Zimbabwe banks have introduced a number of stringent measures targeted at limiting cash withdrawals.
Earlier in the month, banks capped withdrawals to $500. Automated teller machines (ATMs) were also switched off as Zimbabwe faces liquidity crisis resulting from excessive cash demand which has caused shortages.
In 2008 Zimbabwe was forced to replace its local currency in favour of the U.S. dollar as hyper-inflation reached 500 billion percent.
As of this week, banks pegged withdrawals to $200, despite Reserve Bank Governor John Mangudya informing a parliament committee just days before that the government had injected $145 million worth of cash into the financial system since January and that banks imported $118 million.
“We don’t think the money is circulating. There is excessive demand for cash. The appetite for holding cash in this country is very high,” said Governor Mangudya.
In Zimbabwe today, banks accept South Africa’s rand, pound sterling, the euro and China’s yuan.
The Reserve Bank has also told Zimbabweans to begin to use plastic money, as confidence in the paper money continues to plummet. Analysts are looking at Zimbabwe’s situation from many sides: some say the use of plastic money may be difficult as most Zimbabweans earn a living in the informal sector and prefer cash transactions.
Capital market analyst Fiona Chigwida pointed out that that the use of plastic money would be very difficult until the country achieves 90 percent financial inclusion. “You can’t introduce measures in response to a crisis. The use of plastic money is good but Zimbabwe isn’t ready for it especially after the trauma of hyper-inflation and subsequent closure of some of the banks. Maybe the Reserve Bank can concentrate on building confidence in the banking sector first.”
Other analysts who spoke to Footprint to Africa suggested a combination of several factors, including fiscal, monetary and economic recovery measures to get the country out of the doldrums.
“Here is where you begin to look at resource-based sectors,” said Nigerian, Frank Umeh, head of research at United Research Centre. “If people need their money and you do not give them, you open window for a number of problems. Apart from the social side, you will see that the economy will tilt from recession to depression. Now is time for Zimbabwe to harness its coal, copper, gold and iron ore,” Umeh said.
Umeh’s position seems a long-term measure for Zimbabweans who are looking for a short-term way out of the crisis.
The sentiment in Zimbabwe at the moment is that government should give people their money deposited in banks, so that factories can run and families cater for their needs.
Zimbabwe is an agricultural state, which is capable of providing a medium-term recovery. Since 2000, the country has forcibly redistributed most of the it’s commercial farms. Its farmers lack the requisite expertise, which has triggered severe export losses and negatively affected market confidence. Wikipedia says that idle land is now being utilized by local peasants practicing meager subsistence farming, while production of staple foodstuffs, such as maize, has recovered accordingly unlike typical export crops including tobacco and coffee.
“The engagement process to mobilise financial resources is important, but it’s not the main issue. The main issue is tackling the underlying issues of the Zimbabwe economy such as promoting private sector-led growth and shifting focus from consumption to investment and promotion of greater financial inclusion and allowing the economy to grow,” Domenico Fanizza, head of Zimbabwe IMF said during a mission to the country. “It’s up to government to come up with an economic recovery plan,” he added.
Most analysts agree that African leaders need to have long-term plans that will help grow the continent. Leaders in the continent need to learn from mistakes and should have ready measures with which to tackle global headwinds.