I remember attending a breakfast seminar hosted by the Zimbabwe National Chamber of Commerce last year in November. The breakfast seminar was about the introduction of the Bond Notes onto the market by the Reserve Bank. I remember the governor Dr John Mangundya speaking passionately about 3 issues affecting the country. He said the Bond Note is not the main issue but a symptom of other issues that needed to be addressed and these are:
- lack of exports leading to a huge trade deficit
- The high and unsustainable government expenditure spend on salaries. At the time the government wage bill was 90% of the total government revenue
- Lack of foreign direct investment in the country
So the Bond Note was not really an issue, the issues that need to be addressed are the 3 mentioned above and they cannot be solved in isolation as there are a lot fundamentals that need to be resolved.
The Bond Note was introduced as an export incentive with a 5 % premium to attract more exports, attract more diaspora remittance infows and also help solve the cash crisis. It is exactly 8 months after the introduction of the currency what is the verdict?
We do not have statistics to analyse the effectiveness of the Bond Note in attracting diaspora remittances or helping to drive export growth but we do have evidence of the cash crisis situation. The cash crisis situation is still with us, infact it has worsened because some banks have stopped disbursing cash altogether on certain days.
The Reserve Bank has used $160 million of the Afrexim bank Facility and only $40 million worth of Bond Notes is left. If they withdraw the remaining funding, will the cash problems suddenly disappear? We do not think so, even if they bring another $200 million, the problem will still remain and the reason is simple….the cash will not solve the 3 issues that t Dr Mangudya mentioned above.
In comes the Cash Barons
The aim of this article is to look at the cash problem which has been exacerbated by cash barons. So far no official information is available as to who they are and our assumption is that the RBZ is not involved in the market like what happened during the 2008 era.
The cash barons are back in full swing and are now found everywhere especially in the city centre. Some are moving around with mobile swipe machines. If you fail to access cash at the bank as has become the norm for the majority of people, all you need to do is to approach cash barons who will give you cash at a premium ranging from 10% to 15%.
If you would like to withdraw $100 from your bank and would like to get cash then you are expected to do a bank transfer of $110 or $115 to cash barons.
Who bears the cash premium?
If it is a company that is in the retail sector that has been charged the $10 premium above then it has to pass on the cost to the consumer! This is a slow beginning of USD inflation and already the IMF team has mentioned the inflationary pressure emanating from the current cash premiums.
Effect on Exports
The cost of production is obviously affected as companies raid the informal sector to access cash especially hard currency. The obvious effect is the lack of competitive prices of our exports on the international market. Exports are part of the 3 issues already mentioned above which the RBZ is passionate about.
Will cash barons stop?
Cash barons are not going to stop anytime soon. Discussing the issue within the ZBIN platform,we actually found out that selling cash is now a source of livelihoods for some. A visit to Road Port shows that the number of cash barons has increased, it is the same with EastGate and a number of offices in town have been converted into cash selling points. Every business Whatsapp group has someone with cash looking for buyers or sellers.
Cash buying and selling has therefore become a cancer which will be difficult to weed out. What is worrisome is that the premiums started at 5% then rose to 10% and up to 15%. The question that is of concern is what will be the next rate? A rise from 10% to 15%? Will the new limit rise to 25%? What will be the effect of a 25% on local prices? What will be the effect on exports?
Why do people need to withdraw cash anyway?
The argument has been why do people need to withdraw cash? Why not just swipe, why not go electronic like other countries? What has been missing is that our business sector is 70% informal. Most transactions require cash and those with cash get preferential treatment or terms. Even in supermarkets, those with cash can skip long queues and join fast express tills. The majority of the population lives in rural areas and they need cash. Once more cash is King and if you do not have it you face double prices than one with hard cash. The demand for cash is therefore getting higher every day.
Tracking the cash barons
One school of thought is that those selling cash are doing the industry a favour because they are simply fulfilling a need. There is a gap in the market and those who are entrepreneurial should be commended for their efforts. Some are even calling for the regularisation of the informal money changers through establishment of Bureau De Changes.
Our different school of thought is that cash barons are responsible for the cash shortages! By selling cash, you are pouring paraffin onto a raging fire. You are stoking the fires of inflation which will consume everyone in the long run. You are being selfish and certainly to not care about the long run implications of your actions!
In 2008 most cash dealers used cash which made tracking difficult. In 2017 the situation is better, they are using formal banking system thereby making tracking easy! The Reserve Bank simply need to encourage members of public to come forward with evidence of transferring funds to cash barons. Provide incentives of say $40 for everyone who has transferred funds to cash barons and they will be overwhelmed with evidence.
As mentioned at the start of the article, the assumption is that the apex bank is not involved in these activities. The downside of this move maybe driving the cash barons deeper underground and thereby driving up premiums. Some skipping tracking my move to neighbouring countries as is the case where the Bond Note is now traded as far as Maputo.
In conclusion we hope the RBZ which is drafting the midterm monetary policy will look at the issues we have discussed. The cash situation needs to be addressed, a holistic approach to solve it need to be adopted. It is 8 months after the introduction of the Bond Note and already premiums have shot up to 15%. We hope to hear measures that will reduce these premiums. ZBIN encouraged our members and the SME sector to embrace Bond Notes when they were introduced and we are looking forward to continue doing so as long as correct measures are taken to address current cash accessibility challenges.
Typical that the cash barons are the baddies and RBZ are portrayed as some saintly body fighting the good fight. The problem began with the Reserve Bank and its complete inability to resist the demands of Finance Ministry (aka Zanu Piggy Bank) ………………who will pay for the $ 40 incentive ????? US !!!!!