It would be foolish, however, to confuse this with any significant success in Mugabe’s bid to secure a capital injection into his country’s worsening economy. China regards Zimbabwe and Mugabe as old friends and allies when such commodities were scarce for Beijing in Africa, and China has a very long memory. In addition, the visit from the Zimbabwean president – so soon after he was snubbed in Washington – provided China with an opportunity to show the US it has some way to go to match Beijing’s influence in Africa despite the latter’s late start. For those and several other reasons embedded in Chinese culture and its African ambitions, Mugabe was afforded a hero’s welcome.
However, that may not translate into cold hard cash – not as much as Harare would need anyway. China has made it reasonably clear for some time now – and certainly after ZANU-PF’s election victory last year – that change was needed in Zimbabwe and that concrete plans (rather than begging bowls) would be the new order of business in Beijing. China has tended to be regarded as a bigger and more generous benefactor to Zimbabwe than has actually been the case. In addition, Beijing has played the ‘tough love’ card before and in the process has managed to secure several key mining and mineral concessions that could well translate into ownership down the line.
However, the resource bank in Zimbabwe is now teetering on empty, and perhaps Harare has little left to offer in terms of hard compensation. This implies that Chinese cash may be difficult to secure. Perhaps to emphasise the point, Reserve Bank of Zimbabwe (RBZ) Governor John Mangudya said on August 25 that Zimbabwe needs credible policies to fight off investors’ negative perceptions and to attract desperately needed capital. Governor Mangudya and several other high profile Zimbabwean figures who have been calling for change in recent months now need to be heard and their plans and ideas implemented, or Zimbabwe faces the prospect of yet another giant leap backwards after some years of minor progress.
Governor Mangudya delivered his maiden Monetary Policy Statement (MPS) this week. He underscored the need for increased domestic production of goods and services (as opposed to imports) in order to stimulate economic growth. The governor then clearly stated the country’s “interwoven economic challenges” that will limit economic growth to 3.1 per cent during 2014: tight liquidity conditions; company closures; rising formal unemployment; low production levels; non-performing loans (NPLs); and a ‘disproportionate’ trade balance. Amongst a myriad of motivational paragraphs on how to get the Zimbabwean economy back on its feet, the governor announced several constructive steps.
Firstly, the multi-currency system will continue and the Zimbabwean dollar will not return until the country’s foreign exchange reserves and domestic production levels are able to sustain its rebirth. In the meantime, the RBZ has committed to importing “special coins” with a value between 1c and 50c that will be on par with that of US cents. South African rand coins “are also being imported”. This comes after the Retail Association of Zimbabwe (RAZ) convinced the central bank that the high prices of goods and services locally compared to neighbouring countries is in part due to a lack of small change within the multi-currency system.
Secondly, NPLs increased to 18.5 per cent of commercial banks’ total loan book by June 2014 from 16.6 per cent in March. A special purpose vehicle (SPV) known as the Zimbabwe Asset Management Corporation (ZAMCO) has already acquired $45m worth of bad loans in order to free commercial banks from these delinquencies, and will endeavour to buy up to $700m of NPLs with money sourced from “non-funded lines of credit, new inflows, long-term bonds and Treasury bills.” The RBZ sees investors as including pension funds, foreign investors and Zimbabweans in diaspora.
Thirdly, the RBZ is working on establishing a central credit registry system in order to improve the quality of credit information in the country. The setup will include a credit registry and private credit reference bureaus. The central bank sees this development combined with the reduction of banks’ NPLs as resulting in lower interest rates. Also related to the banking sector, the $100m interbank market is set to be operational by the middle of September. Fourthly, a cumulative $406m worth of Treasury bills have been issued since the start of the year and the sovereign is servicing these obligations.
As with the MPS delivered at the start of this year, the RBZ made some big announcements this time round. Although all of its plans require financing (that is certainly not in abundance in the country), the central bank’s leadership under Governor Mangudya has shown that it can be effective in implementing ambitious tasks. We would like some more information on the special coins and who the foreign investors are that have shown interest in ZAMCO – the success of these currency and banking campaigns is seen as crucial to place the Zimbabwean economy back in a higher gear. The MPS contained many recommendations for fiscal authorities about managing the economy: Mugabe would do well to examine these.