There is nothing new about the FX auction system. The murmurs of discontent are only a symptom of what is wrong with the economic governance. That an importer is subsidized & exporter punished is at the crux of the economic thinking in government. Dishing out expensive favours.
That Mthuli lied in broad daylight about the FX fixed rate reveals his lack of empathy with tobacco producers many of whom face USD costs entirely.
Mangudya’s remarks are very welcome. They lay to bare the stupidity of the policy that kills the golden goose.
If importers were to pay 130 for FX, they would need to work extra hard to sell. Pricing is merely a signal of consumer demand. Interfering with the price mechanism means 3 things;
i. Misallocation of resources from investment to consumption
ii. Massive speculation binge
Through borrowing ZWL & holding FX auction currency/stock
iii. Destroys market confidence. Who is to know what next year looks like.
Those commentators that supported the Auction system so soon after the interbank market betray a lack of the five conditions Nassim spoke of ;
They lack
i. Common sense
ii. Business acumen
iii. Scientific rigor
iv. Elementary intellectual ability
v. Curiosity
With all due respect let’s not wait until the system grinds to a halt. What Zim needs is investment & not consumption. Exporters need the FX to expand capacity
Looking at the policy framework GOZ: 1/ goods market: subsided consumption at a cost to production 2/ Money market: suppression of interest rate promoting borrowings 3/ FX market: Giving away the scarcest commodity for arbitrage profits.
It makes worse a bad economic depression
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1/7 ED Mnangagwa’s vision is to be a middle income country by 2030.
What does that actually mean? How does that vision translate to strategic intent and objectives.
GOZ has an empty promise therefore the empty rhetoric & consequentially violation of economic principles.
2/7 Peter Drucker notes leaders are not in control of the universe. Hesiod the Greek poet in 7BC discovered scarcity.
If a leader can’t control & he has very little, in Economics all his decisions have a trade off. An opportunity lost/cost. By hunting you forgo farming harvest.
3/7
More guns less bread. So the price of a gun is the many loaves of bread that could have fed the nation.
You can’t have it both ways. When you consume you don’t invest. When you invest, you forgo consumption.
1/10
It is absolutely necessary as citizens we never tire of highlighting the policy flaws. We made the emphatic point many times, that ZWL is being created to buy US at the fixed auction.
Belatedly, RBZ seems to have taken notice of this. The apparent speculation & arbitrage.
2/10
Money supply of ZWL has been increasing at 315% by Nov 2020. Most of this ZWL finds its way to the fixed Auction rate. Giving importers a 40% discount.
ZWL “productive loans” are less than 40% p.a when inflation is at 322%.
This creates the perfect arbitrage.
3/10
The arbitrage is not only with importers. The speculation goes further in the market. Eg a firm/individual can buy steel/gas/ non perishables priced at 83 & simply hold the stock. When shortages arise, or when the inevitable devaluation occurs they’ll offload at a profit.
There is a fundamental difference between a stimulus package & government guarantee.
Perhaps let’s start with Biden’s $1.9trillion package. Perhaps far from Zim, cooler heads can prevail. Whence it becomes obvious what GOZ has done.
The $1.9tn Biden stimulus works this way; (1) Treasury spends more than its revenue through issuance of a bond. This over expenditure is why it must go through both houses of the legislature.
This means treasury is running a deficit.
(2)Treasury issues the bonds in the marketplace, but investors are weary of future high inflation & thus hesitant to subscribe. Besides there is not enough money in the world to allocate to new issuances.
So the FED literally prints money to buy the Bonds. Treasury owes the FED
The President Mnangagwa, has announced GOZ new policy to repossess unused land, big farms, multiple owned farms & state land. This land will be redistributed to the youth.
The new policy is Political & NOT economics. See the attached thread.
2/ With a restive, unemployed, unskilled youth, albeit the largest voting block, Zanu PF has decided to placate the youth with Land.
As a political party, this is well within its rights. But this is dangerous for the Economy & will destroy what little activity is in Agriculture
3/ Agriculture in Zim requires security of tenure. It requires title deeds & private property status.
Private property is not necessarily needed for banking finance. But for innovation to take place. Land is just a factor of production no one has the right to dictate its usage