The Zimbabwe National Chamber of Commerce sent out a response letter to the measures to restore confidence announced by President Emmerson Mnangagwa on Saturday. The letter tackled most of the measures raised in the address pointing out the shortcomings of some and offering solutions where possible. The ZNCC makes some interesting observations and points on the matter. As the country grapples to make sense of the policies and measures the ZNCC provides commentary and guidance from the perspective of business.
The letter directly addresses 12 points which we shall go through below. It starts with a preamble that thinks the government for responding to the economic challenges currently faced by the citizenry but notes with disdain the appearance of political involvement in policy based on the policies being announced by the head of state and government rather than the responsible authorities. You can download the full letter here; ZNCC Submissions to the Ministry of Finance and Economic Development and RBZ – May 2022-1.
Drivers of exchange rate and inflation
The ZNCC notes that while the government credits inflation and exchange rate movements the true driver of the money supply growth is the government’s use of short term financing for government programmes. The ZNCC puts money supply (growth) and exchange rate management at the front and centre of inflation and exchange rate movements.
Restoration of value lost in January 2019
The ZNCC notes that while compensation for individuals is noble the losses extend to business and institutions and their losses too would need to be addressed to restore confidence. They note that the debt burden created by such a move at this time would be placed on the taxpayers through the government.
The ZNCC notes how the auction system has poorly allocated foreign currency citing the need for telecommunications companies to be prioritised as internet bandwidth is wholly imported. The ZNCC also urged the RBZ to engage businesses that abuse the auction system privately and directly with the assistance of the ZNCC. They point out that while the size of the exchange rate is of concern the lack of stability is the primary concern of businesses from a planning perspective.
Maintaining the dual currency system
The ZNCC applauded the government for staying the course with the dual currency system as neither the US dollar nor the Zimbabwean dollar was capable of supporting the economy alone as things stand.
Collection of Tax Revenue in foreign currency
The ZNCC opined that the government through its policies on tax collection has shown a preference for the US dollar. Imposing policy in this regard will not work as participants can choose to ignore policies. A social contract framework is required.
Market determined exchange rate
Noted in its inception the SME foreign currency should be rolled intone with the main auction system. The introduction of the interbank system presents 3 exchange rates for the same currency. ZNCC suggests a full adoption of either the auction-rate or the interbank rate but not both as things currently stand.
Quarterly Reserve Money Target
The ZNCC commended the management of reserve money in recent times but questioned other measures of money which continue to grow. The ambitious zero percent growth target may be hazardous to the operations of the Central Bank with the announcement not coming from the bank itself but the government.
IMTT increase on foreign currency transactions
The ZNCC questions the motives for doubling the IMTT on foreign currency transactions to 4%. The move seems to be more about creating revenue for the government than an enabling environment in the words of the ZNCC. The Zncc believes that the move will further move foreign currency out of the banking system.
Settlement of Foreign currency tax obligations at the interbank rate
The ZNCC interprets this as a confession of the overvaluation of the Zimbabwean dollar via the interbank rate.
Suspension of bank lending
The ZNCC raises the alarm over the overnight suspension of the banking business. They believe this will lead to a parallel banking system as businesses rely on credit in their normal operations. A policy that strips banks of their business overnight and also threatens one of Zimbabwe’s best performing categories in the Ease of Doing Business rankings is not a good signal to investors.
The ZNCC closes with a plea to policymakers to consider many other measures that have been suggested to address the same issues the government is trying to address. The announcements coming from the central government and the lack of consultation with organisations such as the ZNCC paints a bad picture for the world at large.