- Published on 19 May 2016
Mr. Norupiri welcomed guests and spoke on the critical being played by central banks the world over in a bid to stabilize both financial systems and economies.
- Welcome of Guest: Mr. Luxon Zembe - MC
- Opening Remarks: Mr. Davison Norupiri - ZNCC President
As the word continues to change, monetary policy and central banking will also have to respond accordingly. He then pointed the objectives of the breakfast meeting which were to deliberate on the new measures taken by the central bank to address cash shortages and the introduction of bond notes. Mr. Norupiri highlighted the fact that, as the Voice of Business, creating such platforms for policy discussions was part of their core mandate. ‘We value engagement ahead of engagement; preferring solutions as opposed to sharpening criticizing tongues, divergent views will not make us fools”, he said. The breakfast meeting presented an opportunity for building viable models to bring back the glory days of industrialization.
He emphasized the fact that it is not the responsibility of the central bank and the government alone, but we have to put our heads together as the business community to make the economy tick. We need to fight together to stop the worsening situation. The ZNCC President said that as the Voice of Business, they are against the externalization of funds, corruption and money laundering activities; which are a clear way of destroying our beloved country. Mr. Norupiri then invited everyone to the follow-up ZNCC Annual Winter Conference to be held in Victoria Falls, this June.
- Pertinent Questions: Mr Luxon Zembe - MC
The MC put forward questions which have arisen from the public domain since the pronouncements of the new measures by the Central bank. These are as follows:
- Is this not the coming back of the Zim-dollar through the back door?
- What guarantees are there that the RBZ will not print more notes and coins than the USD200 million facility?
- Why convert people’s income into other currencies?
- What about (international) partners whom don’t seem to bank their money in the country though they have become a major force in the economy?
- Are the business people whom we have given big contracts in mining, manufacturing road infrastructure, agriculture, etc banking here in Zimbabwe?
- How do these policy measures address the macroeconomic fundamentals that are the real underlying causes of the economic decline?
- Are the authorities really prepared to listen to the stakeholders and be able to take into account their concerns?
- How do the measures restore and strengthen the fragile public confidence that we so much need and we are building together?
- What is the role of all stakeholder, that is, business, government and labour in ensuring that we address the challenges we are facing in the economy?
- What is the legality of the governor’s statement?
With these questions, Mr. Zembe welcomed the Reserve Bank Governor, Dr. John Mangudya to address the delegates.
- Key Note Address: Dr. John Mangudya - Reserve Bank Governor
In his opening remarks, acknowledged both the interest and ire generated by the new policy measures. Dr. Mangudya highlighted the fact that the country is on a re-engagement journey. Key to this journey are discipline, trust and confidence. He then outlined the policy measures that have been enunciated by the bank to deal with (1) cash shortages and (2) stabilizing and stimulating the economy. The Governor explained the fact that it was the simultaneous announcement of these two different measures that led to it being misconstrued that they were both meant to deal with cash shortages.
A. Policy Measures to Deal with Cash Shortages
- Promoting the use of other currencies (Rand, Euro, etc) within the multi-currency basket in order to reduce concentration risk on the use a single currency, the USD.
- Limiting cash withdrawal limits to USD1,000 from the banking hall and/or ATM and to be taken outside the country. This is in line with international best practice.
- Promoting the use of plastic money by all business and public utilities to reduce the demand for cash.
- Importing USD, Rand and Euro cash to deal decisively with the queues. The queues recur after each Government pay day.
On this front, the Governor emphasized the fact that the cash challenges we are facing today are a result of over-liberalisation when we dollarized in 2009. The foreign exchange regulations were too lax. Furthermore, he pointed out the fact that efforts to import more cash are being undermined by people who are deliberately siphoning cash out of the country and general lack of circulation since people hold on to the strong dollar as property. He appealed to the consciences of Zimbabweans to stop this counter-productive behavior.
B. Policy Measures to Deal with Productivity and Export Generation
- Establishing an export incentive or bonus scheme of up to 5% to be awarded to all exporters of goods and services to address the challenge of low productivity and promote exports.
The 5% export bonus scheme to be funded through bond notes, which are basically coupons, or tokens of appreciation. The bond notes would be fully convertible and fungible.
It is funded through bond notes to mitigate or avoid externalization, capital flight or looting of foreign exchange by unscrupulous businesses.
Fig 1: Operation of the Export Incentive Scheme (Bond Notes)
- Promoting Savings Culture in the country.
- Promoting efficient utilisation of foreign exchange. This is to be implemented through an import priority list. High priority - fuel, capital repayments, capital goods; Intermediate - school fees, etc and Low priority – tomatoes, water, maheu, etc. we need to stop exporting jobs and promote local content.
- Revising lending rates from the 6-18% range to 6-15%,
The Governor said that it was important that we incentivize the exporters since they are our main source of liquidity. He mentioned that gold, diamond, tobacco, ferrochrome and tobacco accounted for the greatest percentage of exports. The scheme focuses on the output level as supposed to the input level which is open to abuse.
Dr. Mangudya implored citizens to embrace the export incentive scheme and not throw out the baby with water; it has good features. Increasing exports will help in replenishing our Nostro balances. He assured delegates that the bond notes have the same features as bond coins and they appear as USD balances in the exporters’ accounts. The Governor further encouraged citizens to kindly accept Rands and Euros (other currencies) when banks do not have the USD. He advised delegates that high levels of cash imports were not sustainable as there are limits which guard against money laundering, which has serious consequences. There is need to exercise discipline and not just withdraw for the sake of keeping it at home.
- Comments and Questions: Round 1
- Dr. Charity Jinya - Bankers Association of Zimbabwe (BAZ)
The President of the Bankers Association of Zimbabwe (BAZ) highlighted that they were in support of the Central bank measures and had issued a press statement to that effect. issued a statement supporting the measures. Nevertheless, the association shall continue to engage the Reserve Bank of Zimbabwe on administrative aspects. Dr. Jinya advised the house that to deal with the cash shortages, every bank will look at its position and rationalize accordingly basing on the Know Your Customer principle. On the aspect of delays in telegraphic transfers, she said that delays in export receipts mean delays with export processing. Alluding to what the governor had said, she reiterated the fact that high cash imports would raise money-laundering concerns and this will affect our position with international partners.
- Prof. Ashok Chakravarti – USAID
Prof. Chakravarti had three comments and recommendations.
a. A 3-5% import tax across the board can better finance the export incentive scheme as opposed to bond notes. This is akin to fiscal devaluation and has the two-fold effect of reducing imports and earning government some revenue. The bond notes will not be necessary in that regard.
b. The bulk of the externalization of funds was through the banking system as people were taking free funds out, legally though. Over-liberalisation is to blame; new regulations on free funds will address this anomaly and liquidity will gradually improve.
c. High imports are due to excess demand in the economy. Import demand is being fueled by over-expenditure by the government backed by the printing of treasury bills. There is need to control government expenditure.
- Mr. Brains Muchemwa (Economist)
a. With regards to promoting the use of multiple currencies to reduce concentration risk (dominance of the USD), Mr. Muchemwa said that currencies have to compete for relevancy. Bond notes have to be accepted by the market, and it seems not ready.
b. While export promotion is key to replenishing our nostros, there is need for import substitution and value addition incentives.
c. Controls have never worked in Zimbabwe hence the Central Bank needs to exercise restraint and work with other stakeholders as partners.
- Lovemore Mukono – Mukonitronics
There is need for agreement/consensus before we print bond notes. The USD is over-valued making our goods internationally uncompetitive. We have to intensify marketing which implies more costs. There is need to consider protecting our products but in a clever way. We must stop containers from coming.
v. Questions and Comments from the Floor
- Why is government not plugging the hole, treasury bills are causing problems.
- Bad money drives out good money. Has research been done before introducing the bond notes?
- Will exporters of services benefit from the export incentives.
- How much cash is circulating in the economy?
- Central bank efforts need to be complemented by the BAZ.
- The pronouncements have sent jitters to investors and this may result in the Doing-Business reforms losing momentum.
- Let us find ways of legitimizing the externalized money as a net foreign asset and find ways of bringing it back like South Africa did.
- We need to deal with corruption otherwise all efforts will be fruitless.
- Governor’s Response
In his response, Dr. Mangudya was happy that there was general agreement on the need for export incentives and reiterated that all foreign exchange earners would benefit, that is, both goods and services. The funding aspect is what still needed more debate and wider consultations beyond the breakfast meeting. On the 3-5% import tax proposal, he felt that it would not work since the country is not raising enough revenue from the current tax regime. Furthermore, he doubted business is ready for extra import tax given their high import content (40-50%). The initiative would make local goods less competitive due to increased production costs. He further said that he preferred bond notes, an instrument over which the central bank has a mandate and leverage, as opposed to an import tax collected by a third party. With regards to the issue of restraint and controls, the governor explained the fact that the central bank is not talking about control but management of foreign exchange. As such self-discipline is also needed on the side of business. He also underscored the fact that the bond notes were not a permanent but necessary medium term measure as we improve the investment climate for the long term.
Turning the treasury bills, he said they were not the problem but rather lack of money circulation; too much money is going out. The economy can do with USD220 million, but it is not circulating thus creating the need to replenish through cash imports. The governor also bemoaned the fact that even though the bulk of our imports are from South Africa, people are refusing to pay in rands, preferring dollars instead. As such Zimbabwe is now a fish pond for US dollars, and foreigners are using us to create value for themselves. Dr. Mangudya emphasized the fact that the over-valued US dollar was causing us headaches. Zimbabwe needs a weak currency, which when it depreciates, exports improve. The US dollar stabilized the economy but it cannot make it grow.
- Comments and Questions: Round 2
- Can we not revive the import substitution initiative as it has helped in the past? We should not undervalue the importance of value addition.
- To what extent will the central bank withstand pressure from government given the tight fiscal space?
- Why are banks insisting on clients bringing cash for them to process nostro transactions?
- What measures have been taken to repatriate the US15 billion?
- While the use of plastic money is a brilliant idea, is it possible to ensure that the platforms are always working.
- Rental remittances
- What is causing delays on incoming TTs?
- Do the bond notes have a lifespan?
- What is being done about a weaker currency? Is joining the rand monetary union an option?
- Responses by the Governor
Dr. Mangudya supported the idea of incentivizing those in import substitution and value addition. However, he felt that it was of a long term nature. In the interim, the bank is looking at export promotion. On the issue of government pressure to print, he said that he makes independent decisions as governor with no pressure from government, and he (not government) should held responsible for any mistakes he may make. The Governor categorically stated that he has no appetite to print bond notes beyond the US200m threshold. Furthermore, the Reserve Bank will only process the 5% incentives upon request from a beneficiary’s bank. He also explained the fact that printing beyond the USD200 million facility whilst on a re-engagement drive will only be counterproductive. Dr. Mangudya then defended the request for cash deposits by banks since money is not circulating and they have no overdrafts facilities in their nostro accounts. As such clients should bring the cash they have to facilitate the export transactions. The BAZ President, Dr. Jinya also weighed in saying that banks can only get cash from export receipts and cash in circulation. If banks know that clients have cash (through the Know-Your-Client principle), they will ask for it in order to process export transactions.
Regarding repatriation of the USD15 billion, the Governor described it as an economic loss arising from trade mispricing and undervaluing mainly due to lax controls and over-liberalization. Nevertheless, investigations by the responsible authorities are already underway. He went on to give assurance that the Bank was working with system providers to ensure efficiency on the plastic money platforms. On delays to incoming telegraphic transfers (TTs), Dr. Jinya said it was due to some processes which have since been completed and rectified. The Governor then advised delegates that the bond notes will have a lifespan. They are temporary and meant to give government time to put in place a good environment. On joining the rand union, he pointed out that it is not something that can be overnight as it involves a lot of negotiations and procedures.
- Hon. Mike Bimha – Minister of Industry and Commerce
In his remarks, Hon. Bimha said that government believes that the Reserve bank of Zimbabwe is better placed to recommend monetary policy initiatives to it. He emphasized the fact that government does not direct the RBZ but it expects that its recommendations to government come from consultations with other stakeholders. He said that as Zimbabwe, we should continue doing good things as people are watching. Giving an example of the National Competitiness Commision (NCC), an initiative that came from the private sector and whose board shall comprise 95% private sector, he urged business to continue engaging government as they are ready to listen. The NCC Bill has just been passed n cabinet is now ready for tabling in Parliament. He also gave an example of the oil expressing industry which benefited immensely from the removal of oil from the Open General Import Licence (OGIL). This has seen the industry improving its output with prospects for exports. I his conclusion, he encouraged Zimbabweans to have self-confidence. “Let’s continue to dialogue, lets continue to talk, we are in this together”, he said.
- Vote of Thanks & Closing Remarks – Mrs D. Ndhukula (ZNCC Deputy President)
The Deputy President gave a summary of the proceedings and highlighted that as business, they felt that most of their questions had been answered. Mrs Ndhukula said that we are on a transformation journey and business has a part to play. Externalization is only but our own undoing thus over-liberalization now needs to be controlled. She advised delegates that there is need to avoid money laundering given the consequences. The Deputy President also mentioned the need to manage the repatriation of externalized funs, underscoring that trust and confidence are critical for us to move forward. She said that business will continue to speak with the hope that government will continue to listen. Mrs. Ndhukula then thanked the guests of honor the Minister of Industry and Commerce, Hon. Mike Bimha; the Reserve Bank Governor, Dr. John Mangudya; the Bankers Association of Zimbabwe President, Dr. Charity Jinya; the panelists and all in attendance.
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