Analysts have pointed out that efforts to solve foreign currency challenges by the government and the business sector are misdirected if they exclude the informal sector, as their activities account for most economic activity in the country.
Last week Business Membership Organisations (BMOs) met to deliberate the state of the economy plus the interbank foreign exchange market.
In that meeting, Confederation of Zimbabwe Industries (CZI) president, Sifelani Jabangwe called for restraint among economic players since current challenges were propelled by panic and speculation.
But the composition of that meeting has been challenged as it excluded the informal sector, mostly the Small to Medium Enterprises (SMEs) who run small shops that have sprouted ‘everywhere’ after the closure of big companies.
In an interview with CITE, an economics lecturer at the Bindura University of Science and Education, Dr Felix Chari said any meeting to discuss the state of the economy and foreign currency challenges had to include a true representative of the ‘much affected and influenced.’
“The composition matters as it affects the decision and the outcome of the meeting. Due to economic stress on business, a number of companies dissolved which resulted in a larger portion of the economic brains developing a wider base of small businesses in the informal market. These small businesses are arbitraging on currency, and the current foreign currency condition is profiting them. Thus it will pose a challenge to reach an optimal decision jointly,” he said.
The economist added that a number of players in the industry were informal and these were the ones who needed foreign currency badly.
“But they cannot access the interbank and rely on the informal market while those businesses who access interbank would arbitrate access foreign currency from the formal market and trade it at the informal market because it makes sense for them rather than using forex for production and that’s wrong,” Dr Chari said.
He pointed out that while other players such as industry and labour may have contributions, they could only be working in the confines of set policies, as the role of reviving the economy largely lies with the central government which formulate policies.
“The government is misdirecting its efforts in fixing the foreign currency issue. The major reason why this crisis exists is that we are not producing enough and most firms are operating below full capacity. Therefore, our policies must encourage investment in reviving industries and exports so that we earn the much needed foreign currency,” said the economist.
Dr Chari added it was crucial to question the role of government in economic stabilisation.
“The government has the sole power to adjust policy so as to suit the current business environment. The government has to adjust conditions to access foreign currency. The current situation is denying the bulk of the agent’s access to foreign currency which results in the few who are accessing it through the bank resorting to selling it on the black market,” he said.
Meanwhile, on the latest announcement by the Reserve Bank of Zimbabwe that oil companies would now be required to compete for foreign currency on the interbank market, analyst Thomas Sithole said this development would likely result in fuel hikes.
Once fuel goes up, the increases extend to other commodities meaning consumers have to brace themselves again, he claimed.
“For example, the ZUPCO fares that were reduced by government to 50 cents and RTGS$1 will not be sustainable following the same government’s liberations of the procurement of fuel. The new policy that requires fuel companies to source forex from the interbank market has resulted in an increase in fuel prices. The product price increase is imminent as the cost of production has also gone up,” he said.