HARARE: With local firms operating at minimal capacity, consumers have increased purchase of non-essential goods which has lead to spiraling foreign currency leakages, according to a Reserve Bank of Zimbabwe official.
The RBZ official made these remarks amid massive viability challenges for surviving local firms, staggering under high utility costs and failing to meet domestic demand. Company closures have also exacerbated this untenable situation.
RBZ foreign exchange director Morris Mpofu said the purchase of non-essentials has accounted for 15% of all imports since the adoption of multiple currencies in 2009, a situation which has worsened economic performance.
Mpofu said a total of $36 billion has been used for imports since 2009, with a percentage of that money used for importation of non-essentials, breaking the current liquidity threshold of $5.2 billion.
He called on local firms to plug foreign currency leakages by importing intermediate goods and raw materials to boost production capacities to meet local demand as well as to stimulate exports.
“Since dollarization Zimbabwe has spent $36 billion in imports of which 15% ($5.4 billion) are non essentials and this is taxing to the economy through this externalization.
“As we speak we have $5.2 billion circulating in the economy that is money in the bank, individuals and businesses,” he added “We should therefore not import finished goods but intermediate and raw materials for stimulating industrial production.
“We are wasting money through buying non essentials causing massive leakages of foreign currency,” he said.
However, an independent analyst, who requested anonymity, said this argument was too narrow as illicit financial outflows where the main source of problems for Zimbabwe and Africa as a continent.
Illicit flow of income through illegal business activities has also added the burden to an underperforming economy averaging below 40% capacity utilization, said the analyst. “The RBZ official might be right but this situation is more complex than that in Zimbabwe and indeed Africa because a lot of revenue is lost through illicit financial flows.
“Just look at the issue of diamonds who do you think is benefiting from that resource when consecutive ministers of Finance all sing from the same hymn book that there is no money coming in?,” said the analyst.
In Zimbabwe, diamonds found in the Marange fields in Manicaland province, touted as a spark to economic rejuvenation, have been cited as one such source of illicit financials flows, as revenue from the gems is not properly accounted for.
This situation is caused by government’s foreign policy, which has allowed infiltration of China into diamond mining and other mainstream economic activities, according to a labor union secretary general.
Kennias Shamuyarira, secretary general for the Zimbabwe Federation of Trade Union (ZFTU), said government’s alliance with China and other Asian ‘investors’ was shortchanging the national fiscus.
Shamuyarira argues that top government officials are complicit in the looting of alluvial diamonds from Chiadzwa diamond fields, by failing to superintend over the lucrative sector.
He said diamond revenue has been sapped by foreigners, who have made piecemeal investments in alluvial mining with impunity and little government oversight. “How can you say one is an investor when just bring a grader and shovels. Government should put in place measures to ensure the nation benefits from diamond proceeds,” he said.
“They have private planes which are not searched and fly straight to Dubai, Hong Kong.” According to the Report of the High Level Panel on Illicit Financial Flows from Africa, illicit financial flows refer to “money that is illegally earned, transferred or utilized.”
Such funds are said to originate from three main sources: commercial tax evasion, trade misinvoicing and abusive transfer pricing. The report also notes that “criminal activities, including the drug trade, human trafficking, illegal arms dealing, and smuggling of contraband; and bribery and theft by corrupt government officials,” also fuel illicit outflows.
Commissioned by the AU/ECA Conference of Ministers of Finance, Planning and Economic Development in 2012, to investigate this chronic problem of illicit flows in Africa, the commission was chaired by former South African president Thabo Mbeki.
It further claims that Africa has lost at least $1 trillion in illicit financial flows in the past 50 years, a sum ‘roughly equivalent to all of the official development assistance received by Africa during the same timeframe.’ Currently, Africa is estimated to be losing more than $50 billion annually in IFFs the report goes on to say.
This is despite poverty being a ‘serious concern in Africa in absolute and relative terms’ with ‘people living on less than $1.25 a day in Africa is estimated to have increased from 290 million in 1990 to 414 million in 2010,’ according to the United Nations, 2013.
It also notes that, disproportionately, “population growth outweighs the number of people rising out of poverty. Moreover, GDP per African was around $2,000 in 2013, which is around one-fifth of the level worldwide,” quoting an International Monetary Fund, 2014 report.
