Corporate Strategy Under Dollarization
OPINION & ANALYSIS
CONTRIBUTOR SEPTEMBER 17, 2017
Persistence Gwanyanya
Zimbabwe Sunday Mail
It appears the Reserve Bank of Zimbabwe (RBZ) has done almost everything that a monetarist can do to address the cash challenges under dollarisation.
As such, the persistence of cash shortages could just be a reflection of the impotence of monetary policy under this currency regime.
It is thus unsurprising that the RBZ has been increasingly calling for participation from other economic agents to complement its efforts towards the achievement of a permanent solution to the cash crunch.
The central bank’s call augurs well with the proposition that Zimbabwe needs to rebalance her economy towards increased production and exports, whilst simultaneously reducing consumption of imports as a permanent solution to her cash challenges.
Achieving this economic rebalance requires business to evolve from import dependence to export-driven models. This clearly calls for strategic rethinking at corporate level, not only for the good of the country, but also for the sustenance of business.
Just like in the case of China, this evolution should be supported by sound investment and business policies. The absence of monetary policy independence brought by dollarisation has incapacitated the apex bank from printing money.
Economic agents now have to earn money from mainly exports. It is estimated that exports contribute about 60 percent of the country’s liquidity. As such, the liquidity challenges could be traced to the underperformance in the export sector.
Thus, in the current environment, the future of business lies in its ability to explore opportunities in the export market. This is because the continued dependence on imports would be unsustainable due to exorbitant cash premiums in the parallel market.
The current cash shortages have meant increased reliance on the black market for foreign currency to meet business’ import requirements. Barely 10 months after the introduction of bond notes, cash premiums have grown to more than 40 and 27 percent for electronic money and bond notes respectively. This has made it very difficult for import-dependent entities to sustain their businesses, which underscores the need to diversify into the export market.
Equally worrying is that the country has remained a consumptive economy, which consumes more than 80 percent of its GDP. This high propensity to consume is also reflected in high fiscal deficities, which translated into unsustainable debt levels. The high level of indebtedness at both private and public sector level makes Zimbabwe an unattractive market, which again underscores the need to diversify into the export market and minimise the exposure to Zimbabwe risk.
Being a commodity dependent economy, which relies on five commodities for more than 80 percent of its export revenue, the country is predominantly a price taker on the international market. This coupled with the usage of a strong dollar as the reference currency calls for increased productivity to be competitive on the international market.
A strategic thrust towards increased productivity should also be fostered through supportive pricing models. Productivity-based rather than the current cost plus pricing models are more ideal in the current situation. Unlike the current situation where prices and wage demands are based on needs, they should be based on productivity – output per unit.
Needless to mention that utility providers such as Zesa and municipalities are major culprits to transform. It would be difficult for Zimbabwe to compete at international level given the advancement in technology and knowledge. This makes value addition and beneficiation a key differentiator to transform the country’s comparative advantage on mainly primary goods, into competitive advantage.
In the area of manufactured products, Zimbabwe should forget about competing with China and other developing and developed countries which are producing these at a cost almost impossible to achieve. Supported by sound infrastructure, logistics capabilities as well as efficient utilities providers, these countries can produce manufactured goods at significantly low cost that makes it almost impossible to compete with.
As such, Zimbabwe should focus on niche markets to satisfy mainly the needs of the local market. This includes the manufacture of branded or customised products which meets the specific needs of the customers, for example corporate wear and school uniform.
It is clear from the above analysis that Zimbabwe should transform from being an import-dependent to being an export-driven economy. This calls for corporate leaders to rethink their business models. This strategic thrust would have to be supported by sound investment and business policies.
There should be an incentive system to encourage exports. Most of us have pinned our hopes on the Export Processing Zones Authority to come up with appropriate policies to promote exports and transform the country into an export-driven economy.
Supportive policies would also suggest a review of the foreign currency management system by the RBZ, where 80 percent of export revenue from gold, platinum and chrome are surrendered to RBZ. The ultimate thrust at policy level is to ensure that our policies make export business more attractive and thus encourage it.
Persistence Gwanyanya is the founder and futurist of Percycon Advisory Services. For feedback email percyconadvisory@gmail.com or WhatsApp on +263 773 030 691.
CONTRIBUTOR SEPTEMBER 17, 2017
Persistence Gwanyanya
Zimbabwe Sunday Mail
It appears the Reserve Bank of Zimbabwe (RBZ) has done almost everything that a monetarist can do to address the cash challenges under dollarisation.
As such, the persistence of cash shortages could just be a reflection of the impotence of monetary policy under this currency regime.
It is thus unsurprising that the RBZ has been increasingly calling for participation from other economic agents to complement its efforts towards the achievement of a permanent solution to the cash crunch.
The central bank’s call augurs well with the proposition that Zimbabwe needs to rebalance her economy towards increased production and exports, whilst simultaneously reducing consumption of imports as a permanent solution to her cash challenges.
Achieving this economic rebalance requires business to evolve from import dependence to export-driven models. This clearly calls for strategic rethinking at corporate level, not only for the good of the country, but also for the sustenance of business.
Just like in the case of China, this evolution should be supported by sound investment and business policies. The absence of monetary policy independence brought by dollarisation has incapacitated the apex bank from printing money.
Economic agents now have to earn money from mainly exports. It is estimated that exports contribute about 60 percent of the country’s liquidity. As such, the liquidity challenges could be traced to the underperformance in the export sector.
Thus, in the current environment, the future of business lies in its ability to explore opportunities in the export market. This is because the continued dependence on imports would be unsustainable due to exorbitant cash premiums in the parallel market.
The current cash shortages have meant increased reliance on the black market for foreign currency to meet business’ import requirements. Barely 10 months after the introduction of bond notes, cash premiums have grown to more than 40 and 27 percent for electronic money and bond notes respectively. This has made it very difficult for import-dependent entities to sustain their businesses, which underscores the need to diversify into the export market.
Equally worrying is that the country has remained a consumptive economy, which consumes more than 80 percent of its GDP. This high propensity to consume is also reflected in high fiscal deficities, which translated into unsustainable debt levels. The high level of indebtedness at both private and public sector level makes Zimbabwe an unattractive market, which again underscores the need to diversify into the export market and minimise the exposure to Zimbabwe risk.
Being a commodity dependent economy, which relies on five commodities for more than 80 percent of its export revenue, the country is predominantly a price taker on the international market. This coupled with the usage of a strong dollar as the reference currency calls for increased productivity to be competitive on the international market.
A strategic thrust towards increased productivity should also be fostered through supportive pricing models. Productivity-based rather than the current cost plus pricing models are more ideal in the current situation. Unlike the current situation where prices and wage demands are based on needs, they should be based on productivity – output per unit.
Needless to mention that utility providers such as Zesa and municipalities are major culprits to transform. It would be difficult for Zimbabwe to compete at international level given the advancement in technology and knowledge. This makes value addition and beneficiation a key differentiator to transform the country’s comparative advantage on mainly primary goods, into competitive advantage.
In the area of manufactured products, Zimbabwe should forget about competing with China and other developing and developed countries which are producing these at a cost almost impossible to achieve. Supported by sound infrastructure, logistics capabilities as well as efficient utilities providers, these countries can produce manufactured goods at significantly low cost that makes it almost impossible to compete with.
As such, Zimbabwe should focus on niche markets to satisfy mainly the needs of the local market. This includes the manufacture of branded or customised products which meets the specific needs of the customers, for example corporate wear and school uniform.
It is clear from the above analysis that Zimbabwe should transform from being an import-dependent to being an export-driven economy. This calls for corporate leaders to rethink their business models. This strategic thrust would have to be supported by sound investment and business policies.
There should be an incentive system to encourage exports. Most of us have pinned our hopes on the Export Processing Zones Authority to come up with appropriate policies to promote exports and transform the country into an export-driven economy.
Supportive policies would also suggest a review of the foreign currency management system by the RBZ, where 80 percent of export revenue from gold, platinum and chrome are surrendered to RBZ. The ultimate thrust at policy level is to ensure that our policies make export business more attractive and thus encourage it.
Persistence Gwanyanya is the founder and futurist of Percycon Advisory Services. For feedback email percyconadvisory@gmail.com or WhatsApp on +263 773 030 691.
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