Who is behind the forex traders?
By Nathan Gurira
No matter how well-intentioned and determined the Reserve Bank of Zimbabwe (RBZ) may be to eradicate rampant delinquency in the economy, the effort may count for nothing if other institutions inflame the situation with their inaction.
Hardly a month goes by without the central bank naming and shaming some of the culprits. This Hall of Shame might just be the tip of the iceberg. In the event that the ship’s captain behaves like Edward Smith of the Titanic, the whole economy could collapse.
When Vice President Constantino Chiwenga, at the recently concluded Zimbabwe International Trade Fair and more recently at the Harare Agricultural Show, threatened to deal with those wreaking havoc in the markets, he could have fired warning shots before pulling the trigger because the state knows who the real culprits are.
The violators, who drive the parallel market rates, are largely large corporations, including local and foreign contractors, who work on infrastructure projects across the country, oil companies, consumer goods companies. fast moving and retailers, among others. It has also been said, and not denied, that big companies double their spending by using their surrogates to buy foreign currency at auction, but continue to charge for their products at parallel market prices, which would make the devil himself pity the poor. from Zimbabwe who buy in stores at exorbitant prices.
The involvement of large companies explains the government’s reluctance to close in on them quickly for fear of frightening the capital markets. However, after Chiwenga’s warning, it might not be long before authorities take their gloves off, as allowing the chaos to continue would be career limiting, especially for the political elite who have a lot to lose.
While the public expects the central bank to clean up the mess on its own, the inconvenient truth is that there is little that monetary authorities can do. From a legal point of view, the RBZ operates under the Reserve Bank Act (Chapter 22:15), the scope of which limits the institution to maintaining price stability, formulation and execution of monetary policy and the promotion of a stable financial system using available financial instruments.
In addition to the Reserve Bank Act, the umbrella bank also administers the Banking Act (Chapter 24:20) and a host of regulatory instruments.
These statutes do not give the bank extensive powers to extend beyond certain limits nor the flames transform into a big brother with the power to interfere with other state institutions.
We all know that the autonomy of the bank was ceded to the Treasury during the unity government (2009-13) when then finance minister Tendai Biti’s obsession with cutting the wings of the former RBZ governor, Gideon Gono, led to regrettable amendments that compromised its independence.
Either way, the bank does not operate in a vacuum. It is part of an ecosystem with other economic agents and regulatory authorities which should be seen as also playing their role in promoting economic stability.
One shudders at the thought of the economic and political ramifications that could arise given the scale and pace at which indiscipline and greed are causing economic instability, or whether state organs that become complicit in it through their deafening silence or non-intervention understands what is at stake.
In the energy sector, the RBZ allocated foreign exchange to oil companies on the understanding that they would supply some of their fuel in Zimbabwean dollars, but none of them did. Across the country, gasoline and diesel are sold in US dollars.
The question then arises: where are the officials and inspectors of the Zimbabwe Energy Regulatory Authority (Zera)? It may as well be that in the face of the deep-pocketed oligopolies operating in this industry and the godfathers behind them, the poorly paid Zera inspectors and officials could have joined the train instead of risking their jobs by trying to fight the system.
But while the bigwigs in the fuel industry are in the throes of a binge eating, the truth is that the fuel that was brought into the country at the official exchange rate with the aim of enabling struggling ordinary citizens, who are being paid in local currency, to access the product at affordable prices, is sold in foreign currency.
This daily proceeds are then exchanged for Zimbabwean dollars at parallel market rates to allow greedy oligopolies to line up for more foreign exchange allocations at the auction, and the cycle continues.
As this happens, prices will skyrocket due to the pass-through effect, creating an unstable environment that plunges the majority of the population into abject poverty.
Not so long ago, the Cabinet threatened to take tough action against the culprits, but it seemed to be a blast.
This week, the Cabinet released another statement that a technology-based fuel management system that was developed by the Harare Institute of Technology, with support from Zera, would be implemented nationwide to reduce widespread bad practices in the fuel sector, which have a negative impact on the economy at large.
If anyone thinks that the same folks who are presiding over this chaos in the fuels industry would embrace this technology that robs them of easy money for their back pockets, then you can believe anything.
Perhaps the starting point would be for the central bank to publish the full list of affected oil companies in foreign currency with the aim of importing fuel for sale in local currency and pumping stations where motorists could refuel in Zimbabwean dollars.
RBZ would then carry out spot checks parallel to Zera’s inspections as part of checks and balances.
But for these and other measures to bear fruit, above all, political will from above is needed. Most importantly, there has to be a commitment and determination to flush out the culprits and replace the bad apples with professionals and not with blue-eyed boys and girls singing for supper.
Malevolence extends to the police. Isn’t it unlikely that the police will raid areas where money changers hang out, crammed into their branded trucks, while wearing all their costumes. Why not carry out undercover operations, collect evidence on the profiled culprits and arrest them when you have obtained evidence to secure the convictions.
Police should also dig past the symptoms and unravel the iceberg; the real culprits would relax in their air-conditioned living rooms, smoking cigars and drinking expensive whiskeys as their runners baked in the scorching heat and played cat and mouse with the police.
Assuming there is a problem with weak legislation, where are the parliamentarians who should lead the appropriate amendments to the constitution? With the ruling party enjoying an absolute majority in Parliament, is that too much to ask?
This is not to say that cracking down on the culprits would strengthen the currency in the absence of increased production and an improved ability to generate exports. No matter how good an economy is, if the authorities allow their citizens to do whatever they want, the wheels will definitely go off the rails because indiscipline and greed would simply turn the economy into Sodom and Gomorrah.
The primitive accumulation of wealth by the elite who are up to their necks in rent-seeking behavior suggests that the conscience of the bureaucrats in some of the institutions that should enforce the rules has left them and whether a full investigation needs to be done to Whether the incompetence was the result of an omission or a commission, skeletons would fall out of their closets.
In terms of fundamentals, the country’s currency should have appreciated.
For the first time in many years, Zimbabwe recorded an increase in its export earnings of nearly US $ 5 billion, enough to meet its import needs. The balance of payments position is healthy, in part helped by strong performance in the mining and agricultural sectors, and the Treasury recorded budget surpluses in the first and second quarters.
Combine the fiscal and monetary policy measures with the currency auction system introduced in July of last year to underpin a battery of austerity measures meant to stabilize the economy, the worst should have been over by now.
In other words, the positive economic fundamentals achieved so far should have inspired confidence in the Zimbabwean dollar, but alas, the local unit has been the subject of vicious speculative attacks, largely linked to profitability. and greed.
The list of institutions failing in their responsibilities includes the tax authorities who for a very long time have failed to stop leaks in our porous ports of entry, where the smuggling of substandard goods destroys the industry.
If the tax collector was doing a thorough job, wouldn’t they have raised a red flag on the cheeky oil barons who sell fuel in Zimbabwean dollars in foreign currencies or on the out-of-control surrogates that show up for big companies when selling? at auction floor during tax audits?
So there is a sense in which one could argue that if the sanctions imposed on the country by the West and Europe are real, the most damaging sanctions are those which the greedy among us impose on the rest of the population by acts of corruption.
Perhaps the greatest corruption of all can be seen when driving along the country’s highways where swathes of farmland are abandoned on either side of the road when the government has the machinery to ensure that this finite resource not only produces enough to feed the nation the whole year round, but overproduces for the export market so that Zimbabwe does not waste valuable foreign exchange on importing flour, corn and other commodities foods that should be produced locally.
- Nathan Gurira is an economist. He writes here in his personal capacity. He can be contacted at [email protected]