Zim News Blog -NEWS NETWORK

Source: RBZ allays fears on bank balances | Sunday News (local news)

Peter Matika, Senior Reporter
BANK balances for both RTGS dollars and FCA Nostros will remain the same and the Reserve Bank of Zimbabwe will not raid anyone’s foreign currency account, the Governor, Dr John Mangudya has said.

Last year the RBZ advised banks to separate foreign currency accounts and RTGS money. Under the stewardship of former Governor Dr Gideon Gono, the RBZ was accused of raiding foreign currency from exporters’ accounts, but Dr Mangudya has assured account holders that all forms of money were safe in the bank, adding that there would be no changes in bank balances despite the recently announced changes through the monetary policy.

“We have never raided anyone’s nostro account, our records can testify and we will not do so going forward,” he said at a breakfast meeting in Harare to discuss the monetary policy he delivered last week.

The breakfast meeting was attended by Finance and Economic Development Minister Prof Mthuli Ncube and captains of industry.

He said although banks agreed to start trading the RTGS dollars as $2,50 to US$1, going forward the rate will be determined on a daily basis by market forces.

“The bank rate will determine the rate on the market. We will arrange foreign lines of credit since demand will be greater than the supply of foreign currency. We need to cloud seed the market with foreign currency,” he said.

Dr Mangudya added that this would also pose an opportunity for foreign currency traders to set up formal bureau de change companies.

“For the foreign currency dealer this is your opportunity to open formal bureau de changes and trade formally. We only have one Zimbabwe and should work together. The parallel market (street) rate is way too high because there is a risk premium, you can go to jail for 10 years. We delayed presenting the monetary policy because we wanted to analyse all submissions from all sectors of the economy so that we speak to everyone, nothing else. Bulk of money in Zimbabwe is seating on the RTGS platform. We only have $437 million of bond notes,” he said.

Dr Mangudya said the implementation of the bond note was necessitated to formalise the export incentive.

“The percent incentive scheme was a shadow exchange rate. It went on well when inflation was below five percent. When the inflation went beyond 20 percent in October the 1:1 exchange became unsustainable,” said Dr Mangudya.

Economists have said the market has received the measures announced by the central bank in a positive way despite fears people had that the policy was likely to cause tremours on the market.

“This is a positive start, people feared after the announcement that prices would go up and there will be chaos in the market. The market has embraced the changes and even retailers have not increased prices,” said an economist with a banking institution. He said the move also gave the RBZ some air to breathe on monetary matters.

“When we were exclusively using foreign currency, the bank was constrained in controlling money matters because it had no control over money supply. With the RTGS dollars there is some way of negotiating the matter although the ultimate solution lies in introducing our own currency which obviously has to be backed by output.”

The RTGS dollars will also help Government to control its spending. Finance Minister Prof Ncube has already indicated that the Government was now standing on a cash position since it can also harness plastic money. The Government paid its January and February salaries standing on cash position, he added.

Economists say a cash position represents the amount of cash that a company, investment fund or bank has on its books at a specific point in time. The cash position is a sign of financial strength and liquidity.

“Fiscal consolidation measures are already helping to balance the budget. On the other hand, the income from two percent tax (on electronic transfers) will also be used to rejuvenate and improve the new Zimbabwe; building schools, roads and making sure our nurses, doctors and teachers receive the wages they deserve. We can already see that shelves are full and fuel lines have petered out.”

He added that the ministry will undertake a global deal road show in different countries to explain the country’s economic situation in June or July.

“We will be in Frankfurt and Tokyo. We expect to sign deals that will benefit the country’s economic performance.”

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Source: 77 percent exhibition space taken at ZITF | Sunday News (Business)

Thandeka Matebesi, Business Reporter
AT least 77 percent of exhibition space has been taken up by exhibitors for this year’s Zimbabwe International Trade Fair, a slight increase from the 71 percent that had been sold at the same time last year.

This year’s exhibition takes place from 23 to 27 April at the Zimbabwe International Exhibition Centre in Bulawayo, under the theme, “Propagating Industrial Growth through Trade and Investment”.

This year’s exhibition is the 60th consecutive edition of the show. ZITF Company marketing and public relations manager Miss Stella Nkomo said bookings were still in progress.

“To date 77 percent of the available space has been taken up by a total of 236 direct exhibitors. This compares favourably with the booking situation at the same time last year, where 71 percent of the available space had been taken up by 206 exhibitors. A total of 49 631 square metres of space has been made available for sale including five exhibition halls, over 120 individual pavilions and over 10 000 sq metres of external or open sites.

“Enquiries and bookings continue to come through on a daily basis and projections are that the show will be successful and well-represented in terms of both local and international participation,” she said.

She also said at least four countries had confirmed their participation in this year’s show.

“Interests on the international front have been high with four countries having confirmed participation namely, Ethiopia, Japan, Malawi and Mozambique,” said Miss Nkomo.

Miss Nkomo said they had already engaged players in the tourism and hospitality industry through their respective bodies to ensure adequate and affordable accommodation for tourists.

“Because of the high level of interest in the show, organisers anticipate an increased demand for accommodation services during ZITF 2019. Consequently, ZITF has already engaged local accommodation operators individually and through apex bodies such as the Zimbabwe Tourism Authority to discuss issues of availability, pricing and customer service.

“The industry has given assurances that it is equal to the task through the hotels, lodges, guest houses and private homes dotted throughout the city. As a value-add to participants at this year’s show, ZITF has retained the service of its strategic partner Ecological Safaris to assist exhibitors in finding suitable accommodation.”

She said her company has also come up with packages as part of their efforts to profile Bulawayo as a preferred business tourism destination.

“Additionally, ZITF is in discussions with local tour operators to come up with tailored tour packages that will provide visitors with a rounded experience of not just the exhibition but of the host city, Bulawayo. This is in line with international trade exhibition trends and is part of ZITF’s greater strategy,” said Miss Nkomo.

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Source: Retailers, Government work on regulating tuckshops | Sunday News (Business)

Thandeka Matebesi, Business Reporter
The Confederation of Zimbabwe Retailers (CZR) is working with the Government to come up with ways of regulating tuckshops amid concerns that they are largely operating outside the formal taxing system.

CZR president Mr Denford Mutashu said while tuckshops were an opportunity which must be explored there was a need to craft legislation governing their licensing and existence.

“What we are basically doing is to try and get the tuckshops regularised and I am aware that the Ministry of Women Affairs, Community, Small and Medium Enterprises and the Ministry of Industry and Commerce are collaborating to ensure that the issue receives the attention that it deserves.

“It’s an innovative way of helping the community that must actually then be supported and this is the reason why currently we are working with authorities to find a way of regularising tuckshops. It is important to know that there is no provision to issue licensing to tuckshops which is a negation because it affects the operational modalities because time and again we have seen council officials and many other law enforcement agencies coming to them and interrupting their businesses,” said Mr Mutashu.

He said the matter was receiving urgent attention from both the Government and the retailers.

“We are moving with speed and the Government has also acknowledged that it needs to move with speed in dealing with the issue of tuckshops. There are many issues surrounding the emergence of tuckshops.

One of the issues is that the area may have been under-serviced by the formal players and yet the communities at that particular juncture will be forced to travel long distances to the nearest shopping centre,” said Mr Mutashu.

“Therefore, if a tuckshop is opened in the residential area, it is of course an opportunity that one may have realised from that locality that they can bring goods closer to the people than having to travel longer distances to access goods.”

Mr Mutashu said however, some tuckshop operators were also involved in the smuggling of goods.

Meanwhile, CZR is working on setting up distribution centres in smaller towns as a way of containing costs associated with transport.

“We had tabled plans to set up distribution centres in small towns. What we then did was to encourage penetration of big and small players in the retail and whole sector especially in marginalised areas. Even the expansion strategies of many of these players, are now focusing on those areas that previously would be deemed unattractive.

It is our fervent hope that, despite the economic challenges especially in the southern parts of the country after the disturbances that were witnessed, players will still be able to continue with their expansion drive that they had put together,” he said.

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Source: NRZ passenger services up 300 percent | Sunday News (Business)

Leonard Ncube, Victoria Falls Reporter
THE National Railways of Zimbabwe has seen passenger volumes rising by 300 percent since the beginning of the year as more people turn to cheap rail transport due to high cost of travelling by road.

NRZ operates three daily and two weekly inter-city passenger train services countrywide. The daily train return routes are Bulawayo-Victoria Falls, Bulawayo-Harare, Mutare-Harare while the weekly service is offered on the Bulawayo-Chiredzi and Bulawayo-Chikwalakwala routes.

NRZ public relations manager Mr Nyasha Maravanyika said the Bulawayo-Victoria Falls and Harare-Mutare were the company’s cash cow.

“Passenger volumes have generally increased by between 274 and 373 percent per week on our inter-city routes. Southern region volumes have gone up to 10 000 which is a 373 percent increase while the Eastern region volumes went up to 5 000 passengers which is a 274 percent increase. In the Midlands region there is a 275 percent increase to 943 passengers per week,” said Mr Maravanyika.

Southern region covers Matabeleland North, Matabeleland South and Bulawayo while the eastern region covers Harare, Manicaland and Mashonaland provinces. Midlands caters for Midlands and Masvingo provinces.

Mr Maravanyika said the Bulawayo-Victoria Falls and Harare-Mutare trains have nine coaches each on average per trip while other routes have six each. Each coach has a sitting capacity of 100 passengers.

“We have been overwhelmed by numbers since the festive season when road transporters started increasing fares. Passengers have been requesting that we add more coaches especially on the Bulawayo-Harare route. The Bulawayo-Harare route is supposed to be our flagship in terms of numbers but it’s not yet there,” he said.

A ticket between Bulawayo and Victoria Falls or Bulawayo and Harare costs $9, compared to between $35 and $60 charged by road transporters.

Mr Maravanyika said while numbers are picking up between Bulawayo and Harare, the train service was facing challenges due to vandalism of the infrastructure between Harare and Gweru. The stretch used to be electrified but was destroyed by thieves who stole copper cables and illegal panners who mine along the railway.

As a result the train moves slowly between Gweru and Harare. Mr Maravanyika bemoaned the extent of vandalism of the track especially in Kwekwe, Shurugwi, Munyati and Bindura, where signals equipment was also destroyed.

He said NRZ was pinning its hopes on closure of the $400 million recapitalisation deal signed with Diaspora Infrastructure Development Group (DIDG)/ Transnet to refurbish and in some cases overhaul locomotives, coaches and the railway line.

@ncubeleon

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Source: Unpacking the monetary policy | Sunday News (Business)

Agatha Rufaro Changau

THE long-awaited monetary policy that was presented by Reserve Bank of Zimbabwe Governor Dr John Mangudya last week was received with mixed emotions.

Obviously, many people were left with unanswered questions concerning some of the pronouncements that were made. A monetary policy is a process by which the monetary authority of a country, typically the central bank controls either the cost of very short-term borrowing, often targeting an inflation rate to ensure price stability and general trust in the currency. I will try to unpack some of the pronouncements so that people can understand the implications or rather what they mean.

The policy highlighted inter-banking of foreign exchange RTGS balances and bond notes with the USD and other currencies on a willing buyer-willing seller basis through the banks and bureaux de change — offices that facilitate foreign currency exchange legally with immediate effect.

Willing buyer and willing seller means the market forces of demand and supply will take precedence and determine the rate of exchange on a daily basis. This suggests that the exchange rate is no longer pegged at 1:1 as before but is now operating at a managed floating exchange rate.

A managed float regime is the current international financial environment in which exchange rates fluctuate from day to day, but central banks attempt to influence their countries’ exchange rates by buying and selling currencies to maintain a certain range. The other aspect is around denominating existing RTGS balances, bond notes and coins in circulation as RTGS dollars in order to establish an exchange rate between the current monetary balances and foreign currency. In short the RTGS dollars thus become part of the multi-currency system in Zimbabwe.

The legal instrument to give effect to this has been prepared. This means all the bond notes and coins in circulation are now part and parcel of what is known as RTGS dollars. This also includes the existing RTGS balances that most Zimbabweans have been relying on for transactional purposes.

In his own words Dr Mangudya said “the bond note fits well and is part of the RTGS dollars. The RTGS dollars shall be used by all entities (including Government) and individuals in Zimbabwe for the purposes of pricing of goods and services, record debts, accounting and settlement of domestic transactions.”

This means that all salaries and incentives will be denoted in RTGS dollars. Then one would ask, “what about those who had or intend to take loans?” All loans that are record debts shall too be denoted in RTGS dollars.

The RTGS dollars comes about to try and solve the three-tier pricing system that had now become evident in Zimbabwe, where goods or services had prices in bond, prices in RTGS (EcoCash and swipe) and the USD price with some even having a rand price. In this regard, prices should remain at their current levels and or start to decline in sympathy with the stability in the exchange rate given that the current monetary balances have not been changed.

Dr Mangudya said the bank has arranged sufficient lines of credit to enable it to maintain adequate foreign currency to underpin the foreign exchange market. This is essential to restore the purchasing power of RTGS balances through safeguarding price stability emanating from the pass-through effects of exchange rate movements. Restoring the purchasing power of the RTGS balances is of importance since most of the transactions are done using RTGS and most salaries are delivered in the same form.

Dr Mangudya also announced that the foreign currency from the inter-bank market shall be utilised for current bonafide foreign payment invoices except for education fees. In simple terms the foreign currency from inter-banking that is banking of banks among each other will be used to pay foreign debts excluding education fees.

However, banks shall report activities of the inter-bank foreign currency market to the bank that shall closely monitor the foreign currency trades on a daily basis using the form and format stipulated by the Bank.

This is done to monitor especially those depositing or withdrawing large funds and addressing the question of source funds comes into play. According to the policy, in order to allow exporters to benefit from the inter-bank foreign currency market and to promote uninterrupted supply of forex in the economy, the export retention thresholds were introduced for different sectors.

This is a good thing because exporters were suffering from the previous rate 1:1.There is a casual effect that will occur as exporters can export more now with the introduction of the thresholds, this means that there will be inflow of foreign currency that can help stabilise the demand of it in the domestic market.

Similarly, in order to enhance liquidity within the foreign currency market, exporters shall be entitled to utilise their retained export receipts within 30 days, after which the unutilised export receipts will be offloaded into the market at the prevailing market exchange rate at that given date.

The policy also touched on that given the successful completion of the separation of RTGS, FCAs and Nostro FCAs, the RBZ has put in place a local Nostro FCAs settlement platform to allow for domestic inter-bank settlement of Nostro FCA transfers. This means that one can now withdraw from their local Nostro FCA to get foreign currency at the given rate on that particular day.

The implementation of International Financial Reporting Standard (IFRS) 9 represents a significant milestone in financial stability enhancement due to the forward-looking nature of provisions set under the new standard. IFRS 9 specifies how an entity should classify and measure financial assets, financial liabilities, and some contracts to buy or sell non-financial items.

In order to strengthen the stability and resilience of the financial system, the Bank is putting in place a macro-prudential policy framework which will be operational by 30 June 2019. Overall the measures highlighted in the statement are expected to improve the competitiveness of the economy by appropriately rewarding exporters while at the same time reducing price distortions and arbitrage within the domestic market.

RBZ also committed itself to reduce inflation within growth enhancing levels, while minimising the adverse effects of a tight monetary framework in order to enhance production and productivity in the country.

One of the contentious issues among people was dollarisation. Some thought the country needed to dollarise.

Looking at countries that have fully dollarised before such as Ecuador and El Salvador in Latin America, the move comes with its own advantages and disadvantages. Dollarisation that is, the use of foreign currencies as a medium of exchange, store of value, or unit of account is a notable feature of financial development under macro-economically fragile conditions.

One of the many disadvantages of taking the dollarisation route is that it reduces the cental bank authorities’ capacity to use monetary policy and makes it harder to use the central bank’s lender-of-last resort function to stabilise the domestic banking system. In simple terms it cripples the central bank as it cannot play its crucial part of being the “bank to other banks”.

On the other hand, dollarisation may also have some merit in very specific circumstances. In economies with high and volatile inflation, allowing foreign currency deposits may encourage residents to transact through the banking system rather than deposit money abroad or hold their savings in non-monetary assets. The use of a foreign currency can also bring credibility to a country’s disinflation efforts, notably in situations of very high inflation.

Countries that have experienced episodes of high inflation or hyperinflation have often used the exchange rate as a nominal anchor and have managed to bring inflation down through exchange rate-based stabilisation programmes. For these countries, dollarisation is a way of benefiting from the long track record of the monetary and fiscal authorities of advanced economies and the credibility that is associated with their currencies.

In highly dollarised economies, therefore, the debate about reforms frequently centres on whether these economies should fully dollarise, fully dedollarise, or maintain the status quo.

-Agatha Rufaro Changau is an economist with a local university. She can be contacted by email on agatharufaro@gmail.com

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