From Davos to What the Future might hold in Zimbabwe

The Davos summit in Switzerland is attended by the world’s powerful leaders both in the political, business and economic spheres. The summit  seeks to open dialogue on how best the world can drive economic growth, galvanise private capital and to some extent push the agenda for globalisation. This year's World Economic Forum is running under the theme, “Creating a shared future in a fractured world". The theme is very apt considering isolationism being driven by the world's biggest economy, the United States, Britain's exit from the European Union, and conflicts in the Korean peninsular,  Middle East, West Africa and Eastern Europe.

Developing countries attending the four day meeting usually seek new and old partners to build and further grow relationships and their economies. For Zimbabwe 2018 is the first time in history that her head of state has ever been invited to this kind of forum. Possibly in subscribing to consistency, in his first 60 days as president of Zimbabwe Mr E.D Mnangagwa has maintained his mantra that also livened up his inauguration speech...."Zimbabwe is open for business". Under the rule of Mr Mugabe, his predecessor, Zimbabwe was a closed society not open to the family of nations. Zimbabwe has got a fractured economy and a president that is seeking re-engagement with international partners whilst Davos has a theme that speaks to a shared future, one gets a feeling that this blending might chart Zimbabwe on a path to re-discover itself though challenges should be expected on the way. There seems to be a shift from political rhetoric to renewed focus on economics and trade. In that same vein there is hope that this can pave way for new and fresh FDI that can take the economy forward through increased production and exports.

In the discussions at Davos, Zimbabwe's president singled out agriculture and mining as the two sectors the current government will work on heavily in order to revive the economy. Having spearheaded a largely successful Command Agriculture program, Mnangagwa seems eager to put back the ‘breadbasket’ tag on Zimbabwe again. Growth in the agricultural sector will revive the export market through increased productivity in small grains, dairy and tobacco which all along has been one of the biggest sources for foreign currency.

The Indigenisation Act has been the stumbling block to investment in the mining sector which required foreigners to cede 51% of their shareholding to locals. However the recent budget statement from Mnangagwa’s government has brought some wholesale changes to the Indigenisation Act with platinum and diamond being the only two minerals that require a certain threshold of local participation in terms of shareholding. Commodity prices have been on a rebound and with improvements in the mining sector more valuable contributions will be realised in the economy. At the same time after 37 years of independence the country still does not add value on their minerals so an opportunity exists for value chain industries that deal with beneficiation. 

Corruption in Zimbabwe has blighted economic progress and massive scams have been and continue to be unearthed. The previous government was not pro-active in exorcising and putting up measures to curb corruption. Though the new president has been part of the previous government he has promised zero tolerance on corruption. FDI will always be difficult to source in an environment that is ripe with corruption and there is never meaningful development when a society is plagued in corruption. Corruption remains a vice that has to be ridden of if Zimbabwe is to attract high levels of foreign investment. The dealing of corruption matters in the country will directly determine the flow of investment in the country. Transparency has to be at the core of government operations and red tape should be minimised through adoption of technologies that drive efficiency. 

The holding of elections is an inevitable process this year as the Constitution clearly outlays. The holding of free, fair and transparent elections will not only legitimise the government of the day but also drive investor confidence. The invitation of the international community to monitor the elections might be one way of re-engaging the international community. Proposals and talk of reengagement with the U.K, which has historical ties spanning economic, political and social spheres sounds much encouraging given the economic and perhaps social benefits that may trickle through. The same can be said with efforts of getting Zimbabwe back to the Commonwealth grouping.

On the social front, Gukurahundi remains a thorn in Zimbabwe’s social fabric. It is arguably one of the saddest part of Zimbabwe’s history. In that regard, there is need to immediately deal with this issue with great effort and heartiness as there is no form of economic prosperity that can ever oblique social injustices. In this vein the government needs to dedicate effort and resources to national healing and reconciliation. The same also applies to other atrocities such as election violence, inhumane displacements, fast track land reform and pre-independence conflicts.

Much emphasis has to be placed on manufacturing, energy development and technology as the pillars that can drive economic recovery outside of mining and agriculture. The country has an acute shortage of electricity and this area has to be addressed with the adoption of green energy solutions like, solar and bio-energy, which has tremendous potential in Zimbabwe. Technology advancement, through promulgation of effective legislation should be used to drive industrial efficiency. Once effective technological and energy systems are put in place, the manufacturing sector will grow rapidly. 

Above all Zimbabwe has got to draw up more economic reforms and draft flexible legislation. Zimbabwe can draw wisdom from WEF’s mission statement which says it is “committed to improving the state of the world by engaging business, political, academic, and other leaders of society to shape global, regional, and industry agendas”. Beyond policy, rhetoric and international meetings, Zimbabweans need to find each other in reviving the economy. Engagement of business, political, social and academic leaders is key!

Adrian F Mapiye & Ngonidzashe Makaha

'Money Often costs too much' in Zimbabwe

Zimbabwe is currently facing a cash shortage situation which has seen people sleeping in queues at banks only to get as little fifty dollars for them to repeat the same ordeal, but others spend days without getting the much needed cash they want. Measures have been put in place to improve the cash crisis, with the introduction of the bond notes and the wide use of plastic but they have helped so little in shortening the queues and the demand for hard cash, in fact these measures have been more like fuel to the already burning fire. The cash crisis has resurrected the great Ralph Waldo Emerson who once said money often costs too much, and this he has awoken to say as it is happening in Zimbabwe. The current state has made hard cash an expensive commodity to hold on to as people are now taking advantage by charging an extra value if one wants their money from institutions or individuals who will be having the liquid money.

Most places now if one wants to avoid the sleeping in queues brigade they have a price to pay for easy access to money as they have to pay a minimum of 10% per transaction or of amount they want. Surprising enough they can also be able to withdraw more than the stipulated withdrawal limit per day, this also goes beyond institutions as they are individuals who have the hard cash in both dollar and bond notes with the US dollar costing a bit more than the bond note which on average cost 10% per transaction. Indeed this shows that money is now costly in the country, this is being further made so by other organisations that deny plastic money with excuses such as our network is down or simply our point of sale device is not working, which then forces people to fork out their hard cash which will then be sold at premium to the next desperate buyer. Companies that mostly import their products are facing challenges with their letters of credit as they are being rejected now due to the late payment of their orders or non-payment of their orders at all which will then force them to demand hard cash from the local customers for them to remain viable and operational. This is one important matter that has to be addressed by the finance authorities in the country as it will affect the progress that plastic money had already taken in the country and also to avoid a slide in value in the bond notes as the currency that imports goods will diminish in drastic fashion.

The $200 million dollar bond facility that was put in place to help push up money supply and boost export viability in Zimbabwe has been utilized in a cautious manner to avoid the effects of hyperinflation that the country went through years back. The reason behind the cautious utilization being that there is no export growth but the other reason being that if fully utilized it might drive the remaining hard currency out of the market and be left with only bond notes which will be devalued on a daily basis a repeat of the previous Zim dollar and bearer cheques. The introduction of a wider use of plastic money has also helped ease the situation though challenges have risen which must be addressed especially in system upgrades and improvement on connectivity issues. Plastic money and mobile money have seen an increase in use due to the cash shortage but at the same time remain costly in transacting using them thereby not being financially inclusive as they are supposed to be. These are the instruments that are supposed to be the in thing especially in a highly informally country as Zimbabwe with low levels of trust in the financial institutions due to their high costs and the recurrence of bank closures now and then. Transaction fees have always been high in the country with the central bank in 2016 having to step in and putting a directive to reduce costs within banks as they were making a killing which in turn discouraged more customers at a time when the sector needs to build trust and a wider market for their services.

Current high costs in transacting and the new profiteering regime that has taken shape will always make money too costly, which is bad for business and the economy as this will lead to high levels of inflation and more speculative activities with regards to the bond notes against other hard currencies. We all know what speculative can do to a currency within a day, a memory we wouldn’t want to evoke at this time. The only hope that is in increasing broad money supply now lies in agriculture which has already been boosted by tobacco and now we await maize which was done under command agriculture but with more needed as that alone cannot suffice for long periods as they only hold short term reprieves due to the seasonality of agriculture.

Money often costs too much, Ralph Waldo Emmerson.

The rise of shadow banking and implications on the economy

Since the banking crisis of 2004 confidence in the financial system has been at the deep unenviable scale of fragility. Profound issues ranging from governance to structural composition of banks led to the inevitable collapse of several institutions eroding depositor confidence along the way. Contrary to popular assertion and belief that most of the issues bedevilling Zimbabwe’s banking sector were confined to the Zim dollar era, same problems continue to be felt to this day. The outcome has always been the same. Confidence in the banking sector is fragile!

Just like the retail sector has witnessed a new revolution in the form of vendors, the financial sector in Zimbabwe is facing its own in the form of shadow banks. There is no clear cut definition for shadow banks but the general understanding of this term revolves around institutions that act within the scope of traditional banks but do so outside regulation and in some cases supervision. This concept was first coined by an economist called Paul McCulley back in 2007.On a global scale shadow banks hold assets approximately worth over USD70 trillion. In the United Kingdom, shadow banks are worth 400% of the country’s Gross Domestic Product (GDP) even though they are much smaller than conventional banks.More germane to Zimbabwe, some so called “microfinance” institutions are now basically operating as shadow banks. In a rather mundane style most microfinance institutions have played a distinct form of a zero sum game where fragility of depositor confidence in the mainstream financial system has been their splendent gain. 

In general microfinance institutions are supposed to confine themselves to the provision of microcredit to the lower end of the consumer chain which is typically made up of low income groups and small businesses that are supposedly shun by mainstream banks. On the contrary, most microfinance institutions are moving into spheres like structured finance, asset and trade finance, investments (often using pyramid schemes), securitization and even mortgage based lending. This is the reason why they have become shadow banks in themselves because all such activities are preserved for the regulated mainstream banking system.

Of what scale are shadow banks corrosive to the economy?

The sub-prime mortgage crisis which culminated into the great recession of 2007-2009 was partly caused by some shadow banks which were actively trading in credit default swaps and other derivatives which were loosely regulated. This in itself shows the great magnitude of convulsions which may be caused by shadow banks to the economy. Shadow banks in Zimbabwe have the potential of crowding out mainstream banks in the provision of credit, particularly consumer and small business loans. In a normal economy financial institutions are supposed to make the bulk of their income through credit but with the current situation where shadow banks are sprouting at a greater scale, mainstream banks are surely poised to lose. According to the International Monetary Fund’s (IMF), Global Financial Stability Report 2014, shadow banks are outstripping mainstream banking sector growth in emerging economies and in a number of contexts they induce a soporific effect on financial intermediation.

Firms largely depend on mainstream banking and if the credit market sways to shadow banks the situation becomes pernicious to the whole economy. Most microfinance institutions in Zimbabwe aim to generate returns as quickly as possible. The paradox of this notion is only understood by proprietors of that industry but two apparent facts may best explain this. It’s either they are horribly greedy or they are “rightfully” doing what has to be done in an economy oppressed by crisis and illiquidity. Lending rates in most shadow banks or microfinance institutions in Zimbabwe are pegged at an overwhelming 20%+ rate per month!! As if that is enough, most of these institutions have got loan tenures which don’t run beyond three months. There is an extra ordinary divergence with the mainstream banking system where personal loans, for example, are priced at 15-22% per annum with most tenures tied to the loan amount. This divergence creates a pricing matrix and gap in the credit market. Ultimately consumers suffer especially in Zimbabwe’s complex scenario where shadow banks hold sway. Mainstream banks at some point will be forced to review their pricing upwards and contract tenure so as to remain competitive in terms of income. Ultimately these price distortions stifle credit demand.

Shadow banks are not built on robust risk management policies and tenets. This in itself is a major threat to the financial system and the economy as a whole. Unlike mainstream banks which have risk management statutes and programs, although they sometimes flout them, shadow banks are mainly driven by profit and as such ignore certain risk mitigation measures. The Basel Accord stipulates that conventional banks hold certain amount of capital to cover operational, credit and liquidity risk but on the contrary shadow banks see no need of holding such buffer because every dollar they hold is for investment. As a result most of the shadow banks are susceptible to severe risk which can ultimately lead to collapse. A lesson on this is the great recession of 2007-2009 which saw the folding of many shadow banks in the developed world as a result of risk.

What safety net do shadow banks have?

This is a very pertinent question considering that insurance in matters to do with finance is important. It’s regrettable that the Reserve Bank of Zimbabwe cannot perform its lender of the last resort duties but all things being equal they should have been performing this function on mainstream banks. Apart from the central bank, most regulated commercial banks in Zimbabwe have institutional investors as shareholders, most of which are capable of acting as safety nets. The picture is critically diametrically opposed in the case of Zimbabwe’s shadow banks where most of them are solely owned meaning that they are not tied to reliable and concrete safety nets. It becomes a problem considering that most shadow banks in Zimbabwe are taking in collateral in the form of assets and property. 

What happens when they fold?

Conventional banks are subject to disclosure through various instruments like financial statements and annual reports. Shadow banks have no obligation to do so and as a result they can evade a lot of scrutiny and liabilities. This is especially corrosive in an economy like Zimbabwe where significant funds are tied up in shadow banks. No one knows their capital adequacy, profits, losses or the amount of bad loans they have.The uncontrolled growth of shadow banks can also petrify the approach to which monetary authorities determine policy. It is apparent that shadow banks can lead to the tightening of banking regulations. Robert Shiller, a co-recipient of the 2013 Nobel prize for Economics argued that, Lehman Brothers, a US investment bank was a shadow bank and after it collapsed in 2009 the US financial system saw unprecedented financial regulations. Tightening of regulations clearly hobbles the dynamism of the financial sector especially when such petrification is induced by shadow banks.

In as much as shadow banking is corrosive, if conducted abstemiously and within proper rules it can be of fundamental importance to financial sector growth. However, because of the impudent manner in which most of them are run it is only wise to be cautious!

Digging ourselves deep into a crisis.......

Our economy has been under severe stress and underperformance for a long time of which the brink to ultimate collapse is nigh. The introduction of the multicurrency system in 2009 relieved the economy from the 1997-2008 anaemia. A coda to the economic challenges the multicurrency regime brought to the fiscal management arena was effective planning and budgeting, something policy makers, industry and households could not envisage with the Zimbabwean dollar as legal tender.  The stability of a firmer currency base has worked well in many ways but the current cloud of oblivion cannot be averted by that alone. 

What happened to the agro-based economy…

The Zimbabwean economy has for long revolved around agriculture. At some point it was labelled the bread basket of southern Africa. Only after the post land reform period the sector has struggled to support its own local market, a situation that has led to the influx of food imports ranging from the basic mealie meal to potatoes, vegetables and even eggs. The little that has been produced locally has failed to meet demand whilst the farmers who have benefited from the land reform have not received adequate skills support. Programs like mechanisation have only benefited the politically connected who have even failed to pay back funds for such initiatives. Going through such government supported programs one could only imagine the accruals had it been transparent and effectively implemented. To this day, the country’s financial position is still groaning from debts emanating from these programs. Now there is even talk of protecting such debtors and passing the cost to the already castrated taxpayer, a scenario that can only be described as the worst case of corruption and disgust. 

The government has even made calls to the financial institutions to provide funds for the resuscitation of the agricultural sector but ownership complications which has seen the 99 year lease versus tittle deeds debate and a depressed liquidity position in most credit institutions not helping matters. There is also an issue of trust considering the fact that most of the new farmers have defaulted on many programs that have been afforded to them before. It is the government’s commitment to institute proper measures to avert default that can probably arrest some of these adverse issues.

Apart from technical issues like funding and skills, the country has also experienced a dry weather pattern in recent years. Mechanisation programs meant to promote initiatives like irrigation have flawed remarkably due to issues like patronage, corruption and ineptitude on the part of policy makers.

The national cattle herd has also depleted to low levels signalling the urgent need of a new impetus to the agricultural economy.

The new economy base...

The demise of the agricultural sector has shifted a lot of focus to mining as the last frontier of hope. Mining has become one area of pride in a gloomy economic state with a lot of boastful remarks from some policy makers on how the country is abundantly endowed with the mineral resource. After 2008 the year of the global financial crisis most nations took to commodities for a safe haven and discarded the financial instruments that had sent them crushing. This pushed up prices for the commodity prices. The rise in prices enriched commodity bearing countries and the effects inspired growth within Zimbabwe. The fairy-tale run coincided with the formation of the Unity government and ironically ended when the accord expired and opened its way to elections. Gold between 2009 and 2013 reached an all-time high of $2,000.00 an ounce with other metals such as platinum and diamonds flourishing in the international market contributing to growth within the Zimbabwean mining sector economy and a turnaround in fortunes for many mining companies. The rise of the mining sector inspired growth in other sectors like finance. 

2013 became a year of mixed fortunes with decisive elections which ensured a ZANU victory, the introduction of the ambitious ZIMASSET, full rollout of the indigenisation policy, and fall in international commodity prices which was perhaps not foreseen and prepared for. 

Due to the fragility of confidence in the Zimbabwean economy, or lack of it, the financial sector has suffered from a domino effect with most banks closing shop. The surviving ones have rescaled their operations with the credit market being the worst hit. Due to problems in primary sectors like agriculture and mining, liquidity challenges have worsened tearing the financial system apart. The effects of Zimbabwe’s shrinking economy which has seen growth prospects cut and deflationary symptoms creeping, is taking a toll on  government revenue. Instead of dealing with causes the government has gone further to devise new ways of milking businesses and households through tax. The mining sector has seen royalties reviewed upwards and this has extended to duty on a number of essential imports by businesses and individuals.   

…and then

Many moons ago there has been a number of deals signed with China and Russia but nothing tangible has materialised to this day. China is facing its own domestic problems. Industrial output in the Asian giant has registered a decline and the situation has not been all rosy with its stock market which has lost close to a quarter of its value this year alone.   Russia is not spared either. The Kremlin has suffered a wave of Western sanctions as a result of its alleged involvement in the Ukrainian crisis. This, coupled with its other domestic and international commitments has placed a heavy cloud of doubt on the implementation of the two nation’s Zimbabwean projects.  Aliko Dangote has been in the country expressing keen interest to invest in the country but implementation of deals is what the country desperately seeks. There is need for the country to focus on agricultural investment as well, as it is one sector that can raise economic hopes but experiences of the past where property rights are trampled upon will never make this task easy. All in all emphasis on technology is important to make the economy a well-oiled machine.

Financial Market Collapse in Zimbabwe

The local economy in Zimbabwe has been affected by a financial market that is not functional and that has led to the collapse of many firms as the financial intermediary has been lacking in its execution of its duties. There are a number of factors that have led to the collapse of the financial market in Zimbabwe and these problems have not only affected Zimbabwe but most of the developing countries in the world. Financial markets are of bigger importance to the economy of countries as they are there to facilitate the efficient allocation of resources which will spur development further. Dysfunctionality of the financial market will spell the doom of an economy as resources will be allocated inappropriately and this will lead to an imbalance within the economy thereby crashing the supporting systems of economic sectors or factors.

The main challenge in most developing economies has been a clash between Economics and Politics as populist political economic strategies have been used to woo voters but at the same time hurting the market and the economy. Political statements and policies tend to please the masses at rallies which will be on a shallow basis without getting deeper into the aspects of the whole issue. On the ground the sentiments will have a huge knock on the businesses, the economy and investor confidence. Populist political statements and policies are to an extent retrogressive to economic development as they are hard to implement with most of them failing to take off ground or leading to recessionary pressures in most developing countries. The famous ESAP policy formulated and implemented in the early 90’s degenerated to an epic disaster in Zimbabwe and now we await the full implementation of the Indigenisation and Empowerment Act together with the ZIMASSET which in the meantime have not boded well with the economy.

Still on the issue of policies and politics, there is no clear interpretation of these policies by the ministers who would have enacted the policies and thus leaving everything in a conundrum. The discord created by the misinterpretation of the policies leads to more challenges in the implementation process. Currently the ministry of Indigenisation and Empowerment has gone through 3 ministers in less than 8 years bringing inconsistencies and differing ways in which to implement the whole process. Each minister who came on board had his own explanation and execution of the policy with the President also echoing different sentiments which in all confused investors and the general public. Inconsistencies also within the policies lead to misunderstanding and instability in the market. Investors require an environment that does not change time and again which disturbs any future planning and forecasting as it will bring about instability and losses within business ventures. Government policies should be able to create a sound environment for efficient economic progress.

The streaming of information to all stakeholders is a big challenge in Zimbabwe as there is too much information asymmetry which affects viability and efficiency of financial markets. Information has to be available to everyone to avoid any disadvantages in trade and also for raising awareness to all locals. Proper channels of communication should be followed by all parties concerned in order to reach all targeted recipients of information. The Zimbabwe Stock Exchange (ZSE) was in February 2015 involved in an error of communication and information availability as it suspended the Meikles Group from trade on the national bourse and later on re-listed after a High Court ruling in favour of the Meikles Group. If the stock exchange is failing in relaying information to its participants first, then what about the general public, this in itself discredits the bourse and causes much concern on its efficiency and of the financial market at large. Lack of transparency in most of the dealings also leads to the lack of information availability as most of the details will be concealed and kept under wraps.

The lack of financial instruments has led to a less or next to none innovative financial market and this in turn strains ways with which to keep funds circulating within the economy and also does not attract foreign funds that might be interested in financial products. The local market used to have bonds, derivatives, credit guarantees and other financial instruments that kept the market liquid and provide both short to long term funding in the market. These products are no longer in existence, with only local government bonds being in circulation and mostly being offered to top companies as foreigners cannot take them up due to the debt overhang that the country has. Lack of financial products makes the market rigid as there is no diversity within the market.

Collateral is one of the 5C’s of credit and is a critical issue in Zimbabwe as the property rights lack protection and are not flexible enough to cover other forms of movable and immovable property which may be used as collateral in a developing country. Most Zimbabweans keep their wealth in the form of livestock such as cattle which is not properly registered in Zimbabwe and that does not stand fit as security for a bank loan or on any credit facility. The government and the private sector should come together and be able to set up ways with which to register cattle, keep check of any movements’ in order to protect the lender and instil confidence in the lender. The laws should be able to conform to the standards of the country and be able to be flexible enough to cater for the differing scenarios within an environment. The then TN Bank wanted to set up a cattle bank which was a noble idea that would have pioneered the use of cattle as collateral as it would have been registered but lacked support from the stakeholders. The country also carried out a land reform programme that availed land to the general public but since early 2000 up until this year 2015 most benefactors do not have title deeds, land leases or the 99 year leases that authenticate that they the owners of the land. Property registration lacks in a big way in the country with those that were availed 99 year leases are also failing to access loans from financial institutions, with government financial institutions also not accepting the papers. Authentication and education of such important documents by the government should be made in a very intrinsic way that instils confidence in the whole market about the legal documents. Commercial courts should be availed to deal with businesses cases especially on property rights matters rather than placing a heavy load to the general courts with all kinds of cases at once. 

Government debt of $10 billion dollars has had a huge effect on the economy and viability of the financial markets as foreign capital or funding for the markets cannot be attracted due to the country’s credit risk rating. Private companies are failing to lend from foreign financial institutions as the funds attract a high cost of lending. Lack of funding, a high debt has now led to an illiquidity challenge that is crippling all sectors, low income level earners now form the core of the employed percentage in the country and this has severely affected the savings function. Low liquidity levels have now made the banking institutions channel funds to risk free assets that keep their funds safe and depend mainly on service charges for their income.

The death of most industrial companies in the country which were the mass employers of the country has seen an up rise of small to medium enterprise (SME) which has led to sustainability of most families. This emerging sector is not accounted for by the economy in formal terms as it is still regarded as an informal sector. The informal sector term deprives these enterprises from things such as loans, training, advisory services among others but also deprive the government of the much needed revenue. Microfinances which are supposed to form a support base for the SME’s have failed in that regard as they have also focused on giving out short term loans mainly to government employees which is a risk free arrangement. Besides not offering loans, their loans are at a huge cost which in turn will make running the business a hard act to do. Structures were in place to help nurture SME’s have crumbled as rhetoric has taken centre stage with little to no action taking place. There have been mooted plans to have a SME’s bourse to operate separately from the main bourse, so as to help organise easy ways to raise funding for these enterprises. The idea is a great one as we would be taking cue on the NASDAQ in America but with the current economic situation it’s not feasible as most counters on the ZSE are trading below 10 cents per share with some trading below a cent and these are big companies which is a cause of concern. Also the lack of the supporting structures for SME’s will lead a biased listing. 

If we don’t act today, we won’t have an economy….. tomorrow!

On a chilly September 18 2008, deep in the financial crisis, top US lawmakers and financial regulators met for an emergency meeting where they sought to chart a way forward on how to deal with freezing credit markets, bank and company failures and the real estate bubble which was about to burst.

The resolutions adopted in the meeting would have an impact on the global economy which had become entrenched in a recession gravitating towards a depression.

It was a striking warning from the then Chairman of the Federal Reserve System, Ben Bernanke, that changed the atmosphere and intensity of this meeting held on a Thursday. Bernanke and Henry Paulson, the then Secretary of the US Treasury wanted the approval of lawmakers to inject US$70 billion in the US financial system. In a gentle and not so ornate or restrained manner, Bernanke told the top lawmakers present in the meeting, “If we don’t do this tomorrow (Friday) we won’t have an economy on Monday”


                                                            

Ben Bernanke

According to one commentator Bernanke’s statement literally resulted in a “pause in the room, with the little oxygen left.”

The financial crisis of 2008 is long gone but a small nation in Southern Africa finds itself on the verge of a depression just like the United States’ and global economy (in general) in 2008. In magnitude, action and response the economic problems of the US in 2008 and those of Zimbabwe now are not comparable. Of course the United States was quick to act and at least Henry Paulson had the bazooka at his disposal- in the form of a stimulus package. Unfortunately Zimbabwe is slow to act and it’s a pity our own Minister Chinamasa doesn’t have the bazooka.

However, something Zimbabwe could learn and take heed out of the US financial crisis are the simple words of Ben Bernanke- , “If we don’t do this tomorrow, we won’t have an economy an economy on Monday.” 

Zimbabwe is facing a plethora of economic problems most of which are out of reckless unviable economic policies and lack action from the policy makers.

As they do in literature where every Shakespeare phrase is critically analysed it is vital to scrutinise Bernanke’s statement in the context of Zimbabwe. Breaking it into two phrases….

“If we don’t do this……”

The challenges bedevilling Zimbabwe’s economy require systematic action and remedies which ought to be done or implemented. Failure to implement such remedies, the economic situation can degenerate into a severe depression.

What is it that Zimbabwe needs to do?

Most economists have argued that Zimbabwe’s problems stem out of liquidity challenges. This is flagrant oversight and wrong analysis of the economy. The liquidity problems playing out today are also a result of adverse economic movement and shocks. Money is always chasing productivity, and there is no production in Zimbabwe which is the reason why liquidity is a challenge.

A drive through Belmont (Bulawayo), Nyakamete (Mutare) or Willowvale (Harare) confirms the sorry state of industry in Zimbabwe where rust continues to build up.

What is required in Zimbabwe is fresh capital which in turn drives money growth inevitably enhancing the liquidity position of the country.

The reality on the ground is that, within the borders of Zimbabwe, there is no institution or an alter ego of Warren Buffet that can change the landscape of industrial activity.

Zimbabwe is in urgent need of foreign capital to spur economic growth and there is need for the policy makers to create a friendly environment for investment.

In traditional African belief, there are spirits that act as a medium between the people and gods. In the context of the economy the financial system acts as the medium between firms and economic growth. It is the financial system that specializes in the provision of credit, financial advice and even investment.

If the medium cannot execute her duties properly, both ends of the chain suffer. Firms will not be able to boost operations through credit inevitably resulting in subdued economic activity.

Zimbabwe’s financial sector is dogged by non-performing loans, undercapitalisation, chronic bank failures, abuse of depositor funds and overcrowding (especially in the banking and insurance sectors). Robust actions are required to enhance bank supervision and regulation so as to create an effective and reliable financial system.

It is therefore imperative for Zimbabwe to lure real capital and establish a strong financial system to ensure sustainable economic growth and avert a looming economic catastrophe.

These are things Zimbabwe needs to earnestly. If we don’t do this….

“…we might not have an economy on Monday”

Whilst the Americans at the time of the financial crisis were very much aware to the fact that they had to move with speed, the lackadaisical approach coming out of Zimbabwe’s policy makers to the economic crisis at hand is very disheartening.

To illustrate the intensity of how the American markets urgently required a deal to save the economy, Bernanke predicted that if no swift action was undertaken the economy would be in turmoil in a space of three days. Conceptually America would still have an economy but the devastation of the three days (in fact it’s one working day since the two other days fell on a weekend) of no action would have wiped off confidence and exacerbated losses.

Zimbabwe is at crossroads. Like Bernanke we might not be able to predict the day we wouldn’t have any economy to talk about, that is if we have an economy anyway, but the health of the economy requires urgent action.

If we don’t institute good economic policies and reforms which ensure attraction of capital and sustainability of the financial system today, we might not have an economy……..tomorrow!