Mixed Feelings Over Rand Adoption

Mixed Feelings Over Rand Adoption
Published: 2016 June 16 05:28:13 (2018 Views)


ADOPTING the South African rand as the major transacting currency could force a price correction in Zimbabwe and enhance local manufacturers’ competitiveness while solving the liquidity challenges the country is currently facing, analysts have said. But it faces resistance. While bankers and industry have recommended the adoption of the rand or joining the rand union formally as a way to reduce concentration of risk associated with heavy reliance on the United States dollar, some members of the public feel that Zimbabwe should stick with the US dollar. Currently the US dollar accounts for 95 percent of all transactions.

Analysts said Zimbabweans could simply adopt the rand as a major trading currency by automatic conversion to rand without formal agreement with SA but could also seek to formally join the South African rand multilateral trade area.

In its recommendation, the Bankers Association of Zimbabwe is of the view that adopting the rand could be a master stroke as it could have a number of advantages for Zimbabwe.

First, bankers believe that there could be less pressure on the rand because of its unattractiveness and this could mean less illicit financial flows as associated with the US dollar. The bankers say so because, Zimbabwe lost $1,8 billion to externalisation in 2015 alone.

Second, the bankers are of the view that since South Africa is Zimbabwe’s largest trading partner with export to that country representing 78 percent of Zimbabwe’s total exports while imports from SA represent 22 percent of total imports in March 2016, using the rand could be beneficial to local exporting companies.

Industry’s representative body, the Confederation of Zimbabwe Industries, argues that the adoption of the rand could enhance local manufacturers’ competitiveness because it would make cheap imports irrelevant.

The CZI believes that the measure could take away that incentive apart from helping manufacturers to adjust costs to those prevailing in the region.

Analysts argued that the adoption of the rand could force price adjustment and force business to move away from the high prices Zimbabweans have to grapple with currently. Economic analyst Dr Gift Mugano said local prices are on the high side as people are still stuck in the old hyper-inflationary days.

“Right now people take advantage of the US dollar to charge unreasonably high prices so there will be price correction (if the rand is adopted as the major transacting currency) and our exports will also be price competitive,” said Dr Mugano.

The high prices charged by local manufacturers are forcing most Zimbabweans to shop in South Africa where goods are reasonably priced. But the adoption of the rand and adjustment in costs could make people spend locally. But the budget would have to be announced in rand while salaries and wages would have to be rand denominated.

“If we adopt rand, we will forego pricing in USD, budget will be announced in rand too as well as salaries for civil servants will be converted to rand. The US dollar naturally makes our products expensive as the rand depreciates but using the South African currency will take away the advantage South Africa has over us. It can help companies restore viability,” he said.

Another economic analyst, Thomas Masese said if the rand was introduced, liquidity challenges would be dealt with immediately.

“Currently all countries around us are making all efforts to get the US dollar by whatever means but if we introduce the rand the chances of its flight out of Zimbabwe will be very low hence the liquidity issues will be dealt with immediately.

“There will be tendency on the Zimbabwean market to continue pegging prices in US dollar and speculation may cause prices in rand terms to creep up. But if we look at the performance of the Southern African Customs union, I think we are better placed using the rand,” he said.

He said the country’s industries would be forced to become competitive in rand terms as they will be facing direct competition from the across the Limpopo.

Mr Masese, however, warned that a strong black market for US dollar could emerge on the markets. But making the rand the major currency of trade would come at a cost, as the rand is not that stable against major currencies.

Economist Masese said movements of the rand against major currencies will also affect Zimbabwe making the country vulnerable to SA’s challenges.

“On the negative, the value of the rand will depend on the performance of the South African economy which we know is not very good at the moment,” said Mr Masese.

A snap survey by The Herald Business showed that residents have mixed feelings over the adoption of the rand as the country’s major transacting currency. Others want the rand as the major currency while others want to stick with the green-back.

A mobile phone accessories vendor Edmore Mukonda, appreciates that since most of their supplies are from South Africa adopting the rand could be convenient for most traders. He actually prefers the rand as opposed to bond notes.

“If we use the rand, we will not have to convert our US dollar into rand since we buy our goods from South Africa. Even prices will remain stable. If bond notes are introduced, black market will increase hence prices will not be stable,” said Mr Mukonda.

But another street vendor, Tanyaradzwa Chimhamhiwa said the country should remain with the US dollar as the rand is not that stable.

“The rand sometimes loses value so I do not think it is wise to adopt that currency (as the major transacting currency). Some of us do not import our wares from South Africa. I think we should remain with the US dollar as our currency,” she said.

A mobile phone dealer operating at the parking lot formerly Ximex Mall Mr Nyasha Kwenda, concurred saying the rand is not reliable.

“The rand is not reliable, it is losing value so I am in favor of the US dollar. What I think they should do is introduce plastic money like what was done in South Africa, you rarely see people using money because they use bank cards to buy what they want,” he said.



- Herald
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