Mangudya’s European voyage
WHEN he was appointed governor of the Reserve Bank of Zimbabwe (RBZ) last year, John Mangudya was confronted by a number of challenges that were prohibiting economic growth.
Among these were remnants of the 2007 and 2008 hyperinflation period, which pushed a free falling Zimbabwean dollar out of circulation.
He got into the hot seat just as a ruthless liquidity crisis was roiling the markets, knocking frail industries and forcing sceptical investors to flee in droves.
But the first bold action that demonstrated his pedigree was convincing the market that Zimbabwe could still trust a home-grown payment system in the form of bond coins, which are now circulating alongside a basket of foreign currencies.
After losing lifetime savings through bank closures and the collapse of the Zimbabwe dollar, consumers’ disdain for any form of local currency was understandable.
So the introduction of bond coins worth about US$50 million in the final quarter of 2014 left many wondering if the governor was in touch with the realities confronting the markets.
Now, despite the initial scepticism, the market has embraced bond coins, and difficulties previously encountered in getting small change have been overcome.
The availability of bond coins has reshaped consumer perceptions, and retailers have taken the bold steps to reduce prices.
But Mangudya has now been thrust into the vortex of a more difficult assignment by government, probably his toughest.
The market is watching to see if, after convincing them that bond coins are just fine, he will take his credibility a step further to deal with more pressing matters.
In a few weeks, he will be leading a high-powered delegation to three European capitals, Paris in France, Brussels in Belgium and Berlin in Germany, to negotiate a series of agreements with international creditors, unpaid for many years, to soften their stance.
His terms of reference will include striking deals with them that Zimbabwe’s cash-strapped government needs breathing space before resuming repayment of its debts, now approaching the US$10 billion mark, with massive arrears.
In arrears since 1999, the debts are now undermining growth, making Zimbabwe one of the most difficult markets for investors.
Zimbabwe’s arrears with three multilateral financial institutions, the International Monetary Fund (IMF), the World Bank (WB) and the African Development Bank (AfDB) currently stand at US$8,4 billion.
The country has accumulated a US$1,8 billion interest bill.
This is too high for a Third World country battling to secure fresh credit and budgetary support.
Multilateral lenders have kept their purses closed until Zimbabwe repays.
But government is under pressure to act and arrest a fast deteriorating humanitarian, social and economic situation.
Due to its battered image, government knows it will not be able to convince creditors at a political level.
This could be the reason why Finance Minister, Patrick Chinamasa, chose Mangudya to lead the team of negotiators to Europe to highlight the grave crisis facing the country before crucial engagements in Lima, Peru during WB and IMF annual meetings next month.
The road ahead will be long and painful, according to Kingstone Khanyile, chief executive officer at Mtilikwe Financial Services.
“You need to show them that you can pay,” he said.
“That is seen through how you are managing your economy. We are in the right direction, we need to start from somewhere, but the road ahead will be long and painful. We cannot expect funding overnight,” Khanyile told the Financial Gazette.
Ultimately, Zimbabwe must repay all its debts.
Yet at present, this is impossible because government is struggling to pay even its workers.
With little hope of reviving the manufacturing sector to boost exports, hope for repayment remains bleak.
And the debt negotiating strategy adopted by Chinamasa, if accepted, will be critical to restore normalcy.
Creditor institutions will still ask the tough questions.
“They (Zimbabwe delegation) have to explain the fact that investors are still discouraged by the indigenisation law, labour laws and the extra charges that government demands to investors, which adds to the high costs of business,” said economist, John Robertson.
“The indigenisation law is a big discouragement,” he said.
Analysts agreed that the strategy taken by Zimbabwe was long overdue.
They also agreed that the Mangudya-led team must prepare for difficult rounds of discussions as they attempt to crack a puzzle that has haunted the country for the past 15 years.
“The delegation must have a clear plan of what issues are concerning creditors,” said economic commentator Luxon Zembe.
He said the team must clearly articulate how government will manage its expenditures and impress on creditors that Zimbabwe will adopt good policies which it would stick to.
“The twists and turns that we see every day will not take us anyway. Creditors want to know that they are negotiating with principled people who have integrity, who are transparent, who are accountable. They don’t want a lack of fairness. They want to know how you will pay. The credibility of how you will pay is important. For instance, what we are doing to Dangote (the Nigerian billionaire who has pledged to investment in the country) must be applied to all investors,” said Zembe.
He admitted that current efforts suggested that “we are moving in the right direction”.
“If you owe someone you must engage. The aspect of engagement is important.”
So far, even the IMF is impressed.
An IMF delegation which visited Zimbabwe to review progress made towards reforms under a Staff Monitored Programme said last week it was happy.
“Zimbabwean authorities have moved forward with their reform programme despite difficult financial and economic conditions,” said head of the IMF team, Domenico Fanizza.
“This is remarkable and actually tells the full commitment which we believe is there from the authorities in what we call the reengagement process with the international financial community. We can say now that the authorities have respected all the targets for end of June. Actually they have implemented two of the benchmarks as we agreed. So, significant progress,” the IMF official said.
Zembe said Zimbabwe should leverage on the IMF’s current assessment as Mangudya and his team head for Europe.
Last week, Chinamasa said the country was intensifying its engagement with multilateral creditors to find ways of getting them to agree on possible accommodation agreements that will result in Zimbabwe accessing international capital.
He said the country is due to meet the multilateral creditors on the sidelines on the Lima meetings.
The Finance Minister said the meetings in Lima, Brussels, Paris and Berlin will be key in spelling out the strategies towards debt clearance.