming and fuel, fertiliser and chemical subsidies and once again relief was brought into the sector.

In 2009, our tobacco production level leaped from 48,8 million kilogrammes to 58,5 million kilogrammes and ever since, Zimbabwe has been surging forward and in 2014 season, Zimbabwe reached 212 million kilogrammes.

2015 was a slightly disappointing year for us as we failed to realise our projected figure of 220 million kilogrammes, only realising 185 million kilogrammes.

The export incentive function thus becomes imperative.

Production on the land and factories is critical.

And in the former category, some of us with constituents where tobacco production is critical and has been slowly transforming livelihoods, we know what these incentives mean for the economy from micro to macro levels.

Hence the carrot called bond notes export incentive is welcome and if all factors remain the same, and if all national shoulders are put to the wheel, will result in the economic cart moving forward.

We have had enough of the stick in the past 17 or so years!

Dr Guzah is the MP for Hurungwe West and founding president of the National Business Council of Zimbabwe