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ECONOMY: Using the Rand Makes Zimbabwe ‘South Africa’s Province’

Stanley Kwenda

HARARE, Feb 24 2009 (IPS) - Zimbabwe may soon become part of the South African rand monetary union when the troubled southern African country officially assumes the use of the rand as part of a raft of economic initiatives aimed at kick-starting its comatose economy.

Negotiations are underway between the two countries to conclude the formalisation of the use of the rand in Zimbabwe. By adopting the use of the rand, Zimbabwe will join other Southern African Development Community (SADC) countries such as Namibia, Swaziland and Lesotho that use the rand alongside their own currencies.

Zimbabwe's new prime minister, MDC leader Morgan Tsvangirai, told Zimbabwean business leaders last week that the country will need five billion dollars worth of economic reconstruction funds.

Tsvangirai told the business leaders that Zimbabwe is in talks with the South African government on the use of the rand as part of boosting the country's economy. ‘‘I don't want to pre-empt this but we are really engaging the South Africans to make sure we can discuss the use of the rand to provide relief,’’ said Tsvangirai.

Zimbabwe's central bank Governor Gideon Gono told the state-run Herald newspaper last week that he welcomes the idea of adopting the rand as an anchor for the Zimbabwe dollar.

Tsvangirai described the tripartite unity government consisting of his MDC, President Robert Mugabe’s ZANU-PF and an MDC splinter faction as an ‘‘emergency situation, a fire-fighting situation. For now, we are talking of an emergency plan’’.

South African President Kgalema Motlanthe, who is the SADC chairperson, urged other countries in the region to offer support to Zimbabwe as it tries to rebuild its economy after a decade of ruin.

Zimbabweans have already been accustomed to using foreign money such as the United States dollar, Botswana pula, British pound and European euro as part of stabilising prices of goods and services amid rampaging inflation described by the World Bank as the highest in the world.

But it is the official use of the rand which is likely to bring much relief to Zimbabweans, many of whom had long forgotten how to save.

‘‘It's better to use the rand for official government business because at least the government can plan and save money for major public projects, such as building roads, hospitals and capacitating the day-to-day government business,’’ Theresa Muchada, a Harare-based bank teller told IPS.

‘‘For individuals, it would mean that they will once again be able to do personal savings (which is impossible) using the Zimbabwe dollar (as its) value can easily be eroded.’’

However, analysts have cautioned that it would take more than formally adopting the rand to fix Zimbabwe's economy, and doubt whether the Harare government would be prepared to cede control of economic policy to its big neighbour.

‘‘It will be a prudent idea to stabilise the economy but quite detrimental in the long term as the Zimbabwean economy will inevitably be dependent on what happens next door. The country will become a province of South Africa economically,’’ said Harare-based economic analyst Titus Jila.

Zimbabwe's Finance Minister Tendai Biti recently told IPS that the solution to Zimbabwe's financial crisis do no lie in adopting the rand but in establishing the true value of the Zimbabwean dollar by floating it on the currency market.

As part of the negotiations on the use of the rand in Zimbabwe, Tsvangirai travelled to South Africa last week where he met South African president Motlanthe to discuss a rescue package for Zimbabwe. South Africa has already organised a meeting of regional finance ministers this week in South Africa to discuss how the Zimbabwean government should be assisted.

A group of African regional bankers visited the country recently with the aim of assessing the extent of the problems with the aim of developing credit lines for the country. Among them were bankers from the African Development Bank (ADB), officials from Common Market for Eastern and Southern Africa (COMESA) and SADC.

Media reports also suggested that the officials were in the country to discuss modalities of holding a Zimbabwe donor conference modelled along the 1981 Zimbabwe Recovery Conference.

But Sam Muradzikwa, chief economist of the Development Bank of Southern Africa, told IPS that it will be difficult for Zimbabwe to borrow money because of the current global financial crisis. He said, ‘‘although most of the projects in Zimbabwe show a high potential for return on investment, it has been difficult to provide long term financing because of policy inconsistency.’’

Zimbabwe's new government is faced with a myriad of problems, among which is turning around an economic meltdown manifesting itself in hyperinflation which has seen prices double on an almost daily basis.

The country's education and health sectors have virtually collapsed with teachers and nurses refusing to go to work and demanding salaries in United States dollars. The civil service is faced with personnel shortages as many professionals have left the country in search of greener pastures.

Restoring the economic stability will be a herculean task. The government coffers are empty as the country's productive and income generating sectors such as agriculture, mining, manufacturing and tourism have nose-dived since 1997.

Statistics from the 2009 National Budget indicate that the country is laden with a deficit of 410 million dollars for 2008, up from the 33 million dollars registered in 2007. Exports during the same period dropped 14 percent. Imports increased by 7,6 percent to a mere 1,9 billion dollars, yielding a highly skewed negative balance of payments for the country.