adminand dreams licking with sorrow and despair.
Zimbabwe is a nation at crossroads and the decision to host the UNWTO conference in Victoria Falls next year calls for a digitalised banking system where plastic money is celebrated. A looming 2013 plebiscite and a constitutional referendum are a threat to the even envisaged 4,3 percent growth.
There are mixed feelings towards the 2013 Budget as priorities seem to have been mistimed with the majority of the populace still being exposed to the vagaries and dynamics of a stalled economic growth and a borrowed unit of exchange.
That Zimbabwe’s economy is dollarised poses serious threats in terms of liquidity, sovereignty, and market risk. Empirically, it has been proven that modern day economics thrives on exchange rates to drive economies.
The Sino-US war which dates back to the days of Henry Paulson, then Treasury Secretary argued that China was manipulating its currency in order to have an unfair trade advantage over the largest economy in the world.
When Barack Obama took office in 2008, the exchange rate between the two currencies was at 8,42 Yuan to the US dollar. When he began serving the second term it is pegged at 6,12 which is typical of a marginal decrease considering the yawning trade deficit America has been grappling with.
The Zimbabwean case is a serious but interesting scenario, with capacity utilisation still below 40 percent, FDI as a percentage of GDP at 12 percent and a dominant informal sector with no appetite to honour tax obligations.
We will remain in a quandary where the financial services sector is expected to be one of the major drivers for an incapacitated fiscal economy.
With a raft of measures which were announced on November 15 by Minister Tendai Biti, a trained lawyer turned politician, controversy was bound to exist after his confrontational approach towards the banking sector where he almost exterminated bank charges. All individuals with deposits less than US$800 are not obliged to pay bank charges and the interest rate will be indexed which means a quasi-command interest rate regime will be in place.
The question will be how many individuals hold accounts with more than US$800? This by implication means that all those financial institutions which had been serving the lower tier of the society are deprived of their major source of income which had been the non-interest income since dollarisation.
The practicality of such a policy measure will remain a mystery as banks had already been choked by the 1 000 percent increase in capital requirements. With virtually no business in insurance as third party products dominate the market, it is equally disastrous and unimaginable to have a robust and thriving insurance sector.
This could be a direct slap on the indigenisation and empowerment policy as the appetite to empower the natives will be drained by the elimination of profitability.
Foreign owned banks might also benefit more as compared to the indigenous ones as such institutions like Barclays, Standard Chartered, MBCA, and Stanbic have higher chances of holding high net worth clients as compared to Trust, TN and ZABG.
It remains an opaque state for Bankers Association of Zimbabwe as the market is really not sure of their attitude following the hard and knock policy within its sector. Zimbabweans no longer have the propensity to save neither do they have the capacity as their salaries are so depressed well below the poverty datum line.
There is no empirical evidence that people are not saving because interest rates are low. In the case of Zimbabwe, the issue of confidence might be the major reason why people no longer have faith in the banking system.
To argue about the formulae for determining interest rates when the bank charge policy was already imposed is a clear policy discordant in its own.
There is bound to be a strong correlationship between what banks charge as interest rates and their bank charges, depressing their bank charges will push them to raise their interest charges in order to compensate for the lost income base.
There is room for cheating and collusion as the scramble for the little deposits in the market gains momentum. The financial services sector is expected to pull down the overall GDP growth since it is no longer expected to grow that much significantly.
In the United Kingdom, Wongai, a microfinance company caused a furore in the market as it raised its interest rates. Coincidentally, Muslim soccer players who include Ben Arfa, Demba Ba and Papi Cisse threatened to walk out of Newcastle Football Club in England.
These are footballers coming from an Islam background where interest rates are charged and adorning a Wongai brand on their soccer jerseys next season since it will be their sponsors is facing serious resistance.
The Islam banking system is what the Zimbabwean market is facing as real interest rates can turn negative if no justification is put on the table for significantly reducing interest rates.
The interest rate and bank charges debate in Zimbabwe might not be factual, in South Africa and Angola their bank charges are also very usurious. According to the ease of doing business index by International Finance Corporation, South Africa is rated ugly in terms of bank charges.
The reason why banks have to raise their charges in Zimbabwe is in order to support the IT infrastructure which is much more expensive to host due to harsh economic environment which had seen power outages and over reliance on imports as some of the major cost drivers.
To push for banks to compulsorily introduce debit cards when their other reliable sources of income has been suffocated is inconsistent and unfair.
Christopher Takunda Mugaga is an economist, he is also the Head of Research for Econometer Global Capital, a regional finance and economics research firm. He can be contacted on 0772 340 353/ 0776 266 062 or [email protected]
Online Reporter