Shakeman Mugari /Conrad Dube
THE Supreme Court ruling last week that the Zimbabwe Allied Banking Group (ZABG) was using illegally acquired assets from collapsed banks mirrors the failure of government’s economic recovery programme.
The ruling said the s
ale and transfer of Trust and Royal banks’ assets to the ZABG earlier this year was unlawful “null and void, and of no force or effect”.
In his judgement, Justice Wilson Sandura also said there was disregard of the law in the manner the Reserve Bank of Zimbabwe (RBZ) approved the takeover of the assets. He said the central bank had sidestepped the Troubled Financial Institutions (Resolution) Act, which was rushed through parliament last year to justify the takeover of the collapsed banks.
The judgement means the ZABG is insolvent in the likely event that the assets are returned to their legitimate owners, Trust and Royal.
Analysts say the problems at the ZABG are a sign of how Reserve Bank governor Gideon Gono and his government principals have failed to resuscitate the economy. The ZABG was the flagship of Gono’s economic turnaround strategy. Its imminent collapse should therefore be viewed in the broader scope of an economy on the slide, analysts say.
The problems buffeting the bank include rising inflation, which this week surged by 10,3 percentage points to 265,1% from 254,8% last month. This trend, analysts say, will continue despite Gono’s assurances that inflation will soon stabilise. They say inflation should gallop to more than 500% before year-end. The Central Statistical Office (CSO) this week warned that inflation was likely to rise this month when the recent fuel price increases are factored in. It said the 265% only reflected price movements up to mid-August when the figures were collected. “We should note that this (265,1%) applies to prices up to mid-August when the data was collected,” the CSO said. “The recent fuel price increase has not been factored into the inflation rate. Also there are some services and commodities that were subjected to VAT, like postal services. Obviously that will come into effect next month.”
It warned: “Historically, the tendency has been that business people want to take advantage of fuel price increases. For instance even though fuel costs might only constitute 20% of the cost, businesses normally want to effect a 100% increase on their services and products.”
Therefore contrary to Gono’s predictions that inflation will start decelerating in September there are strong signs that it should increase drastically on the back of fuel price hikes and a weakening Zimbabwe dollar.
Perhaps the crux of Zimbabwe’s problem is the lack of political will to deal with the economic crisis decisively. The government’s policy confusion and arbitrary actions are probably the biggest threat to Gono’s economic turnaround. Soon after the International Monetary Fund (IMF) gave Zimbabwe a six-month reprieve to deal with its problems or risk expulsion, President Robert Mugabe went on the offensive, attacking the fund in Cuba. “We have never been friends of the IMF and in the future we will never be friends of the IMF,” Mugabe said. He called the IMF an organisation that is “willed by the big powers which dictate what it should do.”
His attack cast doubt upon Zimbabwe’s commitment to implement some of the key measures that the fund has been proposing for the past five years. The IMF has on more than five occasions advised Harare to cut its budget deficit, abolish the dual exchange rate and stop interfering with the market. The fund has also advised against the dual interest rates, which it said created distortions in the market. But the government and the Reserve Bank have maintained a dead man’s grip on the market and the exchange rate. They have continued with price controls and maintained the monopoly in grain trading through the Grain Marketing Board (GMB), a practice that runs parallel to the IMF’s advice.
Policy and price distortions abound in the Zimbabwean economy. Fuel, for instance is sold at three different prices. Government ministries and departments buy at $11 000 a litre for diesel and $13 500 a litre for petrol. All other fuel stations sell to the public petrol at $22 300 a litre and diesel at $20 800 a litre. Selected service stations sell the same amount of petrol and diesel at US$1 a litre.
Farmers have been diverting the fuel onto the black market while some Noczim officials have faced similar allegations. Analysts say the three tier pricing system opened loopholes for the black market.
Mugabe’s statement, coming 24 hours after the reprieve, shows that Zimbabwe has no interest in implementing reforms despite Gono’s posturing. Analysts say internally the statement is an indication that government and the central bank are at odds on what they want to achieve.
“This shows that there is no political will. This economy will never recover unless we break the political impasse,” Zimbabwe Congress of Trade Unions (ZCTU) economist, Prosper Chitambara, said.
“If we have a political settlement it means that we would significantly reduce our risk factor which has so far sacred investors from Zimbabwe,” Chitambara said. Zimbabwe National Chamber of Commerce president Luxon Zembe said it was critical for Zimbabwe to source balance of payments support to stabilise the
“We need balance of payments support to stabilise our dollar and this is where the relationship with the Bretton Woods instruments is critical,” he said. “No company can sustain the current costs of doing business in Zimbabwe. If we do not get balance of payments support to stabilise the macro-economic fundamentals we are headed for a crash,” Zembe said adding: “We are now in a vicious cycle and it’s not looking good.”
Zembe lamented the lack of coordination in government policy saying the passage of the constitutional amendment affects security of investments. “This can stop foreign direct investment. We need a market-driven economy, but this is difficult because there is no coordination in government,” he added.
Mugabe declared 2005 the year of investment but events on the ground show otherwise. He has signed the Constitutional Amendment Bill into law, hammering the final nail in the national the coffin. The new Act nationalises land, making it impossible for any investors to commit their funds to agriculture. Remarks by Transport minister Chris Mushowe last week that white-owned businesses will be targeted next will have compounded negative perceptions about the country.