Tuesday, March 30, 2010

From John Robertson

A mission of the International Monetary Fund (IMF) led by Vitaliy Kramarenko visited Zimbabwe during March 3-17, 2010 to conduct the 2010 Article IV consultation discussions. At the conclusion of the mission, Mr. Kramarenko, mission chief for Zimbabwe, issued the following statement in Harare:

“In 2009, following a decade of economic decline and hyperinflation during 2007–08, policies improved significantly. The multi-currency system adopted in early 2009 helped restore price stability, restart financial intermediation, and impose fiscal discipline by precluding the option of budget deficit monetization. Budget revenue increased significantly, which helped finance improved delivery of public services, while the fiscal position was broadly balanced. Price and exchange system liberalization improved allocation of resources and availability of goods in the domestic markets. In response to better policies, short-term capital inflows and FDI increased in 2009. All these positive steps have supported a nascent economic recovery.

“However, the economic recovery remains fragile and domestic and external imbalances are building up; therefore, significant policy challenges need to be addressed without delay. Regarding fiscal policy, the government needs to ensure that sufficient budgetary allocations are made to critically important infrastructure rehabilitation projects and social programs supporting vulnerable groups while maintaining a fiscal stance consistent with macroeconomic stability. To this end, budgetary expenditures need to be better prioritized and the central government wage bill needs to be reduced as a share of revenues, including through the elimination of ghost workers based on the results of the on-going payroll audit. The multi-currency system, which the authorities have decided to maintain until 2012, will provide a strong nominal anchor. Risks to the banking system are rising significantly and should be mitigated by stepping up prudential measures. In addition, RBZ governance needs to be strengthened, including through appointment of a Reserve Bank of Zimbabwe (RBZ) governing Board composed of reputable members and approval of an RBZ operating budget envisaging a significant downsizing and refocusing on core activities under the multi-currency system. In the area of structural reforms, the business climate, particularly respect for property rights, needs to be strengthened and the flexibility of labor markets, including with regard to wage levels, needs to be increased to improve Zimbabwe’s competitiveness and attractiveness to domestic and foreign investors.

“Zimbabwe remains heavily dependent on humanitarian assistance to meet basic needs of its population. Continuing efforts to strengthen relations with the international community and attracting increased donor assistance, in particular in the areas of health, education, and critical infrastructure, would help improve the living conditions of ordinary Zimbabweans.

“IMF staff will continue to maintain a close policy dialogue and provide targeted technical assistance in the context of regular visits. Access to IMF lending resources would be subject to relevant IMF policies, including a track record of sound economic policies and a comprehensive strategy for the clearance of arrears to official creditors agreed among the government coalition partners and with official creditors.”

Wednesday, March 24, 2010

Pressure Mounts for Reserve Bank of Zimbabwe Governor Gono to Resign Post

Political sources said Gono has come under mounting pressure from some in the former ruling ZANU-PF party to step down after blasting Harare's indigenization and black empowerment program as a form of cronyism Blessing Zulu
Washington 23 March 2010
Pressure on Reserve Bank of Zimbabwe Governor Gideon Gono to resign mounted on Tuesday following a recommendation from the International Monetary Fund that the country strengthen central bank governance and sniping from former allies in ZANU-PF over Gono's criticism of the party's indigenization initiative.
Upon concluding so-called Article IV Consultations with the Harare government this week, the IMF called for improved central bank governance, warning that risk is on the rise in Zimbabwe's financial system. The IMF recommended the establishment of an RBZ governing board and downsizing of bank operations and staff.

Political sources said Gono, who has presided over the collapse of his institution to the point where its assets are being auctioned off to satisfy creditors, has come under mounting pressure from some in ZANU-PF to step down after blasting Harare's indigenization and black empowerment program as a form of cronyism.

One top ZANU-PF official told VOA that Mr.Gono must go, calling him "a buffoon who practices Road Port economics," a reference to the Road Port Bus Terminal in Harare where Reserve Bank Officials were formerly said to have engaged in huge foreign exchange deals that fueled the country's recent hyperinflationary episode.

Sources said South African President Jacob Zuma, who met with Gono while conducted a round of mediation of differences within Harare's unity government last week, urged the central bank to consider stepping down in the national interest. The Movement for Democratic Change formation headed by Prime Minister Morgan Tsvangirai has long been calling for Mr.Gono’s departure.

Gono’s powers could soon be curtailed in any case by central bank reform legislation that awaits the signature of President Robert Mugabe. The bill includes language granting Gono immunity from prosecution for actions taken in good faith on instructions from above, such as improperly funding government operations.

Economic Planning Minister Elton Mangoma, who took part in the IMF policy review, confirmed that the IMF is particularly concerned about RBZ governance.

Peakford Management Consultancy Chief Executive Officer Albert Mandizvidza told VOA Studio 7 reporter Blessing Zulu central bank reform is long overdue.

Moderate Inflation Versus Hyperinflation

Via Ryan Avent, I learn that Mike Kinsley isn’t too happy with my critique of an earlier column in which he expressed anxiety about inflation.

I’m tempted to get into an argument about whether it’s “bullying” to suggest that if you’re going to write about an economic issue, you might want to study it first. But what I really want to do is take on Kinsley’s suggestion that I was wrong to say that the distinction between Zimbabwe-type hyperinflation and 1970s-type inflation in the United States is “textbook economics.” Kinsley says that he looked at Greg Mankiw’s text and found no such distinction; strange to say, however, it wasn’t Mankiw’s text I had in mind. Instead, I was thinking of another intro text that sells quite a few copies, although not (yet?) as many as Mankiw.

And in that text, the relevant chapter (pdf) makes a clear distinction between Zimbabwe-type hyperinflation and the more moderate type of inflation that afflicted the US and others in the 70s.

Saturday, March 20, 2010

Zimbabwe Central Bank Governor Gono Breaks Ranks With ZANU-PF on Indigenization

Sources in the central bank and in Zimbabwe’s largest black empowerment organization, the Affirmative Action Group, said Gono fears indigenization will discourage foreign investment when the country desperately needs it Gibbs Dube
Washington 19 March 2010

Reserve Bank of Zimbabwe Governor Gideon Gono has broken with President Robert Mugabe and ZANU-PF on the controversial indigenization program, calling it a "reckless" initiative championed by "vultures."
Sources in the central bank and the country's largest black empowerment organization, the Affirmative Action Group, said Gono fears the indigenization process will discourage foreign direct investment at a time when the country desperately needs it.

"The last six months have seen a flood of interest in the economy from both friends and foes and we must not disturb the momentum by being reckless, inconsistent and self-contradictory with our pronouncements or with what we say or do," Gono told the Financial Gazette, a Harare weekly newspaper. One source familiar with Gono's thinking on the issue said he had referred to some indigenization proponents as "vultures."

VOA was unable to reach Gono to seek confirmation of the views attributed to him by those sources.

The Indigenization and Economic Empowerment Act was passed into law in 2007, but implementing rules were only recently promulgated, sparking fears of an asset grab akin to the land reform program.

Responding to Gono's reported views, Affirmative Action Group President Supa Mandiwanzira told VOA Studio 7 reporter Gibbs Dube that the indigenization process is unstoppable despite the central banker's warning it will hurt the economy.

Mandiwanzira conceded Gono was acting “within his mandate of advising government on monetary policies and other issues." But he added, “We believe that indigenization has to happen now and that is not negotiable."

Gono's reported position on indigenization is somewhat surprising as he is seen as a hardliner in ZANU-PF and is politically close to President Mugabe, who has endorsed the indigenization drive. Gono has also been accused of mismanaging the Reserve Bank by funding operations of the former ZANU-PF government, leading to near-record hyperinflation

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Friday, March 19, 2010

Zimbabwe cbank governor attacks planned company seizure

Thu Mar 18, 2010 12:23pm By Cris Chinaka
HARARE, March 18 (Reuters) - Zimbabwe's central bank governor on Thursday attacked as "reckless" a drive by President Robert Mugabe's party to force foreign-owned companies to cede majority shareholdings to local black businessmen.

Gideon Gono, a close ally of Mugabe whose position at the central bank is opposed by the president's rival Prime Minister Morgan Tsvangirai, said in a newspaper interview the move was scaring off investment badly needed to revive a battered economy trying to recover from a decades-long crisis.

In an unusually fierce attack on policy strongly backed by his benefactor, Gono told privately-owned weekly Financial Gazette newspaper that the black empowerment drive smacked of racism, and would hurt efforts by a power-sharing government formed by Mugabe and Tsvangirai a year ago to fix the economy.

"The last six months have seen a flood of interest in the economy from both friends and foes and we must not disturb the momentum by being reckless, inconsistent and self-contradictory with our pronouncements or with what we say or do," he said.

"You don't shoot yourself in the foot during a time of scarce capital availability and neither do you start any new wars before concluding battles of yesteryear," he said in reference to Mugabe's controversial seizures of white-owned commercial farms which critics say triggered Zimbabwe's economic collapse.

"While national calendars and sovereign debates must never be dictated by outsiders, it is an act of madness for a family to engage in domestic quarrels at a time when the whole village is up and about its business," he added.

Gono -- whose money-printing policies at the Reserve Bank of Zimbabwe between 2003 and 2008 is blamed for the world's worst hyper-inflationary crisis in the last 20 years -- said the empowerment drive had attracted unnecessary media attention of a people "trying to dispossess one another of this and that".

The central bank governor called for protection for foreign-owned banks like Barclays BAC.L, Standard Chartered (STAN.L), Central African Building Society owned by Old Mutual (OMLJ.J), and MBCA owned by South Africa's Nedbank (NEDJ.J), which he said were targets of "vulture-style" seizures by some cartels of black businessmen.

"The firm policy position of the Reserve Bank is that all existing foreign-owned banks must be left under the current parentage ownership to optimise on the capacity of domestic economy to penetrate international financial markets," he said.

"Our political leaders must take the lead in openly condemning what we see as self-centred approaches that are evolving under the guise of indigenisation and empowerment drive."

Gono said the central bank was ready to award new licences to blacks to run their own banks, and suggested Zimbabwe could pursue a programme of empowering historically disadvantaged blacks by giving them preference in government contracts while allowing some joint ventures with foreigners on a willing-seller-willing buyer basis.

Tsvangirai's Movement for Democratic Change (MDC) says it is trying to persuade Mugabe's ZANU-PF party to shelve the empowerment law, and Gono said he hoped current public consultations on the programme would also help the government on how to tackle the issue.

Asked whether investors were justified in their fears of Zimbabwe's black empowerment drive, he said: "Absolutely, those fears are justified in the sense that most of those to be affected came in as a result of the country calling on them to come in and invest in our landscape."

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Sheriff's Office to Auction Reserve Bank of Zimbabwe Property to Settle US2.1 Million Debt

The Zimbabwean Sheriff’s Office has attached Reserve Bank property including 52 vehicles, three tanker trucks, refrigerators, beds, washing machines, televisions and real estate in Harare and two provincial towns

Gibbs Dube
Washington 18 March 2010
At least twenty vehicles belonging to the Reserve Bank of Zimbabwe that were attached recently by the Sheriff’s Office were to be auctioned off in Harare on Friday to settle a US$2.1 million central bank debt.
Attorney Davison Kanokanga, representing Farmtech Spares and Implements, said seven public auctions have been scheduled this month and in April to cover the debt incurred when the RBZ failed to pay Farmtech for tractors supplied under the Farm Mechanization and Agricultural Support Enhancement Facility.

Kanokanga told VOA Studio 7 reporter Gibbs Dube that the movable goods attached by the Office of the Sheriff includes small farm carts and harrows.

The Sheriff’s Office has so far attached RBZ property including 52 vehicles, three tanker trucks, refrigerators, beds, washing machines, televisions and real estate in Harare, the Manicaland province capital of Mutare, and the northeastern resort town of Kariba.

The RBZ ordered 150 tractors from Farmtech to set up a government farm assistance scheme and received 60 worth US$2.1 million but never paid the bill.

The company finally sought and obtained a High Court order for RBZ property to be seized and sold off.

Thursday, March 18, 2010

Ferom John Robertson

Among the uncertainties facing Zimbabwe, the movements of exchange rates against the US dollar have become an additional problem, particularly for those sourcing inputs from South Africa. I have updated my exchange rate graphs to show the trends up to last Friday's rates and offer a few comments that I hope will be helpful. However, I have tried to dispel recently expressed thoughts that a return of the Zimbabwe dollar might take place sometime soon. Government’s indigenisation plans seem likely to push that event a long way beyond the current murky horizon as investor confidence suffers from the latest indigenisation attack.

Government is said to have been persuaded that amendments are needed in the Indigenisation legislation, but every possible effort must now be made to persuade government to repeal the entire Act. The country is in desperate need of expansion and development that depends on investment inflows. Plans that do no more than change the ownership of existing capacity will do nothing to help restore growth and the indigenisation achieved will be at considerable cost to the entire economy because the process will switch off new investment completely. If the Act is repealed, a new development plan can be built. If the Act is not repealed, our best efforts to accommodate it will still lead nowhere!

Kindest regards and best wishes,



Despite all the efforts to point out anomalies, contradictions and faulty logic, the government has become even more determined to go ahead with its indigenisation plans. From our side, in the business sector, or representing businesses, we need to become that much more determined to persuade government that the Act and its accompanying regulations will not only fail to achieve their purpose, but will put the hopes of economic recovery onto a steep downhill slope.

Human Resources (Pvt) Ltd has obtained a commitment from the Minister and the Permanent Secretary to address a follow-up conference on Friday, March 26. A good line-up of lawyers and experienced business speakers have also been asked to address the conference and I hope to make a useful contribution too.

If you can make it to the conference and if you can help the government officials gain a better understanding of the requirements of genuinely helpful indigenisation promotion policies, or even if you want to gain a better understanding of the issues involved, this could be a very important event for you to attend. I have attached a copy of David Harrison’s brochure and if you write next to your name Ref John Robertson, David says he will give you a $10 discount! Please come and take part in this important debate.

From John Robertson

OK Zimbabwe ignores the notorious Indigenisation Act


Published: March 18, 2010

Despite the provisions of the notorious Indigenization and Empowerment Act, one of the country’s biggest retail chains, OK Zimbabwe, has invited in an international investment partner to raise more than US$20 million to recapitalise the group in a bid to save itself from competition in the retail sector.
The move by Investec Africa Frontier Private Equity Fund (IAFPEF), a fund managed by Invest Asset Management, an investment arm of the Johannesburg and London Stock Exchange-listed Investec Group, to invest in OK is likely to attract the attention of ZANU-PF given their recently gazetted indigenisation regulations which criminalizes the foreign majority shareholding in local investments.

The Investec Group has assets worth more than US$64 billion and its investment arm has investments of US$1 billion on the African continent outside South Africa.

OK Zimbabwe directors warned that unless shareholders approved proposals by the board to raise US$15 million through a rights offer and an additional US$5 million from a convertible loan at an extraordinary general meeting on 25 March, the group would continue to lose market share to new and traditional competition as well as fail to win back its lost market share.

Since the introduction of the multi-currency system after a decade of soaring inflation, the retail sector has been characterized by extensive competition especially from new players that came on board just recently, posing a stiff challenge to established chains.

OK Zimbabwe said it had identified the Mauritius-based Investec Africa Frontier Private Equity Fund as its equity partner.

Shareholders would be asked to buy additional shares at a price of US$0,06 through a rights offer underwritten by IAFPEF.

The fund will extend a loan of US$5 million which can be converted into shares after three years.

IAFPEF will be allowed to nominate two directors into the OK Zimbabwe board, one of them an independent, to bring the total number of non-executive directors to six.

The money according to OK Zimbabwe will be used to, pay off its existing short-term debt, which was deemed expensive, refurbish stores and expand the store network as well as invest in information technology among other things.

“The challenges of the past decade, in particular the last two years leading to the adoption of the multi-currency system, severely depleted the capital base of the company.

“For the past few years, the company has not been able to sufficiently invest in its store network or plant and equipment.

The advent of the multi-currency trading environment saw the company successfully restoring operations in its stores during the first quarter of 2009.

However, a number of new competitors have entered the retail market while some of the company’s traditional competitors are actively seeking to increase their market share,” the company said in a statement to shareholders.

It said the company decided on IAFPEF because other means of raising capital would take a long time.

OK Zimbabwe posted a profit after tax of about US$2,8 million in the year ending December 2009.

The company is one of the few ones left in the country after most of the international companies fled the country during the ZANU-PF rule which saw businesses close due to hyper-inflation as a result of the then administration’s corrupt activities among other governance ills.

Friday, March 5, 2010

First steps taken to restore working relationship with the IMF

The International Monetary Fund Executive Board has agreed to restore Zimbabwe's voting rights after a seven-year suspension and has agreed that if Zimbabwe settles its arrears to the Poverty Reduction and Growth Trust, the country will be permitted access to the IMF’s General Resource Account.
In other words, the arrangements permit Zimbabwe to apply for new IMF loan facilities, but IMF regulations will not permit it to actually release loan funding until Zimbabwe qualifies for the assistance by settling its debts.

The outstanding amount owed to the IMF is about US$136 million, but more precisely, it is 89,4 million Special Drawing Rights. The exchange rate at the end of last week was SDR1=US$1,52464. However, the IMF has also reminded Zimbabwe of two critical issues:

Firstly, the country’s eligibility for new loans will not be fully restored until it has paid off a total of US$1,3 billion, the combined debts to the IMF, the World Bank and the African Development Bank.

And secondly, access to IMF resources is also subject to IMF policies on the use of such resources and to the country achieving a track record of sound policies. In this regard, the IMF and other organisations are keen to see evidence that Zimbabwe will accept policy changes that will help restore the country’s ability to earn foreign exchange.

Before Land Reform caused a massive shrinkage in foreign earnings, Zimbabwe had achieved an excellent credit rating and it benefited from extensive credit lines as well as investor support because its prospects of meeting debt settlement obligations were considered excellent. If tobacco production alone had continued at the 1999/2000 levels through to 2009, the amount earned would have considerably exceeded the total debt of almost US$6 billion now outstanding.

To the dismay of many development institutions, Zimbabwe’s authorities have so far done nothing to revise the policy decisions that caused these and many consequential declines in economic activity in Zimbabwe. Also, Zanu PF politicians’ efforts to divert attention from their errors of judgement by claiming that the economic collapse was caused by sanctions have not persuaded the same institutions, so evidence of actual change remains a prerequisite for more meaningful assistance.

For the present, as a result of the Voting Rights decision, Zimbabwe can now participate in the procedures for appointing Governors to the IMF and in the election of Executive Directors for the IMF’s Board. Zimbabwe can now also cast its vote in decisions on IMF policies or matters concerning other member countries.

Zimbabwe came close to losing its membership status at the end of 2003, when the country’s failure to either adopt acceptable policies, or to meet its financial obligations, led to the initiation compulsory withdrawal procedures. However, time was offered to permit Zimbabwe to achieve the levels of “co-operation” called for, and in 2006, the country achieved a degree of success by fully setting its GRA arrears to the IMF.

This led to the procedures for the country’s compulsory withdrawal being cancelled, but much to the disappointment of the Reserve Bank, the amounts still owed to the Poverty Reduction and Growth Trust meant that the payments made were not enough to restore Zimbabwe’s access to IMF financial resources.

The IMF Executive Board did debate Zimbabwe’s position at meetings in 2006 and 2007, but the continuing difficulties forced them to agree to return to the issues at a later date, but as soaring inflation became hyperinflation, the Reserve Bank was obliged to legalise the use of foreign currency notes when it could no longer keep up with the production volume requirements of inflation that reached 100 percent per day. The Zimbabwe dollar collapsed completely early in February 2009 and decisions had to be made to rely almost completely on the limited quantities of US dollars and South African rand available in the country.

As the Reserve Bank could no longer sustain the subsidies and other expenditures that had caused most of the financial distortions, discipline was imposed on the Reserve Bank, as a result of which, by May 2009, its conduct could be described as having significantly improved, so Zimbabwe’s improved co-operation on economic policies was said to have been achieved.

This generous recognition by the IMF led to the Executive Board approving the reinstatement of technical assistance in some targeted areas. Now, another step back up the ladder has been agreed to and Zimbabwe’s voting rights and direct participation in IMF meetings and decision-making have been reinstated.

According to the IMF announcement, the move recognises the country's efforts to repair its economy and improve relations with donors. However, it would be helpful to know which of the efforts the IMF believes has actually made a difference. On the ground, the facts are that the Government of National Unity is barely functional, property rights are no closer to being restored, civil rights abuses are still taking place and now government is proposing to enforce legislation that will dispossess every non-indigenous business owner of their controlling interests in their companies.

Far from amounting to efforts to repair the economy, these latest moves appear to have been designed to destroy the businesses that somehow survived the earlier moves.

Of some interest is the fact that the IMF decision was reached a few days after the European Union decided to renewed sanctions against identified Zimbabwean individuals for another 12 months. This was done because of their assessment that the new inclusive Government was making no actual progress. That assessment is much closer to the mark.

From John Robertson

It is not over yet. But to what extent we can hope for the change we really need, which is the repeal of the Indigenisation and Economic Empowerment Act, rather than mere amendments, has yet to be seen. Today, Thursday, a meeting of the Council of Ministers is to be held to discuss this topic. I have reproduced below an entry from the Prime Minister’s Newsletter, Edition 37, published on his website yesterday. You can download updates by calling up www.zimbabweprimeminister.org but I hope to be able to alert you to any helpful developments.

Kindest regards and best wishes,


Extract from the Prime Minister’s Newsletter, March 3 2010

The dispute between the main parties in the transitional Government over the recently gazetted indigenisation regulations is continuing and will be the only item for discussion in a special session of the Council of Ministers to be held tomorrow (Thursday, March 4).

The controversial regulations, which have already scared away millions of dollars in investment, threatening jobs and revenue generation, was gazetted as a Statutory Instrument by the Minister of Youth Development, Indigenisation and Empowerment without consultation on 12th February. The regulations have the effect of enforcing a law passed in Parliament in 2007 when Zanu PF was still the ruling party, that provides for heavy punishments, including jail, for international firms that refuse to cede majority shareholding to local people. The new legislation would be applied across businesses that are valued at more than $500 000.

Prime Minister Tsvangirai and President Mugabe on Monday agreed in a meeting that the regulations would not be enforced until they were brought to and approved by Cabinet, as per procedure. Finance Minister, Tendai Biti, said Cabinet was still seized with the matter, adding that “appropriate ministers will be making appropriate announcements in due course”.

However, the responsible Minister, Saviour Kasukuwere, a rich black empowerment proponent, has raised more discord by being widely quoted in the media, insisting that the regulations actually took effect from Monday March 1 2010.

All Movement for Democratic Change ministers and some in Zanu PF agree that the issue of empowerment needs to be discussed further to ensure that it does not affect the Prime Minister’s efforts to rebuild the economy.

Kasukuwere’s intransigence has caused consternation within

the transitional Government. Amid the uncertainty, some companies have liquidated holdings while others have held off new investments. Prime Minister Tsvangirai is worried that the regulations have renewed investor fears about the country’s shaky political situation and an unpredictable legal

environment that the transitional Government appeared to have stabilised.

Prime Minister Tsvangirai is on record as saying that indigenisation as currently proposed is “counter-productive”, and out of line with his mandate to deliver broad-¬based empowerment through economic growth.

“The regulations will achieve the exact opposite and this

is the reason why the Prime Minister continues to oppose

them in the strongest terms,” said James Maridadi, the Prime

Minister’s spokesman.

Investors as well as members of Zimbabwe’s business community and labour have expressed concern that the regulations are designed to enrich a small elite at the cost of national empowerment, which can only be brought about through genuine wealth creation and expanding the national economy and affording Zimbabweans opportunities in business.

Business and analysts fear that members of resident Mugabe’s cronies could use this law to expropriate foreign-owned firms the same way they looted farms.

“The Prime Minister has always been a strong advocate of policies that empower the poor and the marginalised. But these regulations would plunge us back into the sort of economic decline and wide-¬scale job losses we saw as a result of corrupt farm acquisitions. The political elite that made millions from looting farms cannot be allowed to continue enriching themselves through grab strategies at the expense at the expense of the poor,” said Maridadi.