Business News

New approach needed to vanquish black market

By Happison Chikova –

Nations are built on genuine patriotism, dedication and hard work and every Zimbabwean has a role to play in building tour great nation.

The economic problems facing Zimbabwe have been hugely attributed to interwoven socio-economic, political and moral fabric.

Below is a simple analysis of the problems that are ravaging our economy and their possible solutions.

Money changers

The introduction of the Zimbabwe bond note attracted the money changers back on the streets. The money changers literally took over the role of financial institutions on determining exchange rates. Several questions suffice.

How can a school drop out control such a complicated financial sector, which requires high level of knowledge in monetary issues?

What instruments are being used by the money changers to come up with the exchange rates? Is it the law of demand and supply? Where are these people getting their money from?

How are some banks surviving under these current economic conditions where there are few depositors?

It is up to the Reserve Bank of Zimbabwe to carry out a comprehensive study so that it can be well informed to determine a proper policy to address these issues.

The foreign exchange auction, which has been initiated, could be part of the solutions to determine the exchange rates without relying on the streets, but this largely depends on the availability of foreign currency.

What pains most is the profit margins when trading foreign currency on the black market. Surely, Zimbabwe is breeding a generation of lazy people who want to reap where they did not sow.

What value addition and innovation are we putting into production when we are having thieves masquerading as money changers on the streets?

In most cases, the money changers are making a lot of profit per transaction for US$100.

Some of the victims are the rural population who immediately after receiving their remittances are trapped in the US dollar/rand parallel markets, which are located outside, but along the financial institutions’ walls. Some people have argued that the impact of the money changers on the economy is very small.

But the situation becomes unbearable when retailers start charging prices on the basis of the parallel market rates  it is now about the impact on the population.

RBZ strategy 

In a bid to flush out money changers, the RBZ allowed those with free funds to use them when purchasing goods and services, alongside the use of local currency. To some extent, this strategy is beginning to bear the much-needed results. However, it looks like most of the people have not been sensitised about this policy.

The other problem created 

In a bid to provide a solution to a problem, another problem has been born. The simple question is: how many businesses are remitting their taxes in foreign currency? Let me give an example of the motor spare parts industry. This industry is charging foreign currency which ranges from the United States dollar, rand or pula.

The misnomer is that when they are issuing receipts, they convert the hard currency to the Zimbabwean currency at the interbank market rate.

When a customer has opted to purchase using the local currency, they charge double the prices using the parallel market rate, an indication that they are trying by all means to avoid the local currency.

My submission to the RBZ and the Ministry of Finance is to do a sectorial study to determine business behaviour.

After the results, they must come up with a policy which compels businesses that are trading in foreign currency to pay part of their taxes in foreign currency. This policy can be implemented on a sector by sector basis, as some sectors are purely trading using the local currency.

The informal sector

The informal sector employs a lot of people contributing immensely on improving the livelihoods of people. However, it is mind boggling that this sector contributes nothing to the national fiscus.

This is having a huge impact on the economy and other well-established businesses. The problem of having the informal sector not contributing to the national fiscus is that the growth of potential businesses is hampered and the economy will remain informal.

The informal sector does not remit taxes, yet they compete with the formal sector that pays rentals, taxes and workers.

In most cases, their prices are half of those charged in the formal sector because of limited operation costs.

To make matters worse, most of these informal businesses are established in front of shops selling the same products.

Some businesses could actually have collapsed because of such irregularities. In the meat industry, in some areas, beef is being sold from buckets on the streets, posing food safety issues to the consumers.

This could be the reason why we have had so many butcheries failing to last for more than three months in recent years.

I propose that the city councils must ban every informal trading whether on the streets or in the residential areas and open huge markets for informal traders so that they can regulate and monitor their activities.

This will increase revenue collection for the city councils. The tax collectors must also levy the traders a certain percentage on tax.

Price increases

There have been concerns over the increase in prices of food products and other basic commodities.

Before the Covid-19 lockdown, two pieces of chicken and small chips were selling at US$2.50 at some fast food outlets. When the Covid-19 lockdown started, the price suddenly jumped to US$3. What is really triggering these increases? Is it the increase on fuel prices? Is it the cost of production?

The answer is a big NO since these are priced using the US dollar. It’s just profiteering.

Alternatives 

The viable option would be for the Government to revamp parastatals like the Grain Marketing Board, so that they can process commodities at subsidised prices for economic stability.

Government should create more subsidies so that the most vulnerable people can have access to basic commodities. When such policies are being implemented, the business community must not cry foul because they have shown they are irresponsible in terms of their unjustified pricing.

The operational frameworks under this proposal is to put a clear roadmap so that there is great transparency and accountability in the management and administration of parastatals.

Institutions like the Agricultural and Rural Development Authority must be revamped and strengthened in order to increase production that will feed into the national supply chain.

Government must rethink such models. It must not leave the whole responsibility to new farmers as they have been given a chance to prove their capacity to feed the country for the past 20 years, yet the country has been importing food.

Command Agriculture 

The Command Agriculture can provide the much-needed food and nutrition support for the country. However, for this programme to be more effective, it must be handled and administered by financial institutions such as banks, and it is good that Government has already considered this option.

The banks must be given the full autonomy to implement and monitor the programme.

The model must have milestones and mechanisms that allow farmers to access the inputs on credit only once, as this will give the farmer the drive to plan for the next season from the proceeds obtained rather than creating a dependency syndrome as if the programme is a donor funded food aid scheme.

The approach will transform the farmers’ mindset so that they approach farming as a business. For a country to become prosperous, its citizens must be hard working, united and have a common national vision.

 Happison Chikova is studying for an MSc in Global Food Security and Nutrition with the University of Edinburgh. He holds a BSc Honours Degree in Geography and Environmental Studies from Midlands State University. He is a climate change research fellow at the University of Dar es Salaam. He can be contacted on happisonchikova@gmal.com.

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Herald
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