Chaos in the financial sector counter-productive

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ZIMBABWE’S financial services industry is in a state of panic as banks go to the wall, their executives flee abroad because they cannot trust the professionalism of the investigations process, and depositors lose a lifetime’s savings.

Since Reserve Bank governor Gideon Gono introduced his monetary policy in December all hell has broken loose in the banking sector — especially at those banks owned by indigenous entrepreneurs.

Several indigenous players are now in trouble after their hitherto unassailable empires were forced to adhere to new RBZ regulations as well as increasing their liquidity cover.

When he introduced the new policy Gono told the nation that a stable monetary policy could not be easily transmitted in an unstable financial system.

These are not entirely new words as the International Monetary Fund (IMF) said almost the same thing when it released its last report on Zimbabwe. The Fund said the country’s financial sector was in a shambles and needed serious surgery.

“The economic crisis reflects to a large extent inappropriate economic policies,” the IMF said last July. It itemised these as loose fiscal and monetary policies, the maintenance of a fixed exchange rate in an environment of rising inflation, and administrative controls.

“Increased regulations and government intervention have driven economic activity underground and contributed to the chronic shortages of goods and foreign exchange,” it said.

Meanwhile, investor confidence has been eroded by concerns over political developments, weak governance and corruption, and problems related to the implementation of the government’s fast-track land reform programme, the IMF added.

Nothing has changed since then. Gono has pointed out that liquidity support is one of the factors behind money-supply growth and therefore inflation.

He told bankers that persistent use of the liquidity support window suggested that the banking institution concerned was not making adequate efforts to address underlying challenges in their asset-liability management practice.

While the rest of the economy was in crisis with unemployment reaching record levels of almost 80%, the banking sector had become accustomed to reaping billion-dollar profits.

It had even begun to determine the salary levels of the private sector.

Luxury vehicles became the hallmark toys of the new plutocrats.

“History has yet to produce a turnaround case without pain and we should thus not expect a painless journey towards our vision of a healthy economy,” Gono said.

It now seems the financial sector is choking to death — thanks to the governor’s policies.

ENG Asset Management Company, Century Discount House, Intermarket Holdings, and Barbican Holdings have all been forced to shut their doors to the public, a move that has hurt genuine customers and investors.

Pensioners and others on meagre savings have become the unwitting victims of the crackdown.

Insiders say while it is noble for Gono to try and restore sanity to the financial services sector, he should not cause unnecessary panic and disorder by acting haphazardly — or allowing his officials to do so.

Hardly a day passes without the public learning of this or that institution being shut down for liquidity problems and banks are scurrying for cover as their resources are not sufficient to meet customer demands as the public stampedes to withdraw funds.

While all this is happening the nation has been hoodwinked into believing all is well as far as the country’s economy is concerned. In fact, as the latest fuel queues show, the situation continues to deteriorate.

Bankers say one of the most fundamental requirements for economic recovery for Zimbabwe lies in agricultural output, not only to ensure food supplies but also the supply of essential raw materials for the country’s manufacturing sector.

Ultimately, the successful turnaround of the economy will depend on a number of factors, most of which lie outside the monetary realm.

Kingdom Financial Holdings chairman Richard Muirimi was quoted this week as saying: “The most important non-economic factor is political will by government to be integrated into the global world. We need to rebuild the confidence of all our productive-sector participants by stabilising the economic and political environment. It is necessary to improve the country’s sovereign risk, which is essential to attract foreign direct investment. Political will enables the macro-economic policies that have been announced by the government to be implementable.”

Is anybody listening?

The prospect of the Minister of Finance investing seven million rand in property development in Cape Town is hardly designed to instill confidence in foreign investors including Zimbabweans in the Diaspora.

Why is he not investing in Zimbabwe, they will likely ask?

What is needed here — and Gono should be the first to understand this — is a climate of predictability. Reform in the business and banking sectors needs to be even-handed, transparent and professional, not  calculated to cause maximum havoc or become an instrument of politicians who are themselves hardly unblemished!

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