Nelson Gahadza and Michael Tome
Zimbabwe received improved foreign currency inflows estimated at over US$10 billion in 2022, however, this will have minimal impact on the economy and exchange rate due to the high demand for foreign currency within the economy, analysts have said.
The high demand for hard currency is a result of the economy which is now more dollarised.
Diaspora remittances grew 15,9 percent in 2022 to US$1,65 billion after around US$290 million was received in the last two months of the year. This compares to 2021 remittances of US$1,43 billion. Diaspora remittances usually make up a sixth of the country’s foreign currency receipts and are the third largest foreign exchange earner after gold and platinum group metals (PGMS).
Economist, Vince Musewe, told Business Weekly that what the Central Bank is offering at the moment is not enough and bulk of the remittances are owned by large conglomerates and tobacco farmers.
“The improvement of foreign currency inflows is largely a result of the big conglomerates, tobacco farmers and other exporters and it means they will have more capital to expand. Whether this will have an effect on the economy remains to be seen.
“This is because liquidity shortages and elections are putting a damper on the economy. Therefore, we will not have significant confidence because the inflows have increased,” he said.
It is estimated that the monthly remittance flows from South Africa to Zimbabwe only, range between US$30 to US$60 million through both formal and informal channels and account for over 10 percent of the country’s GDP according to the World Bank.
Gorden Moyo, Lupane University lecturer and former State Enterprises and Parastatals Minister during the Government of National Unit, said the improved capital inflows are insignificant compared to the huge need for foreign currency across all the sectors of the economy.
“There is not enough foreign currency for importing electricity and critical raw materials. The country does not even have enough foreign currency to service its debts and to build foreign currency reserves,” he said.
Moyo said both the Reserve Bank of Zimbabwe (RBZ) and the Government failed to be prudential in their use of the Special Drawing Rights (SDRs) after the country in 2021 received over US$960 million from the International Monetary Fund (IMF).
Analysts feel the money should continue to be channelled towards productive sectors of the economy.
“While the authorities are reporting improved receipts of foreign currency flows that are largely driven by mineral exports including gold and platinum group metals, they however ,are not saying much on illicit trade and illicit financial outflows which far outweigh the inward bound capital flows,” he said.
Between the years 2000 and 2020, Zimbabwe is estimated to have lost over US$32 billion through illicit financial flows.
Most of the illicit financial flows happen through profit shifting, mispricing, money laundering, and other financial delinquencies.
Moyo said it is too early to project price stabilisation, inflation containment, and foreign currency exchange stabilisation because of the ephemeral nature of the increase in foreign currency inflows.
Economist, Dr Reneth Mano, said restoring business and consumer confidence in the economy required the alignment of key macroeconomic fundamentals that give birth to, nurture, and sustain domestic economic stability.
He said there are three critical indicators of stability: sustained low inflation rate of prices, goods and cost of labour, low and stable positive interest rates on both savings and loan facilities, rates, and stable market-clearing domestic exchange rate.
“None of these three crucial macroeconomic prices are presently stable. Inflation remains highest in the SADC region at 244 percent in a region where inflation in trading partner economies are low at 4,8 to 14 percent.
“RBZ monetary policy measures managed to slow down the rate of monthly increase in inflation, but are yet to slow down domestic inflation to the sub 20 percent prevailing in the SADC region,” he said.
Another Economist, Eddie Cross, noted that foreign exchange receipts have been on a serious growth for the past two years, growing at a rate of about 30 percent per annum, a figure that has potential to impact positively on the economy.
Zimbabwe receives considerably higher sums of foreign currency compared to its regional peers but the foreign exchange rate has continued to be a nightmare, spiralling willy-nilly to the detriment of the economy and the formally employed workforce at large.
“The difficulty despite this is the parallel market rate which continues to depreciate and I think the only explanation to that is that the system is wrong. Authorities have to give us an explanation as to why this is going on, for me, the explanation is quite simple we have not got a proper market for foreign exchange in Zimbabwe, we have too many exchange controls and until we liberalise our foreign exchange market we will not see any stability.
“I was in Mozambique on Tuesday, their Meticals have been stable for a year, low inflation, Zambia and Botswana is the same albeit lesser foreign exchange receipts,” he said.
Professor Gift Mugano said now that there is a significant portion of US dollars in the economy, the policymakers, the Central Bank, now need to review some policy instruments which were biased against the Zimbabwe dollar which are now being weakened because the economy has now moved to a USD denominated economy.
Finance and Economic Development Minister Prof Mthuli Ncube, recently said the Government will create formal channels for the Zimbabwean diaspora to invest in the country as they have shown potential to contribute towards national development.
He said Zimbabwe has a significant number of citizens residing outside the country who can contribute towards national development through remittances, investment, skills, resources, and networks if sufficiently harnessed.
“We are going to create formal channels for investing in Zimbabwe by the Diaspora in order to harness and maximise the potential of their contribution to Zimbabwe’s development and encourage them to use formal channels of remitting funds to Zimbabwe for development purposes by creating the enabling environment,” he said.
Currently, an estimated 48 percent of the Zimbabwean diaspora is in South Africa, followed by the United Kingdom at 16 percent. Seven percent are in the United States and 5 percent in Australia