By Alex T Magaisa
IN the monetary policy review statement on May 19 the Reserve Bank governor referred to a number of challenges that the country faces during this period of economic regression.
He made reference to inflation as the greatest enemy while counting corruption and indiscipline in the market as key problems.
There were suggestions regarding a renewed thrust towards more regulation and robust clampdown on individuals and organisations allegedly fuelling the problems at the heart of the economy.
The purpose of this article is to comment on some of the issues arising. It appears that the same error is being made — dealing with symptoms rather than focusing on the key challenge.
Quite clearly, while clampdowns on the informal sector might temporarily remove the symptoms, the measures are likely to do more harm than good for the economy. A net loss will result from this clampdown.
First, it is submitted that as regards indiscipline and failure to comply with regulations and guidelines, the problem is not the lack of laws but the poor and inequitable enforcement of the laws that are already in place.
Zimbabwe has a plethora of laws regulating business and the marketplace in general. The irony is that some of them are not even known to the persons in charge of the institutions that are supposed to regulate entities.
When the enforcer does not know the laws it follows that he cannot apply them. When he does not know the laws, let alone apply them, the regulated entities fail to see the need to comply with such laws.
Consequently, a culture of non-compliance creeps into the market and spreads to other areas. Take for example the growth of so-called illegal settlements in Harare — where were the authorities when these solid structures were being built? Was it not public knowledge that the proliferation of settlements was contrary to laws and regulations?
Perhaps political expediency dictated the silence at the time, and now again political expediency dictates the current action.
One other problem is that most regulatory authorities charged with administering laws do not have a clue what the laws provide for and do not care to know. In such an environment, it is hard to blame the regulated entity for ignoring the law. Indeed, that is one of the great impediments that in-house counsel face within companies.
Instead of being facilitators of compliance with regulations, they work more as fire-fighters, being deployed by management only when a problem crops up. When they try to initiate measures for compliance and they hit a brick wall within the regulating institutions, management does not take them seriously, leading to a culture of laxity and carelessness.
It would be interesting to carry out wide-ranging research to explore the nature of regulations in Zimbabwe and the enforcement regimes. There may be underlying reasons for the failure to enforce available regulations. If these factors are identified, it might be possible to find corrective measures.
In my view, there is need to have a critical look at all regulating institutions, no matter how big or small, to ensure that the laws that are in place are not irrelevant. Perhaps when such an audit is done, authorities might realise that they are constantly legislating for what is already legislated thus creating an unnecessary legal labyrinth.
This leads to yet another part of the governor’s monetary statement in which he refers to the creation of the Financial Sector Committee (FSC).
The purpose of the FSC is to consolidate the regulatory framework in the financial industry to include the banking, insurance, asset management and related sectors. It seems to me that this is an acknowledgement of the difficulties of the currently fragmented regulatory framework in the financial sector.
It takes me back to an earlier article I wrote last year in which I suggested the formation of a single financial regulator. The single financial regulator would be in a far better position with the independence and legal authority necessary to carry out cross-sectoral financial regulation. The suggestion of a FSC may be a step in that direction but sadly it remains a temporary solution.
I reiterate that the only permanent solution to the fragmented regulations is to create a single framework and a single body, with competent personnel for this purpose. Zimbabwe would not be alone in following that route — a number of jurisdictions, including our friends from the East have taken that route.
The UK Financial Services Authority is probably the prime example of such a regulatory body.
In addition, creating a single framework will clear many grey areas and cover loopholes that may be exploited under the current system. It will also simplify the legal landscape.
One aspect often overlooked under the current framework is that compliance can be facilitated by simplifying the regulatory framework.
Simplifying the system makes the law accessible and easy to use, thereby helping ordinary persons to take steps to comply.
It also makes it easy for regulators to apply the law with a measure of certainty and confidence. As it is right now, even the most diligent person would find it very hard to meet all the legal requirements, which are held under a fragmented and quite complex system.
It is hardly surprising also that those charged with enforcing the regulations also find it difficult to perform their roles with confidence.
An emerging aspect of the poor enforcement regime is the unfair and
inequitable manner in which the laws are put into effect. The old adage that justice must not only be done but must be seen to be done comes to mind in the recent case of the clampdown against flea-market traders.
These may be desperate measures to demonstrate that the authorities are keen to enforce the laws to clean up the sector of corruption and illegal foreign currency trading. The starting point is not these small traders but the big and powerful who have far more in their closets. The people on the ground would not be able to do what they do if there was not a market for their foreign currency.
Allegations of corruption in high places have long been documented and in his statement the governor could only go as far as threatening to name allegedly corrupt people in high places. Surely, if those names are there, why not begin from there and demonstrate to the public the genuineness and seriousness of this exercise.
More importantly, it would deal a hard blow against possibly biggest consumers of the scarce foreign currency. If the clampdown is restricted to the small men and women trying to eke out a living on the streets during these hard times, it is bound to lose credibility and consequently, it may fail to have the desired effect in the long-run.
Lastly, the current clampdown, like the focus on inflation as the greatest enemy, to my mind seems to miss the real problem facing the country. While not disputing that illegal foreign currency trading and inflation are causing problems, they are at best symptoms of a bigger problem.
As the governor rightly observed, there are inflation drivers — those are the problems that need to be resolved to tackle inflation. However, it seems to me that save for a few innuendos, the governor has not acknowledged the political problem that stands as an obstacle to the desired turnaround. This is the problem at the political level, a stage where admittedly his powers are very limited.
When will there be an acknowledgement that Zimbabwe’s problems are political? The attitude of the international community is shaped by the way the politics of the country have evolved in the last few years. The sooner that is acknowledged and dealt with decisively, the better.
It is not that everything has been wrong, but the errors we have made must be accepted and dealt with. The poor image of Zimbabwe arising from perceived failures to comply with good governance is the biggest impediment to the recovery process.
It is necessary to restore the vitality of the economic drivers. It is the sad reality of our times that at a time when we should be talking realism about expanding the economy, we have to make biblical references to augment our resilience to restore lost economic glory.
*Dr Alex T Magaisa specialises in corporate and financial services law. Contact email@example.com or firstname.lastname@example.org.