Dollar threatens industry competitiveness

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A ZIMBABWE economic outlook assessment for 2015 presented to the Confederation of Zimbabwe Industries (CZI) by a leading economist has indicated that the country has to de-dollarise to improve competitiveness in industry.

BATANAI MUTASA
OWN CORRESPONDENT

University of Zimbabwe Graduate School of Business lecturer professor Tony Hawkins recently said a competitive exchange rate was essential for rapid output, employment growth and reindustrialisation, but the dollar was too strong against other currencies.

“If – as seems likely – the dollar continues to strengthen, Zimbabwe’s competitiveness deficit will deepen,” Hawkins said.

“Unless the dollar declines steeply in the interim, policymakers will have, at some future point in time, to decide how and when to de-dollarise.”

Hawkins explained that a competitive exchange rate was a prerequisite for taking manufacturing to the next level.

For more than a decade, Zimbabwe has suffered unhindered deindustrialisation, which was not eased by the adoption of a multi-currency system in 2009.

Although the country experienced a spell of stabilisation as a result of shelving the worthless Zim dollar, this stability did not resuscitate ailing industries.

“After enjoying the benefits of dollarisation we are now up against the flipside – not just currency overvaluation, but also deflation,” Hawkins said.

He said sleepwalking into dollarisation, as Zimbabwe did, was far easier than exiting it.

The Reserve Bank of Zimbabwe (RBZ) introduced bond coins in December 2014 to alleviate the problem of change in the country, raising speculation that the return of the Zimbabwe dollar was imminent.

RBZ governor John Mangudya insisted that he would not experiment with the economy saying the local currency would not return in the foreseeable future.

Mangudya echoed Hawkins sentiments at a Zimbabwe National Chamber of Commerce bond coin sensitisation workshop in Bulawayo last week.

“We are using the dollar which is appreciating in America and as it appreciates, we are also appreciating as it is outside our control, so Zimbabwe’s cost of living becomes higher.

When prices are higher, we import more and that reduces our competitiveness,” Mangudya said at the workshop.

Despite a seeming agreement by economic experts that using the dollar was stifling industry, no direct formula to phase it out was stated.

Mangudya has indicated his desire to tackle the country’s pricing regime and lower it through the introduction of bond coins to facilitate the availability of change.

On the other hand, Hawkins said the best way forward was a combination of far-reaching structural reforms to boost competitiveness while simultaneously moving – very gradually – towards a more competitive exchange rate regime.