The popular Credit Risk Manager, Dr. Wilson Muzorewa has released a forum post advising ZANU PF leader Emmerson Mnangagwa on how to solve the cash crisis. It is observed that Zimbabweans in the diaspora could on their own fix the current cash crisis.

But in his short but weighty post, Muzorewa said Mnangagwa must start with the low hanging fruit.

FULL TEXT: Someone challenged me on what I would do to solve the cash crisis in Zimbabwe since I am always saying ED must start with the low hanging fruit to solve the economic crisis. And as far as I am concerned before announcing billions in FDI dollars the cash crisis is the low hanging fruit.

I won’t go into the most obvious which is confidence crisis within the banking sector. Trust is the new currency in the banking world.

Let me describe to you why, even though Zimbabweans in the diaspora are sending millions in USD cash through Western Union, Money Gram, and WorldRemit, you still have a cash crisis. Those 3 institutions literally have to bring in hard cash to fund their transactions otherwise it wouldn’t work. But then the problem is that Zimbabwean companies are paying for their imports using hard cash in South Africa. So essentially every dollar gets mopped up from the system by the importers who exchange the USD for RTGS and Ecocash transfers. I won’t even get into the cash hoarding being done by those in power.

The central bank tried to eliminate the cash problem by introducing fake money called bond notes. But the question that should have been asked is why are importers using cash to pay for imports instead of wire transfers? The answer lies in what is called Nostro accounts. A Nostro account simply means your account with your bank. Every Zimbabwean bank needs a Nostro account with a US bank to cover USD transactions or British bank to cover pound denominated transactions, and so on. So if a Zimbabwean company approaches CBZ and says I wish to pay US$100K to this Indian company for tractors; I have money in my CBZ account. Before CBZ can release the wire, it must first of all confirm that it has adequate funds in its Bank of America Nostro account otherwise that transaction is void.

How do Zim banks fund their Nostro accounts? First through export proceeds from Zim companies. Secondly through lines of credit with foreign banks. Thirdly, through monetary support from multilateral agencies like IMF, ADB, Afreximbank.

So herein lies the problem with Zimbabwe: Our Nostro accounts are empty because our sources of foreign currency inflows have greatly diminished. So John Mangudya (the RBZ governor) decided he would organize a line of credit to support his fake money. But instead he should have worked tirelessly to organize lines of credit to fund Nostro accounts either by borrowing directly from Afreximbank or issuing guarantees in support of borrowing by Zimbabwean banks. That way Zim importers would not be mopping up limited USD cash from money changers leaving more USD cash to circulate for the ordinary consumer. The measures that I have described above have the effect of immediately releasing $300-$400 million cash in the money supply.

If this government had the confidence of diasporans, an alternative would have been to issue government guaranteed bonds funded by Zimbabweans living abroad. A properly structured bond issuance can easily raise $500 million at the first subscription. But then not many of us trust the government as currently constituted.

Please note that I have really over-simplified this to avoid getting into too much banking technical jargon. In the spirit of regional economic integration other measures would include allowing a genuine multi currency system so that all imports from RSA are transacted in ZAR, from Botswana in BWP, and so on. South African banks are more open to offering lines of credit to Zim banks only if its in ZAR to avoid exchange risk. So I envisage an arrangement whereby the South African government guarantees an Export Development Facility that funds the export of capital goods to Zimbabwe by South African companies. This is a win win arrangement. South African companies can export to Zimbabwe with confidence that they will get paid and Zimbabwean companies can now import capital goods from South Africa without worrying about Forex. Canada currently does this through EDC. This creates employment on either side of the border.

Apologies for taking too much space on this forum but I’m really frustrated that it is now 9 months since Asante Sana but there doesn’t seem to be any comprehensive plan to resolve the cash crisis. Ultimately we will need a Marshall plan spearheaded by RSA and other regional Multilateral agencies because I don’t expect any significant help from the EU and Britain. Chinese and Russian help comes with too many costly strings attached.

And so that’s my own 2 cents as an interim measure to our current abyss of economic ruin. It’s not a panacea but a good starting point no doubt. – Dr. Wilson Muzorewa