ANB-BIA SUPPLEMENT

Zimbabwe and Malawi are planning to use their own currencies in their trading activities, 
in place of the once mighty US dollar

The ongoing political and economic crisis facing Zimbabwe, once the most favoured investment destination after South Africa, has not only effected the living standards among its citizens but cross-border trade as well. Acute shortage of foreign currency, notably the US dollar, has seen companies collapsing while trading activities with neighbouring partners was hampered by the currency crisis.

In the wake of Zimbabwe’s controversial land reform programme being pursued by President Robert Mugabe, and the withholding of funding, coupled with severed international relations, Zimbabwe’s economy has taken a nose-dive, while direct foreign investment has dwindled. Malawi, a close trading partner, was among the first to feel the pinch having also been hit by increasing numbers of companies closing shop.

In 2000, Malawi and Zimbabwe reviewed their bilateral trade pact signed in 1986, after the former complained of trade imbalance. Trade was heavily tilted in favour of Zimbabwe: In 1999 for example, Zimbabwe exported to Malawi goods worth Kwacha 3.9 billion while Malawi only exported Kwacha 409 million worth of goods to Zimbabwe. This prompted Malawi to call for a trade agreement change.

In order to harmonise relations, both countries have gone a step further, planning to start using their respective currencies in carrying out their trading activities so that they do away with the «greenback» — once the globally trusted currency.

Zimbabwe’s Minister of Industry and International Trade, Samuel Mumbengwegi, confirmed that the system to be introduced, aims at using the Malawi Kwacha and the Zimbabwe dollar in conducting payment transactions and all trading.

«We are looking at the possibility of using each others currency. It does not make sense to use the US dollar when we have our own currencies at our disposal,» says Mumbengwegi, adding that his government had reached the decision following bilateral talks between representatives from the two trading partners.

Geoffrey Mkandawire, director of Commerce at Malawi’s Trade and Commerce Ministry, confirmed the move, but said that the economic crisis facing Zimbabwe, has not made matters easy. «Quite a lot of businesses in Malawi have been killed because they were finding problems getting payment for their goods exported to Zimbabwe. By February 2001, Zimbabwean firms owed Malawian exporters a considerable amount of money.

The US dollar no longer in favour

Another factor has been the illegal trading in the US dollar, with action being taken by the fiscal authorities in Zambia, Zimbabwe and Malawi to check the illegal trading in dollars. Also, the government of Malawi, which has suspended foreign imports since September 2001 to protect local manufacturing industries hit by the flooding-in of cheap products from the stronger economies of South Africa and Zimbabwe, is currently faced with the growing abuse of foreign currency.

Malawian traders armed with the US dollar, take advantage of the heavily depreciated Zim dollar, thus defeating their government’s efforts to boost its own currency. These traders buy in Zimbabwe such products as cooking oil, dairy and poultry products after getting local currency on the attractive parallel market. At the time of writing, the US dollar trades at 350 Zim dollars on the illegal market, while it sells at 80 Malawi Kwacha.

The greenback is weighed down by a combination of factors which include investors’ concerns over the vigour of the United States’ economic recovery, eroding confidence in corporate America, diminishing value of shares, a growing trade deficit and a deteriorating fiscal position.

Yes. People are beginning to steer clear of the US dollar and looking to their own currencies.

• Hobbs Gama, Malawi, December 2002 — © Reproduction authorised, with usual acknowledgment