Liquidity crunch threatens economic gains

Posted on May 21, 2010 | Category: Politics; Business, Sport

THE inclusive government should address the country’s liquidity crunch to
preserve economic gains achieved by the unity govt. The general principle
the world over is that treasury leads the public debate on the adoption of
national economic policies, not just as a way of consulting the public but
also as a research mechanism. As things stand now business and the general
public do not know what policy exists – if any is in place – to address the
problem of low liquidity.
At some point in the early days of this government various options were
tossed around. Among them was for Zimbabwe to join the Rand Monetary Union.
The proponents of this view were never provided a platform for robust and
conclusive debate on the subject. The buck  stops at the treasury’s
doorstep. Of course there were some who were of the view that we should deal
with the country risk first and all other things will naturally align.
Whichever view one holds, from a strategic planning point of view some
approaches will fall into the short-term while others constitute long-term
The point is we need a solution now. The business community is frustrated,
so are the employees, investors, civil servants and consumers in general. In
a nutshell low liquidity affects everyone particularly the vulnerable. How
can the economic wheel turn without this important lubricant?
After adopting foreign currency as our medium of exchange, dealing with the
cash scarcity should have been the first priority for government. We need to
debate exhaustively within a short period of time the merits and demerits of
joining RMU. A do-nothing strategy does not work but worsens our situation.
Government must have a clear-cut policy on solving economic ills. At  the
moment the approach is rather confusing and skewed towards political
considerations. Where is the policy that encourages locals to channel the
little money in circulation into the productive sector?
The Zimbabwe Stock Exchange (ZSE) mirrors lack of strong policy guidance on
this issue. It is common knowledge among economists and financial analysts
that the secondary markets provide liquidity to the primary markets. Thus,
primary markets feed into our industries. Obviously this should help
corporations mop the little cash there is in the market in order to finance
growth projects and recurrent expenditure.
As a domestic investment policy it might be necessary to examine the
activities of ZSE with a view of making stocks affordable to low income
earners such as civil servants. For instance some stocks on the ZSE are way
too expensive yet the same corporations fail to raise funds for their
expansion projects and working capital requirements. Are they not hostile
takeovers by underwriters who in the majority of cases are foreign
conglomerates?  Ignoring activities of the ZSE flies directly in the face of
Indigenisation minister Saviour Kasukuwere’s  Indigenisation Act.
For me the most important outstanding issue of the global political
agreement is the formation of the National Economic Council. This body must
be operational as a matter of urgency so that government obtains wise
counsel on economic matters. Can the inclusive government listen to the
cries of owners and employees of Dunlop, United Refineries, National Foods,
Belmont Leather, Archer Clothing etc where workers sometimes go for months
without salaries due to raw material shortages as a result of low liquidity.
Finance minister Tendai Biti certainly has the right attitude but wrong
aptitude. I do not think that it would take us this long to establish
networks or forums through which economic policies can be crafted quickly in
response to the goings-on even at company level. Talk to the Zimbabwe
National Chamber of Commerce and Confederation of Zimbabwe Industries and
they will make recommendations to government as far as the issue of
liquidity is concerned. You will get the impression that there is a dire
need for bridging policies formulation and implementation.
The inclusive government must sing from the same hymnbook. It must avoid
sending conflicting signals to the market. Cabinet sits on Tuesdays
fundamentally to establish a common position on issues of national interest.
The confusion around the Indigenisation Act – currently being panel beaten –
should be avoided. Zimbabwe should deal with inequality head-on, be it
social or economic. However, it makes no sense to adopt policies that seek
to make someone better off by simultaneously making another worse off.
The total value of our mining sector stands at about US$20 billion.
Localising 51% means transferring US$11 billion to the locals. This sounds
wonderful but how do we mobilise US$11 billion for our indigenous people in
this economic environment. Good policies at the wrong time will throw the
whole economy off the rails.
The principals, President Robert Mugabe, Prime Minister Morgan Tsvangirai
and Deputy Prime Minister Arthur Mutambara, have tried to lure investors to
the country but the problem is that investors tend to take counsel from the
Chinese proverb which says “listen to what a person says and watch what he

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