eBusiness Weekly
While every economist and quite a few others would like to see Zimbabwean develop a savings culture, all those bursts of inflation over the last 25 years, with a pause for dollarisation when there was nothing to save, have made it difficult to get people even to start.
There is the rough and ready short and medium term saving, buying US dollar banknotes on the black market and stashing them secretly in a trunk, but not much advance on this.
Yet there could be a lot more than was possible. One reputable finance house has now introduced unit trusts based on gold coins, which does allow people to invest less than even the cost of a one tenth ounce coin, or more positively, allows them to save regular amounts of money each month without worrying about making the exact sum for a particular size coin.
This seems an innovative product. Although gold prices can rise and fall, sharp collapses and sudden spikes are far more unusual that what can sometimes be seen in stock markets, the golden bulls and golden bears tending to be more placid creatures that most. And even if prices go down, there are limits over just how far they can fall. Unlike a company issuing equity a gold coin can never go bankrupt, so the risks are moderate and the innovative unit trust is more a way that anyone without the resources to stack up a pile of coins in a safe or bank can still get the value preservation that gold usually offers.
There are still a few equity-based trusts around, although nothing like the range and number that we saw as inflation rates soared during the hyperinflation of the early and middle 2000s when these were sometimes used for very short-term savings, a month or a few weeks, as people desperately tried to save some money for a modest bill, like school fees or some fancy dental work.
Others stockpiled goods, rushing out as soon as they were paid and buying up bags and tins of food that they could stash in a cupboard and eat at leisure, or even bottles of booze that they could hide away drink cheaply later.
Schemes that offer this will be needed more and more as the local currency assumes an ever more dominant position in the economy. A lot of businesses now might quote prices in US dollars for a wide variety of items, and even private schools do this with their fees, but all are obliged by law to take local currency in payment, but at the prevailing interbank exchange rate on the date of payment.
So we have the oddity of a country where ever more business is done in local currency, but ever more pricing in US dollars, as suppliers and customers find reasonably fair solutions to the eternal problem where even modest single digit monthly inflation can quickly erode a good deal of value of the local currency, and even a bit of value these days from the US dollar when you look at the sort of complaints coming from the US itself.
A very wealthy person has little difficulty preserving the rough value of their assets and gaining a positive income at the same time, with modest risks.
A well-diversified portfolio of equities and a spread of property across business, industrial and residential buildings in well-chosen areas will work quite well. But you have to be right there well inside the top one percent of the population, and even the top one in a 1000 to even start putting together than sort of portfolio of assets.
Unit trusts offer the opportunity, for modest fees, of participating in a range of assets. This was mostly equities. But now the opportunity exists to create something similar with property portfolios although only one of the new real estate investment trusts is being launched, although there are older pure property unit trusts around.
Strictly speaking units trusts should not be seen as short term investments or savings instruments, although they have been used as this during times of high inflation as people become desperate to preserve some value, and are prepared to watch fees on buying or selling the units chew up some of the value.
A longer-term saver will face, in proportion, lower fees since these fees can be spread over a far longer time.
But here again a more innovative fund manager might be able to come up with something that makes sense for the saver who, for example, needs to assemble over four months enough money to pay one term’s school fees. Bank savings tend to be first more inflexible, when what someone needs is a one quarter of the money at three months, one quarter at two months, one quarter at one month and the final quarter as cash that never hits the savings.
But something built around unit trusts could work. The same sort of scheme would benefit the business person who has to pay income tax every quarter. They would probably like to be able to stockpile some cash, in a way that preserves its value, for two of the three months and then add in the last month’s cash and pay off Zimra.
Forward buying appears to offer a number of advantages for some suppliers and customers, especially in the farming sector, where demand for things like seed and fertiliser is very seasonal, with few sales over a period of months and then everyone wanting their inputs very quickly.
Back in colonial times one fertiliser company used to offer reasonable discounts on fertiliser to farmers who bought early. This helped that company have something closer to a 12 month production cycle without having to find or borrow vast sums in working capital. In a sense the working capital was partially provided by customers who bought early, and the discount could be thought of as the cost of that capital.
These days few farmers have large, very dry and rain-proofed barns where they can safely store fertiliser for several months, but innovation again can find solutions, since companies do have access, or can rent cheaply, such warehousing.
So it is possible to imagine a scheme were a farmer, as soon as they are paid for their harvest or the self-financed portion of their harvest, rushes off to the input suppliers and pay for the inputs for the next season, although they only want the physical inputs in six months. The suppliers might be able to fix a price there and then, if they are in production, or fix it a month later once they have used the customer money to hit the auctions for imported raw materials and so can fix the final price.
In return for access to working capital at a lot less than the 200 percent a bank must charge borrowers, the input suppliers can easily manage to offer free storage and quite possible find some other ways to attract their customers to buy early.
There will be, in all of this, some speculator trying to cause disruption, but as every farmer these days has to be registered in some form, it should be possible to limit the scheme to working farmers, even if this does involve linking data bases, which should be done in any case.
Agriculture as everyone knows has this massive need for cash at particular times among farmers, suppliers and buyers. Trying to flatten these three spikes in a way that reduces costs of manufacture and of production in the farms seems something that should at least be worked out.
This will need investigation of all its implications and everyone having their say, and then implemented if it does as advertised: spread the funding of input manufacture, allow farmers to lock in prices as soon as they are paid for the last harvest, and cut the cost of working capital for the input suppliers.
One advantage of these waves and spikes in inflation, hopefully now licked, is that credit sales are largely dead. The days when large percentages of consumer goods were sold on credit is largely over.
But this simply opens the door to innovative banks and finance houses to create the necessary savings instruments for someone saving up for something, so needing a flexible product.
It is not much use wishing for a savings culture if there are not the correct products available that offer the opportunities for savers to at least preserve the value of their savings, and preferably let them grow a bit while the money is stashed away, and which allows variable terms for each month’s batch of savings to mature, so someone on a set date has the right amount of money for expensive school fees, or to buy a television or to buy a car.
