By Martin Tarusenga
WITH all the problems that have come with Zimbabwe’s economic crisis, it is surprising that many companies have still managed
to pull through 2007.
I remember a launch meeting that I had with a director of one listed company in January. He was quite worried about the year ahead.
“Tell me how we are going to survive this year?” he asked me. I could tell that this was not just a “social question”.
It was a veiled business enquiry meant to extract some free advice on the strategies that he could implement to make sure that his company at least lasts until the end of the year.
He had obviously asked the same question to many other people. The idea, I believe, was to gather as much information as possible in order to come up with a plan. As the conversation progressed I could see that his main worry was the management of treasury.
He had every reason to be concerned about that area because inflation was showing signs that it will not stop galloping anytime soon. At the time of writing this article inflation was about 14 840%. The company has not performed exceptionally well but at least it did not fold.
In such an environment survival is the main goal of every company.
The past year was probably the toughest for most companies in Zimbabwe. It required a certain degree of financial dexterity to survive.
Managers and directors had to deal with revenues that lose purchasing power before they are received. At the same time there was increasing corporate financial obligations which included increasing staff costs and foreign currency-denominated expenditure for corporate capital equipment.
All these came on the back of government’s hard line position against staff downsizing. Companies just had to keep their workers or face the wrath of the government which has unfortunately deluded itself to believe that there was a grand plan to change the regime.
Exchange controls and regulations were made even stiffer to create government-captive financial/capital markets. Price controls ate into corporate margins and profits.
It was a crisis in every respect. The regulators did not make it any better.
The RBZ for instance requires 35% of any foreign currency that corporations earn — with the additional condition that any remaining foreign currency in an FCA must be used within a month of being deposited or else it is forfeited to the RBZ.
Regarding financial obligations price controls put a lid on how much corporates could earn from local sales. Staff costs were however less easy to control because of legal and political issues.
What’s worse, overdraft and other loan facilities were hard to come by as banks became reluctant to lend in the face of biting inflation, controlled lending rates and high credit default risk.
The ZSE as a source of corporate finance remained limited to those wealthy corporations. Credit, debit cards and other forms of convenient electronic payment systems were still limited to the middle to upper class.
The RTGS system in Zimbabwe has recently shown its lack of capacity to handle the influx of settlements as economic actors pushed to reduce exposure to the Zimbabwean dollar in a reaction to RBZ threat to render any excess liquidity valueless.
Despite the hostile economic environment there was clear evidence of residual economic activity which showed that it was almost resistant to the politically induced economic crisis.
One wonders how these activities could have succeeded in being so resistant. Treasury departments must be working very hard. What stands out against the inhibitive economic fundamentals deriving from the said controls and regulations are emergent economic activities outside of the politically selfish controls and regulations.
The evasion of the controls is of course to be expected from all rational people including even the selfish crafters of these regulations.
Simple arithmetic tells us this is the case with proceeds from the export of primary goods like minerals and agricultural product which rarely find their way back into the economy.
The same applies to export proceeds of accounting, actuarial, and other tertiary skills exports that Zimbabwean companies and individuals provide.
The battle for survival by rational welfare-maximising economic actors against all forms of government inhibitive controls has intensified. No government in the world has ever won a battle against the market.
As corporations seek to survive they will need forex to buy the foreign currency to buy capital equipment.
Equally, the corporation will need to keep local currency to pay the restless local staff and local suppliers.
Treasury departments in Zimbabwe are obviously working ingeniously to keep the corporates afloat through correct levels of liquidity, maintenance of appropriate lines of credit and using accurate forecast models.
One apparent way Zimbabwean corporations are meeting their forex obligations is partner with foreign companies say in the UK that specialise in taking say the pound sterling in exchange for paying out the Zim dollar to beneficiaries in Zimbabwe at the prevailing parallel exchange rates.
Such companies include those that operate legally within the RBZ money transfer agency framework. Partnerships with such companies, “legal” or otherwise enable the local corporation to raise forex from the foreign company.
Forex telegraphic transfers can be made by the foreign company for purchases of desired imports.
The other apparent method of raising forex is for the corporations to raise forex directly from the domestic parallel market in exchange for the Zim dollar. The forex can be sourced from incoming tourists, Zimbabweans working abroad and those who have decided to make a living smuggling forex.
Individual forex money brokers have also been doing brisk business especially at Road Port where in theory they operate outside of the prescribed exchange controls.
We are in reality, a dollarised economy hanging onto a useless Zimbabwean dollar for the sake of selfish politicking.
The hard cash raised from such parallel market deals ends up in legal FCA’s where they are cleared within the stipulated periods to offshore accounts that the RBZ will never ever track.
Another way is to buy Old Mutual shares at the ZSE and sell them at the LSE. It appears treasury departments just need to be technically compliant for their corporations to keep afloat.
Such efforts to evade government controls are not necessarily new to Zimbabwe. Restrictions on dollar lending and borrowing in New York in the 1960s and 1970s coupled with stringent reserve requirements contributed to the emergence of the now popular Euro-dollar markets.
In the face of controls similar to those in Zimbabwe, investors in Venezuela buy shares of Venezuelan stocks like their renowned CanTV and sell them in New York for US dollars.
Markets are forever the winners, always a step ahead, and authorities in developed economies have since learnt to simply work with them.
Tarusenga is principal consultant with systemics consulting. Contact Mtarusenga@aol.com. Tel: 0912 889 716.