Self pride lacking in Zimbabwe’s economy, says Mangudya
RESERVE Bank of Zimbabwe (RBZ) governor, John Mangudya (JM) is reaching two years at the apex of the central bank in May; he has been in the hot seat since May 2014. In this interview with our Senior Business Reporter, Shame Makoshori (SM) Mangudya reveals his frustration against illicit financial flows and lack of patriotism, but declares that the challenges are transient. Excerpts
SM: Governor, you came into office in March 2014, and next month marks your second year in office; how has it been?
JM: I came into office on 1 May 2014. I have enjoyed this assignment as I see too many opportunities in this country; a country endowed with great human capital and natural resources.
SM: Given the enormous challenges the country is faced with, do you regret taking up the assignment as governor of the RBZ?
JM: No, not at all. Challenges are meant to be confronted by people. The challenges that the economy is facing are not insurmountable. We need to work as a team with a shared vision to turn around the country’s economic fortunes. We need to combine our human capabilities to extract the God-given natural resources and work the land for economic transformation, job creation and poverty reduction.
SM: What have been the successes thus far, and what would you consider as the main challenges going into the future?
JM: The major challenge that this economy is facing is lack of production as we are consuming much more than what we are producing. This is evidenced by the high current account deficit of the balance of payments. This challenge is attributable to a host of factors that include lack of confidence or trust, shortages of liquidity, lack of entrepreneurship, lack of discipline and lack of patriotism which is normally confused in Zimbabwe to mean politics. We therefore need to transform from within ourselves for economic recovery.
SM: When you came into office, you set financial sector stability as one of your key priorities. Would you say that we have achieved financial sector stability?
JM: Yes, we have achieved financial sector stability although there is always room for improvement.
SM: But how come we still have cases of weaker banks such as Interfin, Allied Bank and Tetrad exiting the market?
JM: If you look into the Monetary Policy Statement (MPS) issued by the acting RBZ governor before my appointment, those banks were cited as problem banks. They had some structural problems so when I came what we did was to examine them and see how best we could assist the market. You see, closing a bank can be a good decision especially when you see that there is no other way to get it out of trouble. Just like any other business, banks do fail, but financial institutions should not continuously fail because they hold public funds. So that’s why we have the Deposit Protection Fund, an insurance fund, and other mitigatory measures to guard against bank failures. But if in the actual event that a bank has failed you know what, you cannot continue nursing a failing bank. There is a limit to which you can nurse it; so I think it’s also a good decision to close some of them when they cannot be assisted.
SM: There has been slow pace towards the establishment of a Credit Reference Bureau (CRB).
JM: As defined by who?
SM: By us.
JM: Thank you! I thought you are saying according to us (RBZ). We are quite happy with progress on CRB. The CBR is not something that you can just pick from the shelf and put into your system just like that. We are supposed to do benchmarking, testing the system and getting all the things right. I can advise that as of now we have awarded the contract to one foreign company who will provide ICT at a cost of US$1,6 million.
SM: Regarding amendments to the Banking Act; there is a requirement in the Act restricting shareholding for bank owners; does it not discourage entrepreneurship?
JM: The amendments are designed to strengthen corporate governance and risk management practices within the banking sector. The new framework also promotes good corporate governance by punishing those that abuse depositors’ funds, enhance the oversight role of the Reserve Bank and empower the Reserve Bank to take corrective action in problem bank resolution. The overall objective being to provide the necessary confidence to the banking public.
SM: We also seem to be running into a serious shortage of banknotes, with ATM machines not dispensing cash at times; retail outlets restricting cash backs and banks at times running out of greenbacks. Where does the problem lie?
JM: There is no shortage of cash in the banks. What we are basically saying is that we need to behave in a manner that is acceptable globally and in line with best practices of withdrawing funds from your accounts. We have said if you are withdrawing above US$10 000 it is proper to give some notice of withdrawal to your bank because if you don’t do so, one person could withdraw say US$100 000, then the other people who might be in the queue might not find any money. More so in view of the fact that we do not print US dollars, we cannot wait for the cash depot to deliver and replenish whatever people would have taken. So we are saying we need to be able to manage the resources we have. We didn’t say people should not get their money. But we are saying at the end of the day all people (must) get their money, as opposed to one person taking all the money to the detriment of all the other people. This is what we are trying to remove. In any case, its also meant to do away with money laundering…we are a signatory to the Financial Action Task Force on Money Laundering (FATF); if you are a member you want to ensure that you minimise money laundering. Why can’t people transfer money, why just have cash. We are a member of FATF and on that one we are very serious, we don’t want Zimbabweans to be involved in money laundering. That is why we are doing that. If you go elsewhere, America included, you can’t just withdraw US$10 000, you can’t, they will ask you what it is for, and they need to know your credentials. So that is all what we are doing here — we are even more liberal than most countries. But we are also saying let there be good governance, CDD, customer due diligence as we say, know your customer. Nowadays we even say know your customer’s customer. When you are dealing with Shame I need to know my customer’s customer so that my money won’t go towards illicit dealings. We need to preserve the integrity of dollarisation in this country
SM: Total bank deposits of US$5,6 billion were more or less unchanged from the August 2015’s position, but were about 11 percent on December 2014. Are we seeing a cooling off in terms of deposits? Why are they slackening?
JM: This shows that money is not circulating. There is hemorrhage elsewhere in the system that needs to be plugged.
SM: What is your target for Non Performing Loans by December?
JM: We are saying that we need to be below 7,5 percent by the end of the year, so we are going to be between five and 7,5 percent.
SM: We have seen some of the local banks, IDBZ and Agribank, benefiting from the lifting of sanctions on institutions by the United States government; what does that mean to you and the financial sector at large?
JM: It’s a positive move that gives us motivation and hope that the United States of America is cautious to the adverse effects of placing financial institutions on sanctions. We pray that the remaining entities are also removed from the sanctions list.
SM: In the same breath, we have also seen Barclays Bank being penalised US$2,5 million for processing transactions of people that are on “the list of Specially Designated Nationals and Blocked Persons”; is this not contradictory?
JM: The two occurrences are different. While the removal of IDBZ and Agribank is very progressive, the penalty on Barclays Bank reflects the need for local banks to comply with the principles of know your customer (KYC) and customer due diligence (CDD) principles.
SM: Are you confident that your efforts in Lima and other meetings last year will yield results?
JM: If I was not confident I wasn’t going to participate as a chairman of reengagement and debt clearance (team). What I can tell you is that I am certainly confident. We have put enough time and energy on that effort, it’s a three pronged approach as you know. The first is that we are also confident that the International Monetary Fund (IMF), when they come to do the review (of the Staff Monitored Programme), they will adjudge us to have performed well to play their part. The onus is now on the international financial institutions. In fact, we are going beyond payment of arrears, we are reengaging.
SM: Have you started paying the US$1,8 billion that you have to pay by June?
JM: The sequence is that we can’t repay now. There are other processes that have to be followed. Before we repay the IMF will need to review the SMP which ended in December 2015. So they are now coming to check that process to see whether we have achieved the targets that we set for ourselves. If they are happy they will now proceed to Article Four Consultations and go to their board and also the African Development Bank (AfDB) and the World Bank have to go to their boards.
SM: Those things are going to be happening between now and June?
JM: Yes, and then the payments will follow. They will tick the boxes and say this has happened. It is when they give us the thumbs up that we can start paying. After we have paid then we request for new funds. If we pay now before they go to their boards what will we be trying to achieve?
SM: You have constantly hammered on competitiveness, competitiveness as the answer to our liquidity crisis; are you seeing progress on the ground towards achieving competitiveness?
JM: Yes indeed. Our major focus should be on producing goods and services competitively. It’s a process that cannot be done overnight, more so given the global and domestic economic challenges that we are facing. On the domestic front, we need to utilise financial resources efficiently in order to enhance production. That is why we are insisting on compliance with the rules and regulations for utilising financial resources. This would enable funds to be deployed productively whilst at the same time minimising abuse.
SM: Do you see the bickering among politicians affecting progress on the economic front?
JM: I am not competent to comment on politics. My deoxyribonucleic acid (DNA) is economics and finance and not politics. I read politics every day in newspapers and I pray everyday for the country and the economy to be still and have peace as found in Mark 4 verse 39.
SM: There has been an outcry over your action on free funds? What is your comment? And how much do you hope to save out of these measures?
JM: Money is fungible…Money that is raised for one purpose can easily be used for another. Measures to curb illicit financial flows include making all funds under the multi-currency system fungible, regardless of whether they originate from exports or sales in the domestic economy. We are requesting financial institutions to follow strict customer due diligence and know-your-customer principles.
SM: One would say that the MPS discourages Zimbabwean entrepreneurs from investing offshore? Would you clarify? Why do you think we are discouraging investors to do so?
JM: We are not discouraging investors. All what we are saying is that we need financial transparency and accountability in all forms of business, whether it is local or offshore business. We do not want to encourage trade mispricing, tax evasion, and for Zimbabwe to be used as a conduit for disruptive arbitrage opportunities. Effective transparency will, over time, result in greater accountability, and greater accountability will, over time, result in policies that are both equitable and more efficient, and in particular, involve less corruption and improvement in economic transformation.
SM: The RBZ continues to have limited tools to address economic imbalances that affect aggregate demand and supply. Given limited autonomy in that respect, did you use the MPS as a summary of rationales justifying the increased exchange control regulations to limit the drain of liquidity?
JM: We are not putting exchange controls. All we are putting in place are measures to curb illicit financial flows (IFFs) by requesting banks and the banking public to adhere to good corporate governance of utilising foreign exchange on legitimate or bonafide transactions in order to protect the integrity of the multi-currency system through financial transparency and accountability. A successful reduction in IFFs would improve Zimbabwe’s liquidity, enhance aggregate demand and allow for buildup of foreign exchange reserves, all which are necessary for economic transformation.
SM: You have been actively involved in funding gold operations and you intend to move to diamond mines. Does this signify a return to quasi fiscal operations? What do you seek to achieve?
JM: Quasi-fiscal activities (QFAs) are activities undertaken under the direction of government that are fiscal in nature. That is, their effect could in principle be replicated by direct taxation at spending action by government. An example of QFA is financial assistance by a central bank on non-commercial terms to a particular industry, where the financial effects are hidden outside the government budget. Financing of our subsidiary company, Fidelity Printers and Refiners, and the Zimbabwe Consolidated Diamond Company, on commercial basis in order to build reserves for the country cannot and should not be misconstrued as QFAs. It is called developmental finance as opposed to QFA.
SM: What is our import cover?
JM: Right now, the reserves for this country are at about US$250 million, which is not sufficient for this economy. But it is sometimes difficult to measure reserves in Zimbabwe because we are under dollarisation. Even the money which is in your pocket is also part of the reserves. Before you come to me you use that money for importation. You only come to the Reserve Bank as the lender of last resort where you say we are now dry hence we need to go the Reserve Bank. The banks as you are aware they have their nostro balances, which they use…for their customers. When they are now short they come to the central bank, where that money, which we are holding, will be utilised.
JM: What is your promise to the people of this country, who have been suffering for too long?
SM: My promise is very simple. I have said that yes, Zimbabwe is going through difficult times, yes we are aware that aggregate demand (is low) and that people need bread and butter on their tables. We are also aware that the economy is not (doing well) but as Zimbabwe we (must stop) rent seeking behaviour. We want to remove the short term principle that we have seen in the market. We need to have self pride, which I think is lacking in this economy. We need to change the way we think and the way we look at the economy. I think it’s a good year despite the drought. We want to transform the drought into an opportunity. I remain optimistic about the future, and I will die optimistic about the future.