Economic Recovery

The topic is probably the last one that Zimbabweans want to hear about and justifiably so. With the Zimbabwean dollar in free fall, the usefulness of money for all its basic functions such as medium of exchange, unit of account and store of value disappeared.

Gideon Gono, a seasoned banker who spent much of his career in the banking sector, has failed to steer the sector out of devastating monetary challenges.

The country’s currency ceased to be a store of value as people lost their life long savings over night under a hyper-inflationary environment which had spiralled out of control. In response, the Zimbabwean government adopted the US dollar and the South African Rand as official currencies.

Whilst evidence on the ground suggests the strategy has worked to some respectable degree thus far, questions still remain regarding the extent to which the country can continue to operate the economy under dollarization and multi-currency system.

In general, relying on another country’s currency is living dangerously as its messy. The economy of the adopting country is directly affected by the policies of the other country especially with regards to the performance of that country’s exchange rate.

In the event of any of the currencies adopted by Zimbabwe crashing, the country will be directly affected to the extent of all assets and cash holdings denominated in that currency.

Although such a scenario is not expected or anticipated to happen in the short term, the long term possibility cannot be completely written off especially with the South African Rand.

Whilst South Africa has been a reliable and stable regional currency patron over the years, the country is facing a myriad of social and economic pressures whose future ending circumstances are not known.

In order for dollarization to succeed over the long term, there must be permission and mutual understanding between Zimbabwe and the US and South Africa, allowing Zimbabwe to continue adopting the US dollar and the Rand as official currencies.

However, the current situation is not sustainable as no mutual interest exists between Zimbabwe and the United States regarding dollarization. The current practice is undesirable given that Zimbabwe and the United States have limited bilateral trade because of existing targeted sanctions imposed against President Robert Mugabe’s regime.

Although meaningful achievements have been witnessed especially with regards to price stabilisation and restoration of some level of confidence in the economy, the country is still experiencing acute shortages of US dollar and Rand currencies particularly in the rural areas.

In some places, people have resorted to batter trading using livestock such as chicken, goats and cattle. Circulating a strong currency such as the US dollar among the general populace of a poor country such as Zimbabwe is no easy task. The finance sector is bedevilled by acute liquidity related problems.

Efforts by the government to borrow from the private sector have not been successful whilst financial instruments floated onto the market did not find any takers. That has worsened the country’s fiscal problems since no government can successfully implement its policies without borrowing unless it has a strong balance sheet.

Where a country does not manage its own currency, investors are not keen on buying and supporting government debt, hence the central bank has found itself failing to sell its bond and treasury bill instruments.

Among other problems, export trade has continued to suffer. There is no business motivation for importers in Asia, Europe and other Western countries to buy goods from Zimbabwe unless they are cheaper or not available locally.

A well-managed local currency is a strategic tool which the country can use to influence trade with other countries. China and Japan are dominating international export trade primarily because of their product pricing which is partly influenced by the value of their local currencies.

Countries with stronger currencies therefore find it cheaper to buy from these countries particularly China. Zimbabwe has a very conducive manufacturing environment because of very low labour costs. The job market is characterised by high unemployment levels and therefore favourable to manufacturing.

However, that potential may never be realised unless foreign countries see an economic imperative to buy Zimbabwean goods, hence the need for the country to have its own currency. Whilst dollarization has helped by eliminating devaluation risk, the strategy has not worked in attracting the much needed global capital and investment.

But which currency should Zimbabwe re-introduce? Is it the same Zimbabwean dollar? That is the most challenging part. The Zimbabwean dollar is associated with a bad image and the bad experiences associated with the currency may be difficult to shake off.  It may be a good idea to introduce new currency with a different name. Abandoning the dollar symbol may not be a bad idea after all.

In order for the new currency to be respected on the foreign exchange market, the government should take careful and necessary steps needed to create confidence in the new currency system. A phased introduction starting with coins operating alongside the US and Rand currencies is the best strategy. Only lower coin denominations should be introduced first.

The strategy will help to avail money for small transactions such as transport and daily shopping, promoting low level commerce whilst at the same time thwarting the possibility of currency hoarding for speculative purposes.

An important part of the process lies in the exchange rate management system to be implemented. A flexible exchange rate regime must be adopted. Previously, Zimbabwe found itself in a mess primarily because of the central bank’s practice of fixing the exchange rate coupled with reckless money printing activities. In the end, the system was subject to abuse by both the central bank and people in general.

A Fixed exchange rate regime works for stable economies which are not susceptible to foreign currency shortages. Efforts to create a fixed rate regime by any country with foreign currency shortages will most likely result in a parallel foreign exchange market. The initial floatation may however peg the new currency at par with the Rand. The economies of Zimbabwe and South Africa are inter-linked and the currencies are likely to have positive romance.

Another alternative is to join the Multilateral Monetary Area, formerly Common Monetary Area, which is currently composed of South Africa, Swaziland, Lesotho and Namibia. That way the Zimbabwean currency will be pegged at the same level as the Rand and other regional currencies. These countries’ economies are greatly interlinked and it makes great sense to trade with currencies which reflect their common social and economic backgrounds.

For that to happen, Zimbabwe must cooperate and comply with the requirements of the grouping, including all monetary policy frameworks especially with regard to quantitative easing and exchange rate management. However, the history of the central bank under the guidance of Dr Gideon Gono is one that is not encouraging.

Dr Gono, a seasoned banker who spent much of his career in the banking sector, has failed to steer the sector out of devastating monetary challenges. In fact, the governor is blamed for the country’s previous financial crisis attributed in part to reckless and irresponsible monetary policies under his governorship.

His monetary experiments which included continuous money printing among others went beyond prudent boundaries of economic management. If the country is to launch a new currency, the question is how will it be managed and by who? Common wisdom suggests the Central Bank needs restructuring especially with regards to its mandate and structure.

The operations of the Central Bank must be characterised by very little government influence. Because the governor is expected to be a highly technical individual, there is need to depoliticise the appointment of the governor by taking away that task from the President and pass responsibility to the board.

The government should however maintain its level of influence through the Finance Minister who must be given the responsibility of appointing the board. An ideal board must be composed of key stakeholders such as labour, industry and banks through various associations and other interest groups. In addition, the governor should not chair the board.

The current structure where the governor chairs the board creates a boss-subordinate relationship between him and the board, taking away the sense of responsibility and accountability. Global developments in the sphere of corporate governance have seen stakeholders increasingly questioning the wisdom of having chief executives doubling as board chairmen.

To achieve sustainable planning and undertake sound fiscal interventions, the Zimbabwean government needs various tools one of which is the country’s local currency. Financial instruments meant to ensure smooth operations of financial markets can only be introduced successfully if the country has its own currency. Without its own currency, the country will not realise meaningful economic growth and development.


Zimbabwe failed to sell $30 million of Treasury bills at an auction after the country’s finance minister said banks must buy the securities or they will be compelled to acquire negotiable certificates of deposit.

The Harare-based Reserve Bank of Zimbabwe rejected the $8.65 million worth of bids that were made at yields of 8.5 percent to 12 percent for the 91-day bills, an official at the institution said, declining to be identified because he is not authorized to speak to the media. Units of banks including Barclays Plc (BARC) and Standard Chartered Plc (STAN) operate in the country.

Tendai Biti, the finance minister, made the ultimatum in an interview on Nov. 3 in the northwestern resort town of Victoria Falls. The central bank last month rejected all bids at two sales while a third offering of $15 million generated $9.9 million in accepted bids. The securities are the first to be offered by the bank since 2008, shortly before Zimbabwe abandoned its currency in favor of the U.S. dollar.

“Rather than berating banks — especially the multinationals, Barclays, Standard Chartered, Old Mutual (OML) and Standard Bank (SBK) of South Africa — for their failure to lend, the government needs to get a grip on its unsustainable deficit and debt problems,” Tony Hawkins, an economics professor at the University of Zimbabwe, said in column published in Harare’s NewsDay newspaper today.

‘Last Chance’

Biti did not say how he would enforce the ultimatum. Negotiable certificates of deposit are often issued by central banks and while they can be traded in secondary markets ,they cannot be cashed in before maturity.

“I am giving the banks sector the last chance to fully support the Treasury bills,” Biti, 46, said in the interview. “If they don’t support it, I will issue NCDs and that’s it.”

Calls to the central bank were not answered today while calls to the mobile phone of George Guvamatanga, president of the Bankers Association of Zimbabwe, didn’t connect. Biti did not answer calls made to his mobile phone.

Biti and the central bank are trying to kick-start the country’s capital markets after a decade-long recession ended in 2009 after the 15-nation Southern African Democratic Community negotiated a settlement that ended a political dispute. A coalition government between President Robert Mugabe’s Zimbabwe African National Union-Patriotic Front and the Movement for Democratic Change of Prime Minister Morgan Tsvangirai was then formed.

Surging Inflation

The Zimbabwe dollar was abandoned in a bid to curb an inflation rate estimated at 500 billion percent by the International Monetary Fund. The country currently has a debt of $10.7 billion, according to the finance ministry.

Reluctance to buy the bills stems from “skepticism around the government’s ability to honor the Treasury bills at maturity,” the Tunis-based African Development Bank said in a monthly report on Zimbabwe on Nov. 2.

The plan to restart the bill sales was announced in July by Gideon Gono, the central bank governor. Zimbabwe lacks a benchmark interest rate. The weighted average lending rate for private banks ranged from 14 percent to 20 percent in the four months through July 31, Gono said in a midyear monetary policy statement.

“The return of the money market is a small step forward not least because the Treasury bill rate sets a determined floor for interest rates,” Hawkins said. That “might dissuade politicians from setting statutory maximum lending rates.”

Barclays Bank of Zimbabwe Ltd. (BARC) is the biggest lender by market value on the Zimbabwe Stock Exchange with a capitalization of $62 million while units of London-based Standard Chartered as well as Standard Bank Group Ltd. and Nedbank Group Ltd. (NED), both based in Johannesburg, operate in the country. CBZ Holdings Ltd. (CBZ) is the biggest locally owned bank.


Zimbabwe should be a powerhouse in Africa but its stagnant political leadership under President Robert Mugabe is holding it back, good governance advocate Mo Ibrahim said on Monday.

The founder of the Ibrahim Index of African Governance told AFP that Zimbabweans needed to “get their act together” if the country headed by 88-year-old Mugabe was to end its political impasse and move forward.

And African leaders should be brutally honest in criticising heads of government who drag their countries down, the Sudan-born telecoms tycoon said.

He was speaking after his foundation announced that for the third time in four years it would not award its Prize for Achievement in African Leadership – the world’s biggest individual prize — as no suitable candidates were found.

Ibrahim said: “Zimbabwe should have been a success story. It is a wonderful country with wonderful resources but unfortunately is at a political impasse. That is really a problem.

“We really hope the Zimbabwean people will somehow come together to resolve this impasse and enable the country to move forward.

“It’s unfortunate to have this kind of stagnation in the political scene which is affecting the performance of the country.

“The Zimbabwean people are among some of the best-educated Africans and very enterprising. So let’s hope that they get their act together and somehow we see Zimbabwe rising again.”

A shaky power-sharing government was formed in 2009 following violent polls. Mugabe and Prime Minister Morgan Tsvangirai struck a deal to avoid a tip into a full-fledged conflict.

“The past generation, most African leaders came from freedom-fighting, liberation movements. A good fighter is not necessarily a good governor. It takes different skills to run a country,” Ibrahim said.

Zimbabwe ranked 47th out of 52 African countries in the 2012 Ibrahim Index unveiled on Monday, with a score of 34 out of 100 – making it the worst-performing country in the otherwise high-ranking southern Africa.

Ibrahim said there was a “collegiate atmosphere” among African leaders where they do not criticise one another publicly.

“We hope this is changing. We need to have the courage to stand up and say look, this is wrong,” he said.

“If you look in a mirror and see an ugly face, maybe you are really ugly. It’s not the fault of the mirror. We need to be a little bit more brutal in order to move forward. We need more honesty to say the tough things.

“We should be free to really say the truth wherever it is needed.”


Zimbabwe’s almost $11 billion in debt puts it in “distress” and impedes the southern African nation’s sustainability because it’s 113 times gross domestic product, the International Monetary Fund said.

The country’s total external debt is “estimated at $10.7 billion at end-2011, of which 67 percent of GDP are in arrears,” the fund said on a statement on its website.

“The large debt overhang remains a serious impediment to medium-term fiscal and external sustainability.”

Government operations recorded a cash deficit of 0.6 percent of GDP last year, even though revenue generated was better than expected, while two salary increases “raised employment costs by 22 percent, crowding out social and capital investment,” it said.

The IMF said the effect of the salary increases was worsened “in early 2012 by an increase in employee allowances and unbudgeted recruitment.”


The head of Zimbabwe’s state airline says pilots have ended their third strike in 10 months but that service has yet to resume because no one has booked a flight.

Air Zimbabwe chief executive Innocent Mavhunga said Friday the airline resolved its salary dispute with pilots after it got a bailout from the transport ministry. He refused to disclose the amount. The strike lasted six weeks.

But he said that no flights were likely to resume Friday because the sudden end of the strike was not widely known.

The heavily indebted airline’s 49 pilots have been on strike three times in the past 10 months, demanding more than $9 million in unpaid salaries and allowances.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


Power utility ZESA Holdings posted a US$100 million loss in the six months to June and attributed the poor performance to sub-economic tariffs.

ZESA chief executive Engineer Josh Chifamba said this in defence of the recent tariff hike that has been described as unjustified and illegal. He said the power tariff hike was justified, as cost reflective rates made it possible for the State-owned power producer to ensure supply reliability.

Industry now pays US9, 45c a kilowatt-hour from US7,53c per unit of electricity and domestic users US4, 5c per unit since the 31 percent tariff hike. Power accounts for about 5 percent of firms’ operating costs.

He said during dollarisation consumers paid grossly sub-economic tariffs that resulted in serious erosion of the balance sheet into negative equity.

“One way of looking at losses is that they are a mirror image of backlog in maintenance, degradation of infrastructure and unsafe infrastructure. That is how you must interpret losses, it’s not just financial,” he said.

The ZESA boss said the utility’s financial losses typified and exemplified a lot of maintenance work that is not being done on the infrastructure. He said there had been need to review the last tariff, approved in 2009, as it had only been a “thumb suck tariff” not meant to address ZESA’s costs.

The ZESA CEO said “it was just a thumb suck tariff, something just to proceed by” while the economy was given time to recover.

Eng Chifamba said the decision to increase tariffs to ensure reasonable cost recovery was motivated by a number of compelling economic issues.

“Coal, a significant component in the cost structure of ZPC, takes about 45 percent compared to the entire cost structure has moved from US$17 a tonne in 2009 to US$30 now and that’s a phenomenal increase.

‘The price of diesel has moved from US90c (2009) to about US$1,32 now. All those costs are pass through costs external to us. We cannot do anything about them . . . we simply take them and pass to customers,” he said.

ZESA’s cost structure has reportedly increased tremendously since 2009, but even with the new electricity tariff ZESA will not recoup all incurred expenses.

ZESA said it has no option but to review tariffs, as the cost of failing to provide would be frightening to consider taking the risk.

For example, mining companies lose US$4 a kilowatt-hour not supplied and use of diesel generator results in US45c per kilowatt-hour consumed.

A huge cost burden has resulted in infrastructure collapse of networks closer to consumers resulting in infrastructure-related supply interruptions.

It is against this background that Government has decided to gradually ensure that the power utility charges cost reflective tariffs to cover expenses.

This comes as Government scouts for a partner to inject fresh capital into the debt-burdened parastatal. ZESA is one of 10 loss-making parastatals that were identified for privatisation, commercialisation or restructure.

ZESA requires US$3 billion to raise power generation by an additional 900 megawatts at both Hwange Thermal and Kariba South power stations.

New investment would help reduce power deficits. Zimbabwe is only able to produce 1 400MW against national demand for power of 2 200MW.

Thus far 40 investors have expressed interest in snapping a stake in the power utility and the winner would provide part of the funding required by ZESA.


Reserve Bank of Zimbabwe governor Gideon Gono yesterday said he regrets printing loads of worthless Zimbabwean dollars, a situation that led to record hyperinflationary levels in the country three years ago.

Gono made the startling remarks at the Independent Dialogue sponsored by the Zimbabwe Independent in Harare while responding to questions regarding when the country was likely to return to the Zimbabwean dollar.

He said printing money like what the US is currently doing was improper, adding the budget deficits were not healthy for an economy as they could lead to currency difficulties.

Said Gono: “If that (extensive printing of money) doesn’t weaken a currency, I don’t know what will. Extensive printing of money — get it from me, I have got experience in that so if there is something that I can teach the world as free advice to the US and those countries that are relying on the printing press is — Don’t do it!”

“So please, my brother from the US embassy, take that message to the Treasury Secretary and say some little bugger there who has a lot of experience says he loses sleep when he sees you printing, printing against a background he has attached his economic fortunes to you. Hence, we are saying you are no longer on your own to an extent that we have tied our economic fortunes to you. Please, just behave. Don’t behave in the manner in which I was behaving.

“Let me say that no self-respecting nation in the world can do without its own currency. Even those nations that have gone into common markets chose to keep their own currency. Britain is part of the European Union, but has decided to keep their pound.

“There are also times when it is necessary to step back and reconfigure yourself before you go about wanting your own currency and we are in that phase. I think the Minister of Finance has made pronouncements with regard to certain conditions that have to be met before we can talk about the return of the Zimbabwean dollar. We are not at variance with respect to that.”

Gono said there was a danger of a country attaching itself or economic fortunes to a country that could be on a downward trend.

During the time there was too much money chasing too few goods, Zimbabwe was awash with loads of worthless dollars used to purchase the US dollar on the black market.

Capacity utilisation in industry dropped to below 10 percent.

The resultant shortages gave birth to a thriving black market and speculative tendencies.


The International Air Transport Association, known as IATA, suspended Air Zimbabwe for non- payment of booking fees, U.K.-based Nehanda Radio said, citing an IATA statement.

The state-owned airline owes IATA about $280,000, Nehanda Radio said on its website. The ban won’t affect Zimbabweans already booked to fly on Air Zimbabwe, though foreigners traveling to the southern African nation may encounter difficulties, Nehanda Radio added.

Pilots employed by Air Zimbabwe ended a monthlong strike April 21 after protesting unpaid salaries and allowances dating back to February last year.


Zimbabwe’s Prime Minister Morgan Tsvangirai says President Robert Mugabe’s plans to nationalise foreign firms amount to looting and plunder, as the country marked 31 years of independence with a mass rally in a stadium in Harare.

Tsvangirai did not get to address crowds at Harare ‘s giant National Sports Stadium on Independence Day.

But in a statement released on the occasion, he slammed President Robert Mugabe’s controversial indigenisation drive.

Mugabe’s Zanu-PF party says it has finalised plans to take over white and foreign-owned companies and will start in earnest very soon.

But Tsvangirai scorned Zanu-PF’s claim that indigenisation would set Zimbabweans free.

He warned national resources would be looted and plundered by what he called a “small, parasitic elite”.

Tsvangirai’s words were in sharp contrast to the president’s, who defended the policy at the ceremony.

The 87-year-old strode into the stadium, defying rumours of growing frailty.

Security was tight around him as he inspected a guard of honour.

Unusually, his wife Grace wasn’t by his side.

Mugabe appeared placatory in his speech, calling for national unity and peaceful coexistence.

His rivals, who hold seats in the coalition government, may not believe him – the MDC co-minister for national healing and reconciliation is currently in police custody, for addressing a meeting without police permission.


Zimbabwe is considering an out-of-court settlement with German bank KfW Bankengruppe which is owed €40 million borrowed more than 12 years ago to rehabilitate the troubled Zimbabwe Iron and Steel Company (Ziscosteel), APA learns here Thursday

Sources said the KfW Bankengruppe settlement would be announced on October 8 when the case comes up at the North Gauteng High Court in South Africa.

“The Zimbabwean government has decided to go for a settlement with the German bank KFW Gruppe and offered to repay the 40 million Euros,” Commercial Farmers Union (CFU) Vice President Louis Fick said.

A South African farmer dispossessed of his property under President Robert Mugabe’s land reform programme, Fick is leading a campaign to sue the Zimbabwean government over the expropriation of farms.

The North Gauteng High Court in July postponed the auction of several properties in South Africa owned by the Zimbabwean government which had been seized to pay back loans from the German bank as well as compensate a group of South African farmers who lost their farms under the land reform programme.

The postponement came after the Zimbabwean government appealed against the legality of the sale.

Seven properties in South Africa’s Western Cape and Gauteng provinces were seized by KfW Bankengruppe in May over Harare’s failure to settle a multi-million dollar loan.

The government, through Ziscosteel, entered into the loan agreement with the German bank in January 1998.

Repayment of the loan was then meant to be done in 16 instalments starting from May 2000. But after only four payments, the last being in 2002, Ziscosteel stopped paying, leaving the German bank with no other option than seek other means of repayment.


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