Zimbabwe Launches Gold-Backed ZiG to Woo Investors Amid Skepticism

Key Takeaway

• Zimbabwe introduces gold-backed currency, ZiG, to attract foreign investment and stabilize its economy, backed by 2.5 tons of gold and $100 million in reserves.
• Skepticism remains due to past economic mismanagement; investors seek assurance on convertibility and repatriation of funds.
• Zimbabwe aims to restore international confidence through IMF engagement and has repealed restrictive investment laws to entice foreign capital.

Zimbabwe's Bold Currency Experiment

Zimbabwe has launched a new gold-backed currency, the Zimbabwe Gold (ZiG), in a bid to stabilize its economy and attract foreign investment. This initiative marks Zimbabwe's sixth attempt in 15 years to introduce a stable local currency, replacing the rapidly depreciating Zimbabwean dollar. The ZiG, backed by 2.5 tons of gold and $100 million in foreign exchange reserves, aims to restore confidence in the nation's financial system. Despite these efforts, skepticism remains among investors and analysts, who recall past failures and the government's tendency to finance spending by printing money.

Enforcement and International Outreach

To bolster the ZiG's credibility, the Zimbabwean government has announced fines for not using the currency's official exchange rate, set daily by the central bank. This move, along with compelling companies to pay part of their taxes in ZiG, seeks to encourage its adoption. Furthermore, Zimbabwe is engaging in an international roadshow, with stops in Johannesburg, London, and Dubai, to attract foreign capital. However, challenges remain, including the need to clear billions in arrears with international creditors and restore access to capital markets.

Investor Skepticism and Economic Challenges

Investors remain wary of Zimbabwe's new currency initiative, citing concerns over policy uncertainty and the government's track record. The preference for the US dollar continues, reflecting a lack of confidence in the ZiG. Additionally, Zimbabwe's economic overhaul efforts face significant hurdles, including hyperinflation, currency crises, and a lack of hard currency reserves. The government's fixed exchange rate approach and enforcement measures have also raised concerns among businesses and economic players.

Street Views

• Hasnain Malik, Tellimer (Neutral on Zimbabwe's financial strategy):

  "The ZiG on its own is not a prompt for foreign investors to commit fresh capital to Zimbabwe. For that they need to see the build-up of hard currency reserves and a track record for easy convertibility and repatriation."

• Jacques Nel, Oxford Economics Africa (Neutral on Zimbabwe's new currency regime):

  "I don’t think they will be encouraged to invest until we get clarity on the effectiveness of the new regime... Even if the roll-out took place in a smooth and ordered manner, which it didn’t, Zimbabwean authorities still lack the credibility needed to implement a plan like this."

Management Quotes

• Tafadzwa Chinamo, CEO of Zimbabwe Investment and Development Agency:

  "The country set up the Zimbabwe Investment and Development Agency in 2022 as 'a one-stop shop' to attract suitors."