Roundtable discussion on energy, currency challenges

In his presentation, Dr Nebson Mupunga, stressed that the fundamentals are indeed strong to support exchange rate and price stability.

The fiscal deficits have been recorded mostly below 3 percent, the country has been recording current account surpluses since 2019, the economy is expected to grow by 3,8 percent in 2023 and manufacturing sector capacity utilisation is as high as 56 percent on average.

The rate of currency depreciation is by far greater than the rate of money supply growth since March 2023. The exchange rate is estimated to have overshot its equilibrium and is expected to appreciate to correct the overshooting.

The historically observed money supply-exchange rate nexus, suggest that the parallel exchange rate would be around half of its observed price in May 2023. In proportion — lending in local currency has been declining, thus ruling out the potential for destabilising arbitrage opportunities.

On policy moves, Dr Mupunga reported that the bank has fully liberalised the exchange rate and businesses should use the obtaining interbank rates.

On the outlook, the current huge gap between buying and selling foreign exchange rates in the parallel market points to the strong possibility for appreciation of selling rates in the near term. The bank’s weekly survey showed that prices have started to stabilise, while some are even declining.

A strong monitoring and surveillance by the Financial Intelligence Unit (FIU) remain critical to deal with incidences of malpractice. The Bank’s view is that compliance with the dual currency system by insisting that businesses accept all currencies for all products is also very critical for exchange rate stability.

As the roundtable discussion also looked at energy developments, Dr Mupunga reported that the inflation outlook is also affected by the pricing of regulated and administered prices in the economy such as energy prices. Accordingly, energy contributes about 7 percent to the Consumer Price Index.

There is, therefore, a strong link between energy price adjustments and overall inflation. Energy prices have direct, indirect (through production costs), and second-round effects (through inflation expectations) on overall inflation. As such, holistically addressing the availability and pricing of energy will be critical to also address inflation and support sustained growth.

The key takeaways from the RBZ’s presentation were that collective action among all economic players is critically needed to create the right economic landscape for sustained growth and business prosperity in the country.

The bank reiterated that it remains strongly committed to staying the course of a tight monetary policy to stabilise the exchange rate and inflation. The recent measures taken by Government are expected to restore demand and confidence in the use of local currency and stabilise the exchange rate and reduce its pass-through to inflation.

In kick-starting the roundtable discussion, Mona-Lisa Dube posed a question to the ZNCC president, Mike Kamungeremu, with regards to the submission by Dr Mupunga that the current exchange rate volatility being experienced in the economy is transitory.

The ZNCC President was in agreement with the Bank’s view that the instability in the exchange rate was temporary phenomenon and according to him, what were critical are the measures that are being taken to ensure stability in the rate of exchange.

The stability that has been realised in the week prior the Annual Congress followed a period of disaster and nightmare for businesses and the wider economy. This came about as a result of a raft of measures that sought to tighten liquidity by suspending or delaying payments to Government’s service providers and contractors as well as delays in remitting export surrender requirements.

Thus, the instability was only halted for a while and once the Government starts opening the money supply taps, the exchange rate stability may not be maintained going forward.

In his view, Eddie Cross indicated that the fundamental problem to the exchange rate instability was money supply as the RBZ was liquidating 25 percent of export earnings using printed money. The Bank was also buying gold and money supply grew by about 500 percent between May 2022 and May 2023.

Thus, money supply is the primary cause of the instability in prices and the exchange rate. The radical measures which have been put in place by the authorities were said to have largely corrected that. The Treasury took over the purchase of foreign currency from exporters and this represents a dramatic shift to use tax receipts rather than printed money.

However, the recent moves have resulted in uncertainty over payments even in the gold sector.

According to Cross, the fundamental issues which confront businesses include the currency instability, energy supply and the multi-currency system which is the main reinforce of the informal economy.

The informal sector is now transacting mainly in US dollars to the tune of around 90 percent.

Transacting in US dollars entails an economy that has fully dollarised and the problem with that is the economy becoming a dumping ground for the region similar to the 2009-2015 period.

Locally produced goods are less competitive on the regional and international market. The elephant in the room at the moment is a constant demise of the formal sector. The local productive sector did not recover during the GNU.

Accordingly, the country can get on top of this if the Zimbabwean dollar becomes Zimbabwe’s basic means of exchange and payment.

While making reference to Themba Mliswa’s submissions during a House of Assembly session where he submitted that the local currency was not working and it was about time to do away with it (“If a car is not functioning, better to park it.”), Mona-Lisa Dube sought to get the MP’s take on Cross’ sentiments.

Mliswa submitted that for as long as the economy is run for the benefit of a few, the endowments Zimbabwe has will not add any value to the livelihoods of the majority. Zimbabwe has a system that is marred by corruption at all levels of Government and production chains.

With high informality, there is no organisation and such institutions are unbanked. There is also a proliferation of briefcase companies who are not producing any good or service, but making money through unorthodox means.

The Parliament of Zimbabwe has been making laws but nothing happens on the ground, there is no rule of law which is critical for markets to function well.

As the exchange rate was depreciating on a weekly basis, the Government was expected to put in mechanism to adjust the rate of payments to its contractors and civil servants at the prevailing official rate.

Zimbabwean Government is the issuer of the local currency and must be promoting its use, but on the contrary, the Government has been cushioning its workers in US dollars. This represents inconsistency in terms of policy objectives and the biggest culprit in terms of exchange rate and price instability is the Government itself.

Joshua Sacco responded to Dube’s question with regards to the role of Parliament in the economy and if the Parliament of Zimbabwe is executing its role perfectly amidst the proliferation of SIs over the years.
The role of Parliamentarians is particularly to represent the populace and the Parliament is playing an oversight role and legislate laws.

However, according to Sacco, the Zimbabwe’s scenario is particularly different from the situation pertaining in other jurisdictions as the country is under difficult situations resulting from the economic embargoes in place — sanctions.

Under such circumstances, the Executive and Ministers are often caught up in situations where they have no option but to overstep Government bureaucracy and the Parliamentary proceedings by coming up with SIs to deal with unanticipated and seemingly emergency situations as they arise.

With regards to currency, there was a huge jump/crash in the exchange rate after the proclamation of the election date by President Mnangagwa. Such a trend is not Government’s doing contrary to what Mliswa put forward, but businesses sabotaging the economy that needs to look after business.

Kamungeremu had a contrary view to the assertion by Sacco that business was sabotaging the economy and the efforts by the Government to transform the Zimbabwean economy. According to the ZNCC president, the business of business is business and entrepreneurs make rational decisions each day to survive in this volatile, uncertain, complex and ambiguous environment.

If the Government is sure of businesses that are sabotaging the economy, the Government is encouraged to take action.

The Chamber has been recommending measures to Government with national interests at heart, and Kamungeremu was excited by the fact that the majority of the recommendations which were put in place by the Government in May 2023 were also part of the private sector’s recommendations to the Government.

However, there is a concern from the private sector that the Government takes time to implement policies and when it does, the circumstances would have changed.

Overall, the private sector players are not saboteurs and the private sector is in full support of the efforts that are put in place to address the instability in exchange rate and prices. Businesses can only function well when there is stability across the economy.

Within the energy sector, Eng. Dr Gloria Magombo indicated that investors have a challenge with regards to exchange rate volatility.

There are quite a significant number of sizeable investments that are on the waiting list and have been delayed because of currency issues.

Thus, the critical issue is centred on currency convertibility and stability of local currency under a dual currency system.

The Ministry of Energy and Power Development has been working closely with the Ministry of Finance and Economic Development and the Reserve Bank of Zimbabwe to come up with incentives and address the currency issues to enhance investment into the energy sector by independent power producers (IPPs).

Against the backdrop of increased foreign currency receipts, the Permanent Secretary’s plea was for the energy sector to be prioritized in terms of foreign currency allocation at the RBZ’s weekly auction system.

In trying to address the energy shortfall through imports, the Government has put in place a policy through SI 131 of 2022 which compels exporters to pay for their electricity costs in foreign currency.

The credibility of the Zimbabwe Electricity Supply Authority (ZESA) needs also to be enhanced for the parastatal to attract both domestic and foreign investors through PPPs. The Zimbabwean economy is growing and the demand for both energy and foreign currency is also growing.

It is critical to anchor the incoming projects so that investors are able to recover the investment in the currency to which they invested into the project, which is mostly foreign currency in the current space.

Importantly, within the energy space is fuel which is among the main cost for firms especially in times of power outages. Policy predictability is critical for attracting investment in the energy sector.

The private sector was urged to join in the quest to enhance reliable energy supply by investing in renewable energy and installing alternative sources like solar on the premises of operation.

Aligning industrial practices to SDG 12 on responsible consumption and production was stated as critical and the private sector was called upon to play its crucial role in the economy.

For Zimbabwe to be internationally competitive, the Zimbabwean dollar is needed especially now that the AfCFTA is making its way into implementation across the continent. These were the words of emphasis from Hon. Joshua Sacco.

Mr Mike Kamungeremu stressed that the Chamber is apolitical and the Chamber, its Executive Council, and the broad membership hopes to see a better Zimbabwe where everyone is free to venture into business and chase individual and collective goals.

These are part of the Chamber values and ZNCC continues to encourage its members to practice good corporate citizenship. In his final remarks, Mliswa submitted that there is a market response to everything that the Government does. For example, each time Government’s service providers and contractors are paid, the exchange rate depreciates.

This article was prepared by the Zimbabwe National Chamber of Commerce for Business Weekly