During the week, Britain clarified its position on European Union membership by suggesting a complete withdrawal from the monetary and customs union. This is a huge setback to the global economic integration thrust. It also sets a bad precedent to African countries, which over the years have been looking at the European Union as a success story on regional economic integration. A complete withdrawal from the monetary and economic union will entail that London will have to renegotiate trade and economic relations with both the European Union (EU) and those countries it enjoyed relations with as a member of the bloc.
Financial Matters with Shingai Moyo
In the US, there is the inauguration of a new President, Donald Trump today, who is also expected to bring policy renegotiations on both trade and economic partnerships. Policy renegotiations by these two large economies may offer new opportunities for Zimbabwe — which over the years has been isolated from the global community. Positively, these come at a time when the European Union has completely removed economic sanctions on Zimbabwe whilst the US has relaxed most of its restrictions on this country. With increased dominance of Chinese investments, not only in Zimbabwe, but also in Africa, both the US and Britain would want to reclaim their dominance on the continent.
Historically, the US and Britain were the largest investors in Zimbabwe and across Africa but their dominance has waned. Most British and American companies have divested in Zimbabwe with only a few left. It is highly likely that London and Washington would want to reclaim their position of dominance on the continent.
Britain may achieve this through focusing on the Commonwealth. Zimbabwe was once a member of the Commonwealth where it enjoyed trade, socio-economic cooperation and financial assistance from Britain. Due to frosty relations between the Zanu PF government and the London administration, Zimbabwe exited the Commonwealth and lost all the benefits of being a member. Given Britain’s decision to completely exit the European Union, Zimbabwe should capitalise on policy renegotiation opportunities attendant to the move. The country should look at possibilities of maybe re-joining the Commonwealth or renegotiating its position with the European Union since one of its most vocal members has left. Countries such as Kenya that are still members of the Commonwealth and Mozambique that receive budgetary support from the European Union have enjoyed strong economic growth and socio-economic development.
Such economic ties are needed as the economy is struggling with weaker growth, liquidity challenges and low Government revenue. Strong economic ties with leading economies such as the US, the European Union and Britain will unlock foreign investment and put the county back on the growth path. Frosty relations with the international community have seen the country struggling to attract meaningful foreign direct investment and Government budgetary support. Mozambique, for example, before the foreign debt scandal, used to enjoy on average US$1,5 billion in direct government budgetary support from the European Union. Assistance of such magnitude will go a long way in this liquidity-starved economy.
Improved relations with both the US, Britain and the European Union may also unlock opportunities for the banking sector which is slowly being alienated from the international community through increased breakdown in correspondent banking relations. US and European banks are increasingly terminating their correspondent banking relations with local banks and other banks across Africa, the Caribbean, central Asia and the Pacific islands, a trend known as de-risking. This development is worrying as it undermines global payment systems, thereby hindering the free flow of international trade and financial transactions. At this point where the economy is struggling with foreign payment gridlocks and shortage of foreign currency inflows, correspondent banking relationships play a very important role.
Policy renegotiations as a result of the new US administration and Brexit offer an opportunity for affected countries to negotiate their position with regards to correspondent banking relationships. As the regulator, the Reserve Bank of Zimbabwe should be at the forefront of negotiating for appropriate actions and policies to reduce the chances of local banks being shut out of the global financial system.
Moyo is an economic consultant.