Economic and Business Up-date

Economic and Business Up-date - from John Robertson
November 2008
After causing considerable difficulties for the business sector by making money transfers a lengthy and cumbersome process, the Reserve Bank of Zimbabwe has conditionally reinstated the RTGS (Real Time Gross Settlement System) process for handling payments and transfers.
As the system was said to have become subject to widespread abuse, its re-instatement is on condition that banks apply strict controls on the conduct of those using its services through the application of the Reserve Bank’s Know Your Customer disciplines.
These require each bank to submit detailed returns to the Reserve Bank on all its own activities, together with evidence that its clients’ activities have met all due diligence investigations. Failures to exercise control will place banks at risk of suspension from the RTGS system.
However, indications that the market behaviour previously found unacceptable was influenced by severe market distortions receive no attention at all in the policy review statement.
Efforts to increase daily cash withdrawals by opening additional bank accounts have prompted the Reserve Bank to suggest that accounts that cannot be fully justified will have to be closed.
Shops licensed to sell goods for foreign currency will now have to surrender only 7,5% of their sales proceeds to the Reserve Bank, instead of 15%. This change is to be with effect from Monday November 10th. For those companies that are able to raise external lines of credit, only 5% of their earnings will have to be surrendered. Banks that help to fund commercial activities by on-lending their own resources to licensed shops will be entitled to 2,5% of the shops’ gross proceeds.
In a further move towards “dollarisation”, building societies, property developers and real estate agents can now apply to be licensed as Foreign Exchange Licensed Entities, allowing them to sell houses in foreign currency. They will have to surrender 10% of their receipts to the Reserve Bank. All of these sums surrendered will be paid for at the inter-bank rate. This is currently only three trillionths of the parallel market rate, so the amounts are being treated as a form of taxation.
Another “dollarisation” move is that all banks will now be required to keep their minimum capital requirements in foreign currency, and will be required to demonstrate the adequacy of their foreign currency-denominated capital bases on an on-going basis. The minimum for commercial banks will be US$12,5 million and the minima for the other institutions will be US$10 million for merchant banks and building societies, US$7,5 million for finance and discount houses and US$2,5 million for asset management companies.
A review of other regulations has resulted in companies being permitted to withdraw cash in amounts equivalent to 120% of their previous week’s cash deposits. This concession is not expected to be of any importance as very few companies have found good reason to deposit cash in recent months.
Interest rate changes were revealed in a separate statement from the Reserve Bank, which advised that accommodation rates, the interest charged when banks borrow from the Reserve Bank, had been increased to 10 000% from 7 500% for secured borrowing and to 40 000% from 9 500% percent for unsecured borrowing. For secured lending, banking institutions will be required to lodge 30% of their security in hard cash and 25% in foreign currency. The balance would be acceptable in traditional instruments.
In an attack on indiscipline being shown in the banking sector, Governor Gono claimed that deliberate sabotage was taking place and argued that the nation had to appreciate the magnitude of the sanctions and the “mightiness of the enemies” against whom Zimbabwe was fighting a war.

Observations on the monetary policy changes & recent developments
While the restored access to RTGS transfers will place bank deposits within better reach of depositors and will ease a great many business payments procedures, the Reserve Bank Governor repetition of government’s continuing claims that sanctions are to blame for Zimbabwe’s dreadful social and economic problems shows that Zimbabwe is no nearer to finding a solution.
Sanctions claims are unhelpful for several reasons, one of which is that most of the claimed sanctions are not sanctions at all, but demonstrations of various organisations’ unwillingness to engage with countries or governments that do not keep their word or that do not observe basic civil rights. A second reason is that the removal of the sanctions that do exist will not overcome any of the country’s problems.
Deliberate misinterpretations of the nature of sanctions will no doubt reach a new level now that the World Food Programme’s efforts to raise more money to fund additional food aid for Zimbabwe have failed. As Zanu PF wants everyone to believe that sanctions can be identified as the cause of all of the country’s difficulties, the party finds it easy to twist an unfavourable response into a claim that “illegal sanctions” are being applied.
However, the party’s objectives are clear: if all the blame can be put on sanctions, then none of the blame falls on Zanu PF. Secondly, the only people who should be accused of causing the virtual collapse of Zimbabwe’s economy are those who imposed the sanctions. And best of all, the obligations to fix Zimbabwe’s problems then fall on the shoulders of those who can thus be accused of causing them.
Now that the Pan-African Parliament has joined the chorus demanding the immediate removal of the so-called “illegal sanctions” imposed on Zimbabwe “by Britain and its allies”, Zanu PF appears to believe that its claims about the existence of sanctions are now beyond dispute. They appear to think that the Pan-African Parliament confirmed this by passing a resolution last Thursday that “took cognisance of the political and economic issues that have brought about the situation in Zimbabwe”.
However, the principal fact still on the ground is that until a few months ago, all the sanctions in force were imposed on individuals, not businesses. The people targeted had been implicated in, or linked to damaging political policies or to unacceptable human rights abuses that were sponsored and supported by government. None of the measures amounted to economic sanctions and none of them affected any private sector company’s ability to trade with any other company anywhere in the world.
Now things have changed, but not by much. A few specific economic sanctions were imposed earlier this year when deliveries of paper for printing Zimbabwean bank notes were suspended and payments for mineral exports were no longer permitted if the payments had to be made to the government’s Mineral Marketing Corporation.
The Pan-African Parliament resolution was passed after it had listened to a “comprehensive report”, which was prepared by the Reserve Bank of Zimbabwe and claimed to describe the effects of the alleged sanctions on ordinary people. This account was delivered at the 10th Ordinary Session of the PAP last week and this led to a strong condemnation of the sanctions imposed on Zimbabwe.
According to RBZ document, undeclared and declared sanctions were being felt throughout the economy and legal statutes, such as the Zimbabwe Democracy and Economic Recovery Bill, enacted by the US Government, supported some of them.
Describing the sanctions against Zimbabwe as tantamount to a declaration of war on a sovereign state, the Reserve Bank of Zimbabwe claimed they had put the economy under siege and were causing negative downstream effects on vulnerable groups and civilians. It also stated that illegal sanctions included economic, trade, financial, undeclared and arrears-triggered penalties, through the cancellation of lifeline projects, humanitarian assistance, and humanitarian infrastructural development support.
The implication of this choice of wording is that RBZ believes Zimbabwe is entitled to receive support and has every right to accuse those who fail to comply of acts of aggression. Even falling into arrears on payments should not permit lenders to withhold further loans.
The Reserve Bank’s report went on to claim that the adverse impact of the weapon of economic sanctions had resulted in deteriorating standards of living, with per capita incomes being reduced to a mockery compared to levels obtaining in those countries imposing illegal sanctions.
"Sanctions, declared or undeclared, have regrettably claimed the lives of innocent children, the disabled and physically handicapped, through denial of medical equipment, drugs, and food."
Attempts to pull such emotional strings are dishonest in the extreme. The callous indifference to the plight of the many victims of political excesses is all too evident in the ways that have been used to divert scarce resources away from areas of need to satisfy the greed and power-cravings of the political elite.
In the following page, I have tried to align brief comments against some of the other RBZ claims carried in the report to the Pan-African Parliament:

Comment:

The negative perceptions are real, but they are the result of Zimbabwe’s poor performance in servicing its existing debts. As a country, Zimbabwe has disqualified itself from access to support by failing to meet earlier repayment commitments.


Funding for infrastructural development would be readily available if lenders could be sure of being repaid. Decisions not to lend to unreliable borrowers do not amount to sanctions, but to good banking practice.


The foreign currency shortages stem from the loss of export earnings following upon the shrinkage of tobacco, horticulture, beef and other exports after the launch of the land reform programme.

The declines in key sectors were themselves caused by government policy decisions. No balance of payments support or new investment should be expected while government shows no willingness to reconsider the policies that caused the damage.

The government is wholly responsible for the decline in economic activity as it forced the closure of Zimbabwe’s major industrial sector. The sanctions against individual Zanu-PF members made no difference to business volumes.


The efforts to resolve the economic and political issues depend upon the revision of the political and economic policy choices, not on the provision of material and financial support. Such support would do no more than partly make up for the losses caused by the adoption of inappropriate policies, but would cure nothing. Reserve Bank of Zimbabwe claims:

"The imposition of targeted sanctions has precipitated negative perceptions about Zimbabwe by the world at large. These negative perceptions make it difficult for the private and public enterprises to secure funding, as donor funding agencies are no longer willing to support projects in Zimbabwe," the RBZ said.

"Significant progress that the country had made in the development of infrastructure, health and social service delivery systems has been severely affected by the imposition of sanctions.

"The protracted foreign currency shortages that the country has been facing since 2000 have crippled the operations of industry, which heavily relies on imported inputs for daily operations.

"Declines in the key sectors of the economy have occasioned high unemployment, an inefficient health delivery system, reduction in foreign direct investment and the drying-up of balance of payments support.

"Sanctions are partly responsible for the decline in economic activity over the last seven years," the RBZ outlined to the session.

The Session also urged the international community and humanitarian agencies to provide material and financial support towards ameliorating the deteriorating situation while efforts to resolve economic and political issues continue.