GOVERNMENT’S latest indiscretions — the suspension of mobile money transactions and a freeze on stock market trading — in a desperate bid to steady Zimbabwe’s sinking economy, is indicative of a regime merely tinkering with the symptoms of a deep-seated economic malaise that has rendered the local currency worthless.
The authorities are convinced the widespread use of mobile money platforms, which gained currency at the height of Zimbabwe’s cash shortages, and trading on the local bourse are the twin evils that have sparked the unprecedented depreciation and volatility of the Zimbabwean dollar.
In a move that unsettled the general public and business last weekend, the government, without prior notice, announced the suspension of phone-based mobile money transactions and trading on the Zimbabwe Stock Exchange (ZSE).
Officials said this was necessary to stabilise the depreciating local currency and stem a thriving trade in foreign currency on the parallel market.
During the same week, monetary authorities had also launched a foreign currency auction system among a series of measures to stem the rapid depreciation of the local unit against the United States dollar in a turbulent macro-economic environment characterised by limited foreign currency and runaway inflation.
At the inception of the foreign currency auction platform, the exchange rate stood at US$1:ZW$57 in stark contrast to the fixed US$1:ZW$25 rate the authorities had previously imposed.
At the second foreign currency auction, the weighted average stood at ZW$63,74 against the US dollar.
Critics have already cautioned that without rolling out far-reaching fiscal reforms and fostering confidence in the market, the Zimbabwean dollar will continue to take a hammering on the platform, while the parallel market will continue thriving.
After the Ministry of Information sparked panic through a statement announcing a blanket ban on mobile money transactions, there was a marked climbdown when the Reserve Bank of Zimbabwe (RBZ) later clarified that it was only restricting mobile payments by merchants and not every client.
However, merchant line holders can still receive money from the transacting public. Subsequently, EcoCash — which enjoys 94% of market share — as well as OneMoney, MyCash and Telecash were accused of facilitating the illicit trade in foreign currency.
Last month, the government moved to shut down EcoCash agent lines, accusing the mobile money service of running a Ponzi scheme that has fuelled the illegal trade in foreign currency.
The move sparked public uproar, bringing into sharp focus the government’s unconvincing quest for lasting solutions to Zimbabwe’s economic maelstrom.
“Following the government press release on the suspension of monetary transactions on mobile money platforms (OneMoney, MyCash, EcoCash, Telecash) dated 26 June 2020, RBZ wishes to advise the public as follows: All mobile money agents are suspended from facilitating mobile financial transactions with immediate effect,” RBZ said in a statement.
“All merchant transactions are suspended except for receiving payments for goods and services as well as payment for utilities which have been limited for up to ZW$5 000 per day for the convenience of the trading public.”
EcoCash calmly responded by assuring its customers that mobile money transactions would remain uninterrupted.
Prior to the central bank’s announcement, Mnangagwa had issued a warning to economic saboteurs, whom he described as “wolves in sheep’s clothing,” as the Zimdollar shed 80% value to the US dollar (on the inaugural foreign currency auction), spiking inflation which is inching towards 800%, widespread company closures and job losses.
Ironically, with Zimbabwe reeling under acute cash shortages and liquidity challenges in 2018, President Emmerson Mnangagwa’s administration hyped up mobile money platforms as the panacea to the problems besetting the floundering economy.
In 2016, mobile money payments surged from US$5,8 billion in 2016 to ZW$18 billion in 2017 before dipping to about ZW$12 billion last year.
However, although the current payment trends show widespread use of mobile money, the government’s latest move to suspend the platforms as well as trading on the local bourse erodes investor confidence on the back of policy inconsistency, inflicting significant harm on the economy.
Critics contend that the government’s knee-jerk approach in the face of an imploding economy will not douse the flames of hyperinflation.
Economist Brains Muchemwa says that by suspending mobile money platforms and the ZSE, paranoid officials lack the ability to curb increasing broad money supply, which has stoked inflationary pressures, rendering the Zimdollar worthless.
“While the evolving economic dynamics have rendered the original roles of some players in the mobile money ecosystem such as agents irrelevant, the policymakers’ allegations that they are behind the exchange rate depreciation is unfortunately erroneous,” Muchemwa says.
“The growth in reserve money by 29,5% in six months to June 4 is behind the massive exchange rate depreciation. Without broad commitment to managing broad money supply by eliminating a plethora of unfunded subsidies as well as curtailing the quasi-fiscal authorities of the RBZ, stabilisation of the exchange rate will remain an elusive target for policymakers.”
The Confederation of Zimbabwe Industries (CZI) has cautioned that stabilising the local currency will require curbing the increase in broad money supply by the central bank.
Economist Prosper Chitambara says the sudden announcement of a ban on mobile money transactions and the suspension of trading on the local stock exchange will not foster confidence in an economy that has unnerved investors as a result of the government’s ill-thought-out policies.
“Such suspensions weaken market and economic confidence. Confidence is a critical success factor for economic development,” Chitambara says.
“The move will not stabilise the exchange rate as it is not addressing the underlying factors and is in fact undermining confidence.”