PRESIDENT Emmerson Mnangagwa’s unprecedented move to ban banks from lending is not only an admission of failure to rein in an economy teetering on the brink but also deals a fatal blow to his “Zimbabwe is open for business” mantra.
Ethiopia attempted the same strategy last year, but reversed it after business suffered severe effects.
The shocking announcement last weekend is proof to many that Mnangagwa’s monetary policy interventions are ill-thought-out knee-jerk reactions.
When he came into power, Mnangagwa rode on the “Zimbabwe is open for business” mantra.
The slogan resonated well with investors who had long dreamt of a conducive operating environment for business in Zimbabwe.
Before then, many investors had remained on the fence as Robert Mugabe’s ruinous economic policies destroyed confidence in an economy already on the brink of collapse.
Mnangagwa, who presented himself as a pragmatic, business-friendly leader, took his “open for business” mantra to the World Economic Forum summit in Davos in 2018 as he sought to stimulate investor interest in Zimbabwe.
Mnangagwa’s self-projection as a reformist was gradually revealed to be a farce because of many blunders, among them an escalation of human rights abuses, which showed he had not departed from the ruinous policies of his predecessor, former president Robert Mugabe.
These included the 1 August 2018 killings of unarmed civilians by security forces, with some shot in the back, after protests rocked Harare over vote rigging allegations. The killing of 17 other civilians by the security forces in January 2019 further confirmed Mnangagwa to be a brutal and power hungry dictator.
The return of the Zimbabwe dollar in 2019 at a rate of US$1:ZW$1, without the economic fundamentals needed to sustain a strong currency, would become one of the major blunders.
The decision is haunting the economy to date.
As predicted, the Zimbabwe dollar has been on a freefall while inflation is on the rise. As of last Friday, one needed ZW$400 to purchase US$1.
The Mnangagwa administration has chosen to blame “economic saboteurs” instead of addressing problems bedevilling the economy.
Failure to rein in inflation, a currency tumbling in value and other economic factors, which the government terms economic sabotage, have been a thorn in the flesh for Mnangagwa’s regime.
Groping in the dark, he announced that banks should stop all forms of lending as it was fuelling the depreciation of the Zimdollar.
But Mnangagwa forget to consult a basic economics textbook to refresh his memory on the consequences of this unprecedented move.
It is apparent that no investor would want to invest in a country where a company cannot borrow from the bank or get an overdraft to finance working capital.
Mnangagwa essentially closed the tap on funds that could help small businesses and manufacturers to stay afloat.
Doing all this in the full glare of the international community, Mnangagwa is telling investors in crude terms that the “Zimbabwe is open for business” slogan was a charade.
Characteristic of his government to announce ill-thought-out measures, done in the name of public good, Mnangagwa has also pulled the plug on banks’ most reliable source of income.
According to the Confederation of Zimbabwe Industries (CZI), only US$147 million was injected into the economy in foreign direct investment.
This reflects the government’s failure to ensure policy consistency that attracts investments.
Neighbouring Zambia is enjoying good relations with investors, with companies queuing to inject millions into that country.
In an analysis, which the bank later disowned, BancABC says the move would decimate banks’ incomes by between 20% and 50%.
BancABC had become one of the few banks to speak out on the move, saying the government should revisit the announcement.
BancABC had warned that banks could be pushed into engaging in “non-permissible” activities to recover lost income.
“This could push banks to embark on risk and/or non-permissible activities to compensate for the loss of incomes…No economy can survive without access to working capital,” the paper reads.
The banking sector remains a sensitive industry which needs to be handled with caution.
“It weakens confidence because it creates uncertainty. Uncertainties have an adverse effect on confidence in any economy. Without confidence, it means the economy cannot sustainably grow. It increases the risk premium, which makes it more expensive to invest in this country,” economist Prosper Chitambara said.
“The suspension of bank lending has several effects. The bank credit is critical for the optimal functioning of any economy. Banking liquidity is
the lifeblood of any economy, it affects business, banks, and the economy.”
He added: “We do not know how this suspension is going to last so there are lot of uncertainties. It needs to be quickly resolved.”
Earlier in the week, the Zimbabwe National Chamber of Commerce (ZNCC) released another candid statement on the move.
“We urge the government of Zimbabwe to critically review these measures and seriously consider the submissions that have been put through from the business
community,” the ZNCC said.
The ZNCC said confidence in the local currency had been lost considerably, hence the need for the government to work on confidence building.
“There is a complete loss of faith in local currency, and economic agents are desperately getting rid of their Zimbabwe dollar the very moment they earn it. We reiterate the continued enhancement of the confidence-building measures for the local currency,” the ZNCC said.
Central bank governor John Mangudya told state media this
week that the measures are “temporary”.
“We know this is a painful, but necessary, measure. It was necessary because of the increase in inflation. Some entities were now using funds from banks to purchase foreign currency,” Mangudya told the ZBC.
“It’s a temporary, necessary measure, to ensure that there is sanity in terms of taming inflation.”