Zim dollarisation 'illegal'

Johannesburg - Dollarisation may look like the saviour of Zimbabwe's long-embattled economy, but technically it is turning all Zimbabweans into criminals.

The irony of the beneficial yet criminal effects of the US greenback and other currencies is pointed out by Imara, the Pan-African financial services group that maintains a strong Harare presence and has long marketed a dedicated Zimbabwe equity fund to international investors.

In his latest report to clients, Harare-based John Legat, Chief Executive Officer of Imara Asset Management, Zimbabwe, comments: "While the economy is now operating under multiple currencies (largely US dollars and rands) and, in effect, exchange controls have been eased, the laws have yet to be changed!"

"We are all, in effect, breaking the law by using foreign exchange and not the now-extinct Zimbabwe dollar."

Instead of formalising the state of affairs by amending the necessary statutes, the authorities in Harare still occasionally raise the possibility of a comeback by the long worthless Zimbabwe dollar - a cause for concern among foreign investors.

Legat observes: "With the recent suggestion by the Governor of the Reserve Bank that the Zimbabwe dollar could be reintroduced at some point in the future, it is hardly surprising that foreign bankers and investors are very cautious about placing their money here!"

Yet multiple currencies in place of the Zimbabwe unit have bestowed multiple benefits. The Imara report notes that corporate earnings are up, goods are once again available in stores, prices are coming down, deposits are flowing back into the banks and banks have started lending again to corporate clients.

Legat adds: "At the moment, Zimbabwe is one of the few countries in the world where there is no currency risk should you be a US-dollar investor. This is a huge advantage over other frontier economies."

Zimbabwean manufacturers also do well from the situation.

Production costs and the revenues earned by local producers are largely US dollar-based. In contrast, Zimbabwe's regional competitors operate in their own fluctuating local currencies - making it difficult for them to compete consistently.

Legat concludes: "It is an advantage that Zimbabwe needs to capitalise on, but to do so the law needs to be changed to solidify the multiple- currency regime and the removal of exchange controls."

- I-Net Bridge