eBusiness Weekly
Rufaro Hozheri
The word dollarisation has many meanings to a lot of Zimbabweans occupying different spaces in the economy.
To an ordinary citizen who is not bothered by the details of the economics behind it, this means stability, and the ability to plan and budget with any penny you get.
It triggers memories of that period between 2009 to 2016 when you would rarely worry about inflation or exchange rate.
To policymakers and people in charge of running the country, it might imply a “supermarket economy” or limiting the Government’s ability to influence the monetary policy for the ultimate benefit of growing the economy.
If you talk to an exporter who has to retain 60 percent of their export sales and liquidate the remainder at official rates, full dollarisation to them will mean retaining 100 percent of their exports.
The fact that quoted companies are rallying towards the US-dollar-denominated stock exchange is enough to suggest that perhaps these companies see value in trading in a dollarised environment.
Dollarisation could imply something different to the national revenue collector who has been surpassing targets for some time now.
Then there is a group of individuals who believe, whether dollarisation or using the local currency it really doesn’t matter, as long as inflation is at reasonable levels and currency can fluctuate rather than depreciate all the time.
Terms such as currency board ie an extremely fixed regime requiring backing every issued penny by reserves are sometimes thrown around as potential solutions to our problem.
At least one thing that all the parties can agree on is that the Zimbabwean economy is continuing to dollarise by the day.
The country received US$11,6 billion in foreign currency receipts in 2022 representing a 20 percent jump from US$9,7 billion in 2021 buoyed by a strong mining sector earnings and remittances.
Although the country is receiving such huge amounts of foreign currency, the reason why there is no stability in the local currency boggles the mind.
The Central Bank Governor is content with a 60:40 ratio with the larger part of the economy dollarised.
However, the numbers coming from the national statistics agency ZimStat signal otherwise.
Almost 77 percent of the economy is now transacting in the greenback with divisions such as Education, Hotels and Restaurants, Furniture & Equipment and Clothing almost fully dollarised.
To get a second opinion from the number represented by ZimStat we can look at trading updates and results from the corporate sector.
According to the survey done by the Industrial Psychology Consultancy (IPC) in 2022, 83 percent of the surveyed organizations pay a certain percentage of the salary in USD.
Ecocash Holdings Zimbabwe Limited, the parent company to the mobile money service and Steward Bank reported in a trading update that they are focusing on growing the transactions in the US$ and expect to see growth in the digitalised US-dollar economy.
The company also reported that it has witnessed a significant decrease in local currency-denominated transactions.
The major problem with our dollarisation is that it is triggered by the informal sector hence it is more of a cash dollarisation.
The effect of cash dollarisation, especially with regard to individuals as opposed to corporates is that it will take time to be included in the banking system and mobilised to provide funding for economic growth.
Economic agents will prefer to keep their savings under the mattress than in the banking system especially given the loss of value that they experience before.
The banking unit of EcoCash Holdings, Steward Bank is also aggressively lending in US$, especially to the corporate sector. This comes after the apex Bank hiked the policy rate from 80 percent to 200 percent in 2022.
The implication is that the cost of borrowing in local currency went up significantly making that option less attractive for both the borrowers and lenders. Other banks like CABS and First Capital Bank hinted last year that a significant portion of their loan book was now in US$.
As more banks release financial results and trading updates, we expect to see more business in hard currency.
Ecocash also reckons that the reduction in Intermediate Monetary Transfer Tax (IMMT) from 4 percent to 2 percent with effect from January 1, 2023 should improve and accelerate the use of US$-denominated mobile transfers.
This comes after the authorities introduced a 4 percent IMTT on transactions denominated in the greenback to dissuade foreign currency use.
It seems the position of the authorities has changed ever since, with the multi-currency regime expected to continue at least up to the end of the National Development Strategy (NDS1) in 2025.
Delta Corporation, a leading beverage producer in the country and the biggest listed company on the ZSE by market capitalisation also confirmed that a huge part of their sales are now in US$, with the percentage now above 70 percent. This is somewhat in line with the numbers that ZimStat presented.
Given that most of the forces are towards dollarisation, it however does not mean that all of our problems will disappear. Anyone who has been following closely on prices in Zimbabwe would confirm that there is also inflation even in US$ terms.
Two pieces of chicken and a portion of chips which used to cost US$2 in 2019 now costs US$4.
A litre of petrol that used to sell for slightly over a dollar now cost US$1,59. Even if we fully dollarise, it might not be as before.
