Mangudya turns back the hands of time

Business
Reserve Bank of Zimbabwe (RBZ) governor John Mangudya last week turned back the hands of time by introducing controls as he moved to stem illicit financial flows.

Reserve Bank of Zimbabwe (RBZ) governor John Mangudya last week turned back the hands of time by introducing controls as he moved to stem illicit financial flows.

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In his monetary policy last week, Mangudya suspended the free funds concept, put restriction on offshore investments and said withdrawals above $10 000 now required at least one day notice to the bank.

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He said liquidity was being externalised and nearly $2 billion had been spirited out of the country by individuals and corporates in 2015.

But analysts warned last week that the measures had returned the economy to the pre-dollarisation era.

“When we dollarised as an economy, we became an open economy. Policy measures of IFFs [illicit financial flows] are not the way to go. It’s like you have a cupcake and you want everyone to share that cupcake instead of expanding the cake,” one analyst said, adding that the biggest challenge in the economy was confidence.

He said IFFs “are part of the global economy and we should look at what we can do to bring in more money into the economy”.

The analyst said the more controls that were put in place, the more money would leave the country. For instance, during the hyperinflation era, controls were there but they were not a hindrance and people continued to take foreign currency out of the country.

“I don’t think the measures are necessary at this particular point in time. We also have to be careful in our measures as we might end up raiding innocent people and that will create a bad perception altogether.

Mangudya said bank statistics showed that $684 million was remitted outside Zimbabwe or externalised by individuals under auspices of free funds for “various dubious and unwarranted purposes” which included remittances of donations to one’s offshore investments.

“All suspicious transactions as generally reported by financial institutions under the suspicious transactions reports should be reported to the Reserve Bank of Zimbabwe before the processing of outgoing transaction by financial institutions. The current fait accompli of ex-post reporting is not useful because the country is continuously losing liquidity, much to the detriment of the economy,” Mangudya said.

Economist John Robertson said the monetary policy spoke about productivity, but there was need to look at the policies that resulted in low productivity and company closures.

“The measures are dealing with the symptoms of the problems, not the causes. The causes are not being addressed by the policy statement. The IFF’s measures are not even the answer to the problems,” he said.

Policy analyst Tafadzwa Chikumbu said IFF’s were not a problem for Zimbabwe alone but for developed countries as well.

“I do agree that anonymous trust accounts and charitable foundations are used by individuals to siphon money out of the country — which contributes to illicit financial flows and are a cause of concern. As the supreme regulator of the financial sector in Zimbabwe, we expect measures to address the same,” he said.

“The proposed interventions should be blended with other universal mechanisms such as automatic exchange of information among financial institutions and revenue authorities for comparison purposes, country by country and costs by multinational corporations for tax purposes, even tracing the beneficiary of the purported trust accounts and fake charitable foundations.”

“What I would also have expected from the policy statement are the incentives available for reinvestment of capital into the Zimbabwean economy, otherwise if the economic and political environment is not favourable, corporates and individuals will be moving money to safe havens.”