HomeBusiness DigestZim crisis hurting, says SA

Zim crisis hurting, says SA

Godfrey Marawanyika

THE South African Reserve Bank has for the first time admitted that the Zimbabwean economic crisis might have wider implications for its economy.

ana, Arial, Helvetica, sans-serif”>The bank however ruled out any contagion effect of the banking crisis in its financial sector. Zimbabwean authorities last year shut down at least eight institutions that were found to be in a poor condition.

“The continued economic meltdown in Zimbabwe may have wider economic implications,” the Reserve Bank said in its Financial Stability March 2005 report, a copy of which is in the possession of the Zimbabwe Independent.

“Although constituting a modest 2,4% of South Africa’s exports, Zimbabwe remains South Africa’s largest trading partner on the continent. South African exports to Zimbabwe declined by 5,6% in 2004.”

Since 2002, a number of Zimbabweans have flocked to South Africa and it is estimated that there are three million people from Tshwane’s northern neighbour — the bulk of them said to be illegal immigrants.

Zimbabwe’s banking sector has been in a crisis for over a year, and by the end of last year eight financial institutions were under curatorship with two under provisional liquidation.

A fortnight ago, South Africa’s Reserve Bank governor Tito Mboweni was in the country and met with central bank head Gideon Gono.

It was reported that during Mboweni’s visit, he raised concerns over Zimbabwe’s delays in complying with the Southern African Development Community single currency requirements.

The report noted that a plan to merge and recapitalise most of the failed institutions into a new state-owned bank was still contentious together with legal and regulatory issues as well as funding.

“The banking crisis in Zimbabwe is a reflection of the deteriorating macroeconomic environment: hyperinflation, negative interest rates, high and rising unemployment, lack of foreign currency and overvalued exchange rates,” the report said.

“Although authorities project positive growth rates in 2005, the economy has been in recession over the past five years and the cumulative decline in real GDP is estimated at 40%. In such an environment the banking sector seems overtraded.”

Last year, the central bank raised the capitalisation of all banks to $10 billion from $500 million.

Before last year’s banking crisis, Zimbabwe had 17 commercial banks, six merchant banks, eight finance houses, five building societies and eight commercial banks.

“The Reserve Bank of Zimbabwe has introduced some measures to restore stability in the financial sector. These address licensing, capital adequacy, independence of management and credit ratings by reputable agencies,” the report said.

“However, the direct exposure of the South African financial sector to Zimbabwean banks remains fairly low and conservatively managed, thus posing no immediate threat.”

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