Home » Industry » Mangudya Unveils Pro-Poor Policy

RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya yesterday unveiled a pro-consumer monetary policy statement that seeks to curtail rampant job losses across industries by ensuring that companies remain in business while at the same time cascading the benefits to the common man on the street in the form of competitive prices. At the crux of Mangudya’s statement are measures aimed at improving the country’s competitiveness, lost between 2000 and 2008 when the economy plunged into aomical levels of hyperinflation. On dollarising in 2009, industries made the mistake of pitching prices for their products at levels that rendered them uncompetitive both regionally and internationally.

Although this was partly driven by the high production costs prevailing locally, lack of competitiveness has stifled demand for local products while condemning companies to the corporate graveyards in the wake of an onslaught from cheaper imports. Yesterday, Mangudya described Zimbabwe as an “awakening giant” and called for collective efforts to turn around the country’s economy, which lost more money than it gained after

merchandise imports outpaced exports last year. Admitting that the country was ravaged by a plethora of challenges, Mangudya said these were not insurmountable, saying there was need for “rebalancing, recalibrating or resizing of the economy, which requires the nation to concentrate on competitiveness and compliance boosting drivers under a positive motto that ‘Zimbabwe is back’ in business”.

“I see Zimbabwe as an awakening giant, ready to embrace the ‘Africa rising’ narrative,” Mangudya said in his second monetary policy statement since taking over as the central bank

governor in May last year. Mangudya highlighted the challenges Zimbabwe’s economy was facing, but it was clear his monetary policy statement sought to give hope to a despondent country and open the proverbial windows of opportunity to a desperate nation grappling with rising structural unemployment and company closures that have driven the economy into informal frontiers.

The more worrisome disclosure was that imports, at US$6,4 billion, had last year far outpaced exports at US$3,1 billion, resulting in a trade deficit of US$3,3 billion. Although the trade deficit remained huge, it was, however, lower than the US$3,9 billion reported the previous year. This, Mangudya said, was largely due to exogenous factors, such as the decline in crude oil prices and the policies the RBZ had put in place for businesses to utilise resources for bona fide transactions. But the odds were still staked against the economy: The decline in metal prices experienced in 2014 undermined export earnings for most mining houses, resulting in lower fiscal revenues for government, and further deterioration of the country’s balance of payments position (BOP). This development effectively undermined the contribution made by commodities to the development process, Mangudya said.

“Importantly, the marked appreciation of the US dollar against Zimbabwe’s major trading currencies further exacerbated Zimbabwe’s external sector position. This development increased the uncompetitiveness of Zimbabwe’s external financial position since the appreciation of the US dollar makes Zimbabwe’s imports cheaper while simultaneously undermining the competitiveness of the country’s exports,” he said.

When Zimbabwe abandoned its defenceless currency in 2009, it lost the ability to control its monetary policy and create its own liquidity through money printing.

So to create liquidity, especially in the absence of foreign financial support, Zimbabwe has to boost its exports to produce the stock of money needed in the economy.

But since adopting a multiple currency economy, imports have soared while exports have shrunk.

This, inevitably, would be the biggest worry for the central bank governor: The external position will remain under pressure from a high import bill, as the rebound of exports does not

match the steep rise in imports, leaving an anticipated current account deficit of 28,5 percent of Gross Domestic Product (GDP). A high current account deficit worsens the liquidity crunch in the economy and threatens the stability of the financial sector as well as the viability of local industries due to demand challenges created by lack of disposable incomes.

Mangudya noted: “The sizeable trade deficit realised in 2014, as well as outflows in the income and services accounts, culminated in the incurrence of a current account deficit estimated

at 25 percent of GDP in 2014. Net inflows in current transfers, though considerable, were outweighed by the deficit in goods, services and income accounts.”

Notwithstanding, the huge current account deficit and subdued capital and financial inflows, the overall BOP is estimated to have marginally improved from a deficit of US$366 million in 2013 to an estimated deficit of US$351 million in 2014. Nonetheless, these external sector developments undermined the domestic economy, with economic growth estimated to have declined from 4,5 percent realised in 2013 to 3,1 percent in 2014, Mangudya observed.

If this tide is not reversed, things could be worse next year, considering that the agricultural sector, which registered a g performance last year, growing by 23,4 percent, might

suffer from too much rains in some areas and drought in others. Challenges in manufacturing, mining and other sectors, Mangudya said, continued to weigh down the economy’s growth potential. These sectors are estimated to have shrunk by -4,9 percent and -2,1 percent in 2014, respectively.

“The decline in the manufacturing activity, reflected by the fall in capacity utilisation from 40 percent in 2013 to an estimated 36 percent in 2014, emanated from persistent challenges which include antiquated plant and machinery, influx of cheap imports, high cost of production, and weak demand associated with the prevailing liquidity constraints and imports,” said Mangudya.

“The mining industry performance was set back by the general decline in diamond exports, international commodity prices, frequent power outages, obsolete equipment and inadequate funding for recapitaliation, among other challenges,” he said.

This year, the economy is projected to further grow by 3,2 percent, driven mainly by services, mining and manufacturing sectors. Investments in various infrastructural projects already being implemented in the electricity generation sector, transport and housing are expected to provide additional growth impetus.

But still, the economy will require creating more stock of money to grow.

Source : Financial Gazette