Zim: An Insider"s View of the Banking/Financial Crisis

Original Post Date: 2004-01-11  Posted By: Jan

From the News Archives of: WWW.AfricanCrisis.Org
Date & Time Posted: 1/11/2004 3:30:48 AM
Zim: An Insider"s View of the Banking/Financial Crisis

[Note. This article is written by Eddie Cross who won the Businessman of the Year award in Zimbabwe in the 1980’s. He also held a financial position in the MDC. He is extremely well-connected in business circles inside Zimbabwe. His insights into how even the ZANU(PF) “untouchables” were burned by the recent banking crisis is insightful. Jan]

A House of Cards.

The past two weeks have been very instructive. The government appointed a
new Governor for the Reserve Bank. His name is Gideon Gono. A very pleasant
individual who always greets me as if he was a long time friend and
associate. Gono, like another Zanu PF businessman, Mawere, pretends to be
“only a businessman” and claims that he is not a Zanu PF “heavy” in any way.

Like Mawere, he is a man who came out of nowhere – young people with an
amiable disposition, both men have made an impact on the local business
scene. Mawere in mining and manufacturing and Gono in banking. Gono makes
much of the fact that he started out as a “tea boy” in a bank and rose to
the exalted position of the CEO of the Commercial Bank of Zimbabwe.

In reality both men are fronts for Zanu PF government heavies – Gono is
known as the personal banker to the President. His selection as Governor of
the Reserve Bank was a foregone conclusion – the State simply could not
allow anyone else in there as the Bank has been at the very centre of Zanu
PF theft of state assets. It was also the major tool in the maintenance of
the patronage system of Zanu PF.

Gono may be many things, but he tries hard and was rewarded at CBZ by the
entry of a giant South African bank as a technical partner with a
substantial equity stake in the bank. This probably saved the local Bank as
it brought with it a great deal of technical assistance and some financial
clout.

The Reserve Bank is a different kettle of fish – he is alone, held
nationally responsible for the countries monetary and foreign exchange
policies and has inherited a seat that has traditionally been simply a
doormat for the President. The place is a mess and the financial industry is
floating on a sea of bad loans made to people with political connections.
Years of low interest rate policies and skewed exchange rates has led to
massive speculation, huge profits in fledgling financial institutions and
fraud.

With typical energy Gono reached out into the community and got together a
team of experts to advise him on what to do. They did their best and after a
couple of weeks came up with a 114 page statement that reads a bit
amateurish but contains the essence of what was needed to get a very sick
financial situation right. Generally the statement was given a positive
reception everywhere except in financial circles – here it triggered a great deal of nervousness. Was the Governor serious? Could he really enforce these restrictions and ideas? He was serious and yes – he could enforce these ideas.

What everyone lost sight of was that the Zanu PF gravy train was now a
runaway train – it no longer had a driver in charge. In effect what Gono did was to put a log across the rail tracks and he thereby derailed the train. In fact what was needed was a new driver and a steady push on the brakes to bring the train under control before unloading the passengers to safety or prison.

The result was a huge accident – the stock market collapsed by 50 per cent
in three weeks. Interest rates shot up from a nominal level of below 100 per cent per annum to over 900 per cent as firms desperately sought liquidity and the more marginal institutions – among them 8 commercial banks, started to fail to clear their obligations on a daily basis. Firms opened after the new-year holidays and were unable to access their cash resources and pay creditors. Some 70 asset management companies – thriving on the speculative gold mine created by the loose state fiscal and monetary policies – began to wobble. One of the largest collapsed with over Z$60 billion in cash missing from its books (over 30 per cent of the total assets invested with the firm).

We watched astonished as the State hauled previous “untouchables” in front
of magistrates and the Police ran around collecting luxury vehicles from the homes of prominent Zanu PF businessmen. The whole edifice of Zanu PF
sponsored business teetered on the edge of collapse and ignominy. How long
can Gono or his new policies survive, we asked ourselves?

Well the answer was not long in coming – although I was surprised that it
took so long to elicit a response, because in these matters speed is of the
essence. On Friday (yesterday) Gono gave in and announced that he was
advancing “unlimited credit” to the banking sector at 30 per cent interest.
He added that the banks that had revealed their inherent weaknesses had
three months to get themselves right or face closure. The Reserve Bank
liquidated one merchant bank and has taken over the management of a
commercial bank. Others will follow.

Whatever he does, things will never be the same. This train is now
permanently damaged and even if they lift it back onto the rails, will not
be able to travel at anything like the speed it did before. The reason is
quite simple – the exercise has led to the collapse of public confidence in
all the new financial institutions and irrespective of the quality of the
management and the books, they will all struggle to overcome the scare of
the past month. Secondly, the whole empire of patronage built up to keep
Zanu PF in power – whatever they do to the rest of the economy, has been
severely damaged. All the “untouchables” now know they are vulnerable and
even under the protection of the Patron – are not safe.

The crisis for Zanu PF is not over with this about turn by the Governor, the renewed availability of cheap credit will further stimulate inflationary pressures. The demand for banks to get their bad debt situation under control will mean that related business organisation who have borrowed money on the never never, will now have to find the money to repay the banks or face liquidation. Many of the new farming ventures initiated by Zanu PF hierarchy using stolen assets and borrowed money without collateral, will now collapse – adding to the difficulties of the farm sector.

Fascinating! This reveals what we have suspected for a long time. Zanu PF
is just a pack of cards – stacked against the people, but when challenged,
simply collapses in ignominy and shame. Leaving the rest of us to pick up
the pieces and clear up the mess.

Eddie Cross
Bulawayo, 10th January 2004

xxxxx Sign Up