The recent announcement to use Presidential powers to block creditors from suing the Reserve Bank of Zimbabwe (RBZ)sets a dangerous precedent which will poison the business environment in Zimbabwe. The RBZ is a separate legal entity which has rights and obligations. It can sue and can be sued, the law is clear in that regard. Whilst there maybe need to preserve the RBZ it should be done through the normal procedure such as the appointment of a Curator or Judicial manager who will assess the Institution’s true and accurate financial position before developing a repayment plan on how creditors can be repaid. The RBZ has both assets and liabilities but these remain a mystery and un-quantified the use of Presidential powers only deepens the mystery over these debts and how they were incurred.
A judicial manger should be appointed to compile a comprehensive list of all creditors and debtors. The RBZ may be in a position to fully repay all its creditors if all the debtors who owe the Institution are held accountable. At this stage its premature task the Treasury to inject fresh capital before the RBZ books are properly audited with debts and assets properly accounted for.
The RBZ needs a fresh start to regain its credibility and to become an effective Authority over the financial sector. The best way to do this is to make the RBZ accountable and transparent this is how public and investor confidence can be regained not the reliance of some ad-hoc as per need rule bending and shifting as demonstrated by the ill advised use of the Presidential powers. The reliance on Presidential powers to protect state related entities in the long run damage their credit rating and ability to do business with Private entities. This is undesirable given Zimbabwe’s desperate need to attract foreign and private capital.
The Government gazette released on Friday 25 June 2010, states that any legal proceedings against the RBZ will be suspended for the next six months. The regulation means that all RBZ creditors who have been seeking recourse in the courts to force the RBZ to pay its debts will not be entertained in the courts in the next six months. This will likely cripple suppliers who are owed millions after supplying farming equipment, vehicles and other farming inputs.
According to media reports “The regulations were cited as the "Presidential Powers (Temporary Measures) (Amendment of the Reserve Bank of Zimbabwe Act) Regulations , 2010" titled 63B Legal Proceedings against Bank. The Presidential powers in Zimbabwe were notoriously used to detain entrepreneurs, take over banks and take over businesses. Their repeated use to solve commercial and business matters raises questions about Zimbabwe’s business operating environment. The frequent use of these regulations scare potential investors and raise the country’s political risk profile. The net effect is increased risk premium on capital cost which makes it difficult for Zimbabwe domiciled businesses to access global financial markets.
"The State Liabilities Act [Chapter 22:13] applies with necessary changes to legal proceedings against the Bank, including the substitution of references therein to a minister by references to the governor," read the gazette released on Friday 25 June 2010.
"These regulations apply to proceedings against the Reserve Bank of Zimbabwe that are pending on the date of commencement of these regulations.". Whilst this move may temporarily stop creditors it will not solve the underlying problems bedeviling the Zimbabwe Central Bank. The RBZ remains undercapitalized to carry out its functions. It can not pay its staff salaries. Its not in position to pay retrenchment packages in an effort to reduce its reported 4,000 plus workforce.
The Government of National Unity must be seen to be moving away from the past practice whereby the Government was constantly meddling in business, commerce and financial sector undermining confidence and scaring potential partners and investors .Zimbabwe should move in line with International practice and allow the Central Bank to develop some level of independence based on transparency and solid financial foundation. This can be done through full accountability of the RBZ’s current financial position and a real attempt made to ensure that those who owe the RBZ come up with repayment plans for the vehicles , inputs and equipment they accessed under various schemes.
This article appears as courtesy of GMRI Capital ( http://www.gmricapital.com ) prepared for 3MG MEDIA
Gilbert Muponda is a Founder and CEO of GMRI Capital ( http://www.gmricapital.com ). He can be reached at;
Email: gilbert@gilbertmuponda.com . Skype ID: gilbert.Muponda
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