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Zimbabwean rand?

12/11/2016 00:00:00
by Moneyweb.co.za
 
 
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HARARE: Amid the growing calls for rand usage in Zimbabwe by industry groupings there, Zimbabwe is once again flirting with uncertainty regarding the introduction of local bond notes as legal tender, with companies and businesses now sinking deeper into trouble and battling to sustain operations.

Zimbabwe is battling a worsening economic crisis that experts say will sink to the record hyper-inflation levels of 2008 despite remaining in deflation over the past few years. But a worsening dollar crunch has not eased the liquidity woes it is facing that have seen profit positions for most companies narrowing by each reporting period and productivity nose-diving.

The cash crunch is having spill-over effects for the big companies in Zimbabwe, with Delta Corporation, a division of the merged SABMiller and AB InBev entity saying on Wednesday that the trading environment in Zimbabwe is fraught with “increased perceived policy risk” factors.

“Announcement of bond notes without clear policy framework thus creating uncertainty in markets,” said Pearson Gowero, CEO of Delta Corporation.

Companies are having to re-negotiate for loan repayments as there is a backlog of international remittances. Gowero said the foreign currency shortages in Zimbabwe had resulted in a “build-up of foreign payables” while the company has recently said it had to delay commissioning of two new manufacturing plants because of delays in paying for international equipment.

Another Zimbabwean company that has been hit hard by this is Econet Wireless, the Zimbabwean telecommunications company owned by tycoon Strive Masiyiwa, which has said that the current tight situation in Zimbabwe “has made it difficult for all companies to make payments to foreign suppliers” of capital, goods and services.

“As a result, we have been unable to make certain debt repayments on time, notwithstanding that cash was available in our local bank accounts… this situation is expected to persist. We have engaged our lenders and continue to explore mutually acceptable solutions,” said James Myers, chairman of Econet Wireless.

One strategy that the Zimbabwean companies are using is asking suppliers to knock down their prices by margins of up to 15%. This has also been useful in protecting bottom lines while others are having to shut down offices in non-core areas, with resources group Asa Resources saying this week it closed its Harare and Johannesburg offices and moved to the areas where the company operates its gold and nickel mines in Zimbabwe.



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Standard Bank’s unit in Zimbabwe, Stanbic Bank, and other finance institutions in Zimbabwe had moved in to revise conditions of service in preparation for the introduction of bond notes later this month. However, they are reported to have been forced by the central bank to reverse this, with Stanbic Zimbabwe saying it has now reverted to the old conditions of service.

The bank sector has been in disarray, with cash shortages causing headaches for bank managers amid growing shortages of cash. Banks have had to institute cash withdrawal limits of around $100 per day and are facing stricter monitoring of account activities by authorities.

“It’s hard to run the banks because of the pressure from all sides; the depositors want their money and the authorities and the central bank are pressing us to contain usage of foreign currency. It’s worsening by each day when people complain about delayed transactions,” said a bank official.

The Confederation of Zimbabwe Industries is drumming up support for usage of the rand in Zimbabwe as an alternative to the introduction of bond notes – local notes the government says are equal in value to the US Dollar and which are backed by a $200 million facility from Afreximbank. But government officials are against this, saying Zimbabwe would need to have its own currency first.

The troubled southern African country ditched its own currency in 2009 after hyper-inflation ravaged the economy, leading to empty shop shelves. There are fears that the bond notes are essentially a precursor to the re-introduction of the local currency and there is speculation that the government has impounded bank accounts to shore up its dry reserves and to pay restive civil servants.

“We suggest the minister of finance starts presenting his budget in rand instead of dollars,” the CZI said in a statement this week ahead of budget consultations.

The rand has relatively been weaker compared to the USD has been unwanted in Zimbabwe, with most transactions settled using the US Dollar. However, there is growing support for usage of the South African currency instead of the Zimbabwean bond notes. The notes have been delayed as they were initially meant to be introduced earlier.

Some economists agree that it is a lengthy process for Zimbabwe to adopt usage of the rand but they highlight that Harare can start using the rand unofficially as it did with the green-beck. Zimbabwean law expert, Alex Magaisa wrote on Tuesday that Zimbabwean banks no longer have cash because it was taken by the government.

“Unable to import cash, local banks cannot meet local demand (for cash). The fictitious instrument called bond notes will enable banks to give you something, pretending that they are giving you your money,” said Magaisa.

Despite the current woes, some bank chiefs in Zimbabwe are hopeful that Zimbabwe will avoid a further downturn, but that is only if the government takes the right steps such as curbing excessive expenditure and put in place friendly policies that promote and attract foreign direct investment. As it stands, there seems to be no respite to the liquidity and other economic woes Zimbabwe is facing – and economists content that Zimbabwean businesses are in for a bumpy ride.


 
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