The Sunday Mail
Persistence Gwanyanya
“I know that after my death you will become utterly corrupt and will turn from the way I have commanded you to follow. In those days disaster will come down on you, for you will do what is evil in the Lord’s sight, making him very angry with your actions.” (Deuteronomy 31:29).
SINCE the dawn of mankind, corruption has been a fierce enemy of progress.
Today we are harvesting discomfort from the corrupt deeds of past generations. Our lives continue to be burdened by the corrupt practices of our peers.
As the economic challenges take their toll, the cancer that is corruption is rapidly spreading. It is definitely a challenge to Zimbabwe’s efforts to rebuild.
More urgently, corruption is the most formidable and potent force that will work against the bond notes concept.
It is arguable that if left unchecked, corruption in indeed a security threat to the country. The need for policymakers to take bold measures to exorcise the demon of corruption cannot therefore be overemphasised.
Such an initiative is important to restore confidence, which is a prerequisite for the success of bond notes.
The haunting memories of huge losses suffered by ordinary citizens prior to dollarisation has over time bred the low confidence levels that are presently affecting the banking sector, and it be impossible that such wounds can be healed by the passage of time.
The high levels of externalisation in Zimbabwe have made it imperative for the Reserve Bank of Zimbabwe to introduce bond notes as a measure to eliminate the practice.
RBZ estimates that in 2015 alone more than US$1,8 billion — roughly half of the 2016 National Budget — was lost through externalisation. Of this, US$1,2 billion was externalised by corporates and US$600 million by individuals.
A highly liberalised capital account, especially since dollarisation, has aided and abetted externalisation.
The fatal mistake that was made after liberalisation post-2009 was the assumption that the capital account could be equally liberalised without attendant cash challenges.
Immediately after dollarisation, individuals and companies could withdraw as much as U$10 000 and US$30 000 to US$40 000 per day respectively.
Individuals carry as much as US$10 000 per trip out of Zimbabwe. Foreign companies can repatriate 100 percent of their after-tax profits and dividends.
This is unsustainable, especially for a country which does not print US dollars and does not export much to support a huge import bill.
Elsewhere, foreign payments are subject to capital controls, including limits on the amounts that can be carried out of the country per trip.
Corrupt elements obviously take advantage of our weaknesses to externalise money, especially the US dollar.
Zimbabwe’s porous exit points have not helped the situation as externalisation continues even after stricter capital controls were instituted.
This is ostensibly one of the reasons why RBZ has seen it necessary to introduce bond notes.
The starting point to gauge if bond notes will be effective in stopping externalisation lies in understanding the profile of its drivers.
If RBZ has the records of the US$1,8 billion externalised in 2015, it would be better to increase surveillance on individuals and companies that have been suspected to be the agents of the malpractice.
Quite clearly, the general public neither have the means nor the capacity to externalise. Such behaviour can arguably be traced to the rich, well-connected and influential.
Bond notes, therefore, have to be supported by corresponding measures to discourage and eliminate corruption at all levels.
The continued shortage of big denominations in the banking system, just as bond notes are about to the rolled out, is telling.
With average salaries of below US$500, it is difficult to suggest that ordinary citizens are hoarding cash.
It is quite worrying that RBZ imports an average of US$15 million per week on top of what is imported by individual banks to meet the needs of the market. This is unsustainable given the high cost of importing cash, which ranges between 0,5 percent and 1,5 percent.
Like China, Zimbabwe should take bold measures to tackle corruption.
The Deng Xiaoping era, which began the period of economic reforms in the Asian country, saw the Chinese Communist Party adopting zero tolerance for corruption. Before reforms, morale and confidence among citizens had taken a huge knock.
Anti-corruption organs or institutions were resultantly formed. Influential party leaders could not escape the wrath of these institutions. Criminals were asked to return the loot in order to be pardoned. Penalties included the death sentence.
Unsurprisingly, this period coincided with economic success in China. National incomes doubled during Deng’s era.
Zimbabwe already has such organs and they need to continue to be strengthened.
A sense of impunity, especially among influential individuals, is undermining public confidence in the country’s ability to tackle corruption. There have been endless reported cases of corruption where the alleged perpetrators remain scot-free.
Corporate governance deficiencies almost brought the banking sector to its knees in 2008.
The lack of public confidence is now being directly translated into scepticism for bond notes. The RBZ should know that trust is not demanded but earned.
There is need for satisfactory assurances that bond notes will not find their way to the black market, and arbitrage opportunities are plugged.
The RBZ and banks should satisfy the market that there are safeguards in place to avoid what has happened before.
The same agents that are now buying and selling cash remain willing agents of “spinning” bond notes if presented with the opportunity.
Activities and actions that undermine measures that are meant for the public good should be met with the contempt they deserve.
It’s time Government cracks the whip.
The recent signing of the Public Finance Management Amendment Act (Chapter 22:19) by the President is the dawn of new era for Zimbabwe. Government officials will now increasingly be held liable for abusing public finances.
But Government needs to walk the talk and avoid betraying its own ideals. All too often half-measures are taken where bold measures are required. Only action will give meaning to our commitment to fight graft.
Persistence Gwanyanya is an economist, banker and member of the Zimbabwe Economics Society who writes in his personal capacity. Feedback: [email protected] and WhatsApp +263773030691
