Culture of default has hurt Zimbabwe’s credibility
In Zimbabwe there is a Shona adage that says “Kusungirira mari pagumbo reingwe”, which means tying money to the leopard’s leg. If you succeed in doing that and the leopard takes to its heels, you obviously cannot expect to get your money back.
This proverb characterises Zimbabwe’s economic challenges. You lend money to friends or family, then they won’t pay you back on the day of reckoning, or you get it in dribs and drabs. Even individuals and companies borrowing from banks find themselves defaulting somehow.
We are also struggling to pay our bilateral and multilateral debts.
Some trace this tendency back to the hyper-inflationary era between 2005 and 2008, when people used to make quick bucks by operating on the black market. You could not find anything in the shops, as everything was being sold on the streets. The connected would get stuff in large quantities, which they would sell for a usurious mark up in the illicit market and make rich killings. The formal foreign exchange rate was fixed and would not change for months. However, it was a different scenario on the black market, as the exchange rate would change daily, as more local currency was being printed by the central bank, with inflation also rising.
These asymmetries resulted in the emergence of rent-seeking elements bent on earning lots of money without doing anything. It inculcated a culture of laziness, and even today some people have that Zimbabwean dollar hangover of thinking they can earn something from doing nothing.
But the economy’s big picture is changing around us. You now “eat what you kill”, just like the former minister of finance, Tendai Biti, used to say.
An IMF delegation that visited the country noted in March that: “Economic difficulties have deepened. Zimbabwe cannot wait and needs to act now. The El Niño-induced drought has hit the economy hard. Lower commodity prices and the appreciation of the US dollar have compounded difficulties. Policy action is needed to reverse this trend.”
As things get hard, with a deflationary spiral wreaking havoc, the inclination to pay back loans has also diminished. It appears as if we still want freebies.
In his 2016 monetary policy, the central bank governor John Mangundya, said the public “should cherish the culture of good stewardship and repaying culture to enhance self-discipline”. Due to high default rates, banks were being left with big debts. Non-performing loans rose from 1.6 per cent on June 30, 2009 to a record high of 20.4 per cent on September 30, 2014.
A few years back, a US$10 million youth-loan facility which was set up by the government jointly with local banks, had to be discontinued after suffering a shocking loan default rate of 92 per cent. The loan was meant to be a revolving fund to assist young people to start income-generating projects, noting that they bear the brunt of unemployment, which is very high in the country. Some of the youths who got the loan money did not use it for its intended purpose.
The country is struggling to get loans from multilateral lenders because of its bad credit record, with huge arrears that have to be paid back first. The situation is also worsened by sanctions slapped on the country by western nations.
Zimbabwe has therefore been pinning its hope on strengthening ties with Asian countries, in what it has come to term the “Look East Policy”, aimed at expanding bilateral, investment and trade relations with eastern nations. These countries include the UAE, China, India, Singapore, Japan and others. To cement the relationship further, currencies such as the Chinese yuan, Japanese yen and the Indian rupee have been included in the basket of Zimbabwe’s legal tender, through its monetary policy of January 2014.
Since 2009, Zimbabwe has been using a basket of foreign currencies for transactional purposes, which include the US dollar, South African rand, the euro, Botswana pula and the British pound.
President Robert Mugabe was recently in Japan on a working visit to strengthen ties. Last year, Zimbabwe also managed to sign 12 deals with China to fund key projects in vital economic sectors worth billions of dollars. At the signing ceremony, the Chinese president, Xi Jinping, said: “Zimbabwe and China agreed to be good friends and brothers on an equal footing. The relationship between Zimbabwe and China has stood the test of time and is one of the best relationships between developing countries.”
Zimbabwe must ensure that the money is put to good use, and that it is repaid when due, to foster sustainable relations with our eastern nations.
Allow me to cite a few cautionary examples.
China’s EximBank bankrolled Harare City Council to the tune of $144m to rehabilitate the municipality’s water infrastructure. But an audit conducted on the facility revealed that millions of that money, which was intended to purchase equipment, went to buying “luxury” motor vehicles.
And in February this year, minister of finance and economic development Patrick Chinamasa dragged to the high court the agro-equipment supplier, Farmers World Holdings, to pay back a loan of not less than $12m, which was advanced by the China Export Import Bank and underwritten by the government of Zimbabwe in 2010. By 2012, the company had repaid $6,000.
We do not want to come to a situation whereby our friends in the East, who have been standing with us in these difficult times, will start to think that we are not doing our best to use the financial assistance we are getting in transforming our economy for the better. We do not want a scenario such as has been recently highlighted by the mines and mining development deputy minister, Freddy Moyo, whereby a $100m loan facility which was supposed to be bankrolled by China to benefit Zimbabwe’s small-scale miners, is now said to be in limbo.
Zimbabwe can surely do more in terms of utilising the loans that it is getting to the zenith of efficiency. By doing so, we would be giving the entire world an impression that we are ready for serious business – and not about to run away with their money as fast as a leopard.
The writer is an economist based in Harare.
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Updated: April 7, 2016 04:00 AM