Monetary policy needs political will to work, economists

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THE recent policy measures announced by the central bank governor, John Mangudya can help attract foreign direct investment and address the liquidity crunch facing the country only if government follows through with proposed changes to its local ownership policy, economic analysts have warned.
In his maiden monetary policy statement last week, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya painted a stark picture of the country’s woes, highlighting a 59 percent fall in first half foreign direct investment, and called for a “credible, consistent and predictable policy framework.”
Showing how far Zimbabwe has fallen behind regional peers in FDI stakes, Mangudya cited low business confidence, which he attributed to sanctions and “misconceptions around the indigenisation policy,” as other factors dimming Zimbabwe’s investment prospects.
Economic commentator Eric Bloch told The Source that although the monetary policy addressed critical issues in a “practical and honest” manner, there was need for government to revisit the indigenisation law, which requires foreigners to cede 51 percent shares to local blacks.
“We need to restructure the indigenisation law because as long as we insist on the 51 percent, we will not get investment and create jobs,” he said.
Earlier this year, finance minister Patrick Chinamasa hinted that the law could be amended, but the government continues to send mixed signals over the local ownership policy, with indigenisation minister Francis Nhema insisting the law was “good” and would not be changed.
Bloch, who described the monetary policy as “extremely good,” was quick to point out the need for government to align its policies to the monetary policy for it to work.
“Although I am praising the monitory policy, some things won’t work unless government changes some of its policies,” he said.
Among other things, he said, there was need for tax breaks for local companies and an increase in import duty on some targeted goods to protect local manufacturers.
The country realised $1,2 billion from exports for the first half of the year compared to $2,9 billion worth of imports.
“As a result our local manufacturers cannot compete. Government should introduce export incentives. If government does such things concurrent to our monetary policy it will put us towards economic recovery,” he said.Advertisement

Former finance minister, Simba Makoni also welcomed the policy, which he said was “feasible and practical” but lacked political will from the country’s leadership to improve the economy.
“All measures are genuinely practical and practicable if only the actors in various fields of the economy were not impeded by politics,” he said.
Makoni who leads opposition party, Mavambo/Kusile/Dawn, said the policy measures could only work in a conducive investment environment.
“The Indigenisation Act and regulations are self-contradictory, if not in the latter it’s in the application. All those will be resolved when the politicians begin to behave correctly,” he said.
He said the liquidity facing the country was “not a problem but a symptom of underlying problems.”
“We are spending money we don’t have on consumables rather than production,” he said.
In a move meant to improve liquidity in the local economy, the RBZ has reviewed the maximum offshore account balances to five percent of total deposits from 30 percent of FCA balances.
Economist John Robertson said the monetary policy’s role was very limited in the absence of a local currency, reiterating sentiments from the other economists that the policy only deals with “symptoms of the problem.”
“The real problem is scarcity of money due to scarcity of investors. We have also damaged the productive sectors through the land reform and reduced exports. That is why we have got liquidity problems,” he said.
He said there was need to amend the indigenisation law to make it investor friendly.
“Investors are not keen to come to the country. Some of the regulations remain discouraging,” he said, adding that such issues were beyond the scope of the governor whose role was advisory.
Zimbabwe registered a meagre $67 million in foreign direct investment in the first half of 2014, down from $165 million over the same period last year.