PLANS by Treasury to beef up the Financial Intelligence Unit and the police as Zimbabwe turns to Gestapo-style tactics to defend the value of the domestic currency, Zimbabwe Gold (ZiG), could be catastrophic in the medium term, economic analysts have warned.
BRENNA MATENDERE
Finance minister Mthuli Ncube on Wednesday told Parliament that Treasury will commit more resources to law enforcement agents as the authorities roll out a blitz against informal foreign currency traders.
The development comes barely a week after Ncube announced via Statutory Instrument 81A of 2024 that the government will levy a fine of ZiG 200 000 (US$14 782) on offending firms and individuals.
He had earlier warned of looming regulations to enforce the sole use of the official exchange rate in the economy, which is set daily by the Reserve Bank of Zimbabwe.
The new rule now also scraps a previous requirement for retailers to put a 10% premium on the going exchange rate in their pricing.
“The Financial Intelligence Unit has been effective in investigating illicit activities, money laundering and other aspects and, in fact, triggering the sanctions on those who are deviating from the prescribed exchange rate or pricing frameworks. But, of course, we can never say they have all the capacity they need. In fact, they have written to me to say minister, we need more capacity and I have granted that and we will be giving them more resources so that they can hire more personnel, equipment or whatever they need like tools of trade to remain effective on the ground, but that is on one hand,” Ncube said.
“Again, we have said to the law enforcement agents, the police, that if they need additional capacity, we are happy to support that whether it is equipment mobility, we have to support that, because this is an important issue. I can assure him and I can assure the nation that we really mean business and we will make sure that our law enforcement agents and agencies are equipped enough to deal with the situation.”
The NewsHawks also gathered that officers from the central bank’s FIU are conducting in-store investigations to establish whether or not retailers were colluding with informal foreign currency traders. The domestic currency is officially trading at around US$1: ZiG13.5.
Recently, police swooped on illegal foreign exchange dealers operating on the streets of Harare in dragnet arrests that saw a total of 65 money changers thrown behind bars.
Economic analysts told The NewsHawks this week that the Gestapo-style crackdown by the government to shore up the ZiG will backfire.
Economic analyst Prosper Chitambara said the heavy-handedness will hurt the ordinary person whom the government says it is determined to protect.
“Well, there are two downside risks that could actually arise, in my view. The first risk is that it could result in a shortage of goods or commodities within the formal retail outlets, because the government is trying to bring sanity by penalising businesses that are trading official exchange rates,” he said.
“But, of course, there are those two downside risks. And of course, the best way of probably mitigating those risks is to ensure that at least formal businesses have access to foreign exchange.
Because as long as they are accessing foreign exchange on the black market unofficially, then that obviously is going to affect, obviously, the sustainability of formal businesses.”
National University of Science and Technology-based economic analyst Stevenson Dhlamini warned against the strong-arm crackdown.
“It is generally accepted in economic thinking that when governments intervene in the market system, it leads to price distortions that lead to shortages of goods and services.
Therefore, unless the government supports the banking sector in ensuring availability of foreign currency, we might run the risk of shortages of products in the formal market,” he said.
Development economist Chenaimoyo Mutambasere said ZiG currency is tied to market perception as it lacks the transparency and convertibility necessary for trust and stability, and these critical factors are bound to make the price control measures difficult.
“We may see products still on the market shelves because people simply cannot afford to buy them. What might happen instead is supermarkets may offload their products and exit the market altogether. Certainly if this carries on Zimbabwe will be back in 2008 by December, at the latest.
“More than a month later, we have no clear assurance of the asset backing the ZiG. Furthermore, its convertibility features have not been explained or legislated . Essentially, can I walk into the bank and swap my ZiG for gold bars?” she asked.
“Without clarity on the assets backing ZiG and a legal framework for its convertibility, it’s primarily used for transactions rather than as a reliable store of value. This diminishes its demand and lowers its value below the intended exchange rate.
“Value is derived by market forces of supply and demand and not by commandeering as is being attempted. The market will always find a way to circumvent these laws . The adverse side of having such laws is that they are an infringement on property rights and off putting for investors.
“Moreover, this contradicts the notion of a free market where willing buyers and sellers determine value as is stipulated in the MPS [Monetary Policy Statement]. Its limited exchangeability and potential copyright concerns are going to hinder ZiG acceptance and utility,” she said.
Economic analyst Professor Gift Mugano, posting on his X handle, described the statutory instrument on exchange control as a disaster.
“The New Amendments to the Exchange Control is a total disaster! Goods will disappear from the formal sector and appear in the informal sector! Unfortunately, GOZ can’t regulate or enforce compliance in the informal sector because it’s gigantic & stubborn. This gives the informal sector latitude to set own informal rules and disregard government policies/regulations. The informal sector has flexibility to operate at competitive exchange rates/black market rates which will definitely kill the formal businesses. The irony is that we have been on this road before and it didn’t work!” he remarked.
Mugano said the government must develop a culture of conducting impact assessments of its policies and come up with improved measures.
He called for an investigation into the economic crisis to enable the government to come up with comprehensive solutions which must include political remedies.
“Otherwise we are going nowhere,” he concluded.
In Germany during World War Two, the Gestapo was discredited for its heavy-handedness and surveillance capabilities. Its power was used to focus upon political opponents, ideological dissenters (clergy and religious organisations), career criminals, the Sinti and Roma population, handicapped persons, homosexuals, and, above all, the Jews. Those arrested by the Gestapo were often held without judicial process, and made political prisoners througout Germany.
Using similar Gestapo methods, the government of Zimbabwe is desperate to protect the ZiG, but the new currency has lost 47.4% of its value on the parallel market since its introduction on 8 April.
Although physical ZiG notes are yet to be circulated, the Reserve Bank of Zimbabwe pegged it at ZiG13.56 to the US dollar, but it has crashed and is now trading at ZiG33 to the US dollar on the black market.
The arrested money changers have been remanded in custody with such officials as Information permanent secretary Nick Mangwana praising the development on the basis that it will set an example to others.
Zanu PF vocal MP Tafadzwa Mugwadi, in support on the clampdown on money changers, also wrote: “When you are a citizen to any republic, there are things that you have no right to choose by ginya (force) for example: 1. National ID card 2. type of passport 3. Tax 4. laws to obey 5. currency to use 6. paving way for motorcade.”
The ZiG was launched by the central bank on 8 April in an effort to tame chronic high inflation which, according to independent estimates, is now the highest in the world at 2 647%.
The Zimbabwe dollar, which was demonetised and replaced by the ZiG, lost over 96% of its value in just 12 months.
In 2008, the late President Robert Mugabe appointed Godwills Masimirembwa to head the National Incomes and Pricing Commission which had a straightjacket mandate to control prices of basic food commodities in order to suppress inflation, but the effort flopped.
The commission deployed inspectors to descend on businesses who were flouting the price controls.
Their discredited inspections reached manufacturers, wholesalers and retailers.
More than 7 000 storeowners and manufacturers were arrested in the wake of the price clampdown.
Mugabe also imposed sweeping price slashes in June 2007 and then a six-month price freeze again in a bid to control inflation, but it resulted in widespread shortages of basics like bread, flour, cooking oil, margarine, meat and even shoes.
The new ZiG unit is the sixth attempt by the southern African nation to have a functioning local currency. It is backed by 2.5 tonnes of gold and about $100 million in foreign currency reserves, according to the central bank.
