STANDARD Chartered plc (Stanchart) made a shock announcement that it is exiting five African countries — including Zimbabwe — as part of its strategy to “focus on the region’s largest and fastest-growing market”.
According to Reuters, the reason for this was that these markets made up only 1% of Stanchart’s total income for 2021.
The announcement caused quite a stir on social media, as it came five years after British bank Barclays departed African markets, including Zimbabwe.
A dark cloud is hovering over Zimbabwe as the country’s oldest banks exits, after opening its first branch in 1892 in a bell tent in Bulawayo. The bank’s history, in a way, mirrors the country’s tempestuous economy.
As the curtain comes down on the bank, ending a 130-year presence in Zimbabwe, we need to be seriously concerned.
Standard Chartered is one of our multinational corresponding banks, which means we have lost a key partner. Further, the exit demonstrates waning confidence in Zimbabwe as an investment destination. Multinational banks serve international investors and facilitate cross-border transactions. The exit of major multinational banks like Standard Chartered and Barclays correlates with the decline in foreign direct investment (FDI) into Zimbabwe.
A few days before the announcement, the United States based Fraser Institute painted a gloomy picture about the investment climate.
Fraser’s frank assessment of factors behind lethargic FDI inflows into Zimbabwe would force well-meaning governments to pose and take a second look at their policies and governance issues.
Most important was the fact that Fraser’s report assessed developments in the mining industry. This is where government has been targeting US$12 billion annual revenue from next year.
Mining has been picked by government to lead efforts to rebuild Zimbabwe’s shattered economy. But the chain of concerns raised by Fraser demonstrated how these targets would remain a pipedream, unless authorities make follow ups and redraft investment policies.
Zimbabwe is one of the worst destinations for mining sector FDI, the report said. But to demonstrate how bad things are in Zimbabwe, Stanchart delivered its own blow.
Government officials quickly consoled themselves saying divestments were not only targeted at Zimbabwe. But it is a fact that Zimbabwe is among a few countries that have been battered by extensive capital flight due to a deteriorating economic crisis.
Barclays raised the same concerns when it withdrew from Zimbabwe in 2017. In the past decade, deposits have shrunk to frightening levels.
Retail banking has been hammered by extensive job cuts, which means less and less individuals qualify for loans. But even if they do, there has been no guarantee for banks that they recoup their funds.
This is why non-performing loans hit the roof, at over 20% a few years ago. They have since declined to 0,3% recently after banks adopted a cautious lending regime. Lending to the private sector has been affected by de-industrialisation.
This is why at some point last year, government raised issues after it emerged banks sat on US$1,7 billion idle liquidity when firms were struggling to access foreign currency.
Standard Chartered was very patient with Zimbabwe. But red lights had been flickering for long.
Stanchart’s exit came after the sanctions slap. In 2019, the bank paid a fine of over US$18 million to the United States’ Office of Foreign Assets Control (OFAC), for multiple offenses in processing transactions of Zimbabwean state-owned companies and other high-profile sanctioned individuals.
In 2016, it asked the Industrial Development Corporation (IDC) to close its accounts with it to avoid similar fines.
The currency volatilities must have had a bearing on Stanchart’s decision to pull out of the economy. The Zimbabwean dollar continues to depreciate and is now ranging between ZW$300 and ZW$350 to US$1 on the parallel market and ZW$155,14 on the auction floor.
Challenges to repatriate dividends are also a turn off to foreign investors and businesses.
We are saying Zimbabwe is open for business but Stanchart’s departure will definitely dent those efforts.
The message it sends is that there is nothing worthwhile in Zimbabwe and cements the narrative that we are a lost cause, which I believe we are not.
Authorities must take note of factors behind these divestitures and take corrective measures.
Competition for FDI has been rising and those destinations with friendly environments are set to receive more investment than those that are not keen to change. Government must walk the talk in its ‘Open for Business’ mantra.