By Kernan Mzelikahle
On the 07th of May 2020, Econet (through its Ecocash Services) announced that it received a directive to freeze accounts that have money in them exceeding ZWL $ 100,000.
The statement reads in part “Ecocash wishes to advise that we received a directive from the Reserve Bank of Zimbabwe and the Financial Intelligence Unit of Zimbabwe to the effect that all agents with transaction limits of over ZWL $100,000 per month should have their accounts frozen with immediate effect …”. The statement went on to list a number of legal entities that are exempt from the directive.
The listed exempt legal entities are “Banking Institutions, Bureaux de changes, ZSE listed companies, International Organisations, Microfinance Institutions, and Government and Quasi Government Institutions”, otherwise every other agent’s account(s) stands frozen as per this directive.
While it may be argued what the term “agent” means with respect to this directive, the effect of the directive does not change.
The effect is that the RBZ issued a blanket directive to freeze accounts without due process.
In fact, Econet has filed an urgent court case appealing to the courts that the directive by the RBZ prejudices its customers.
A cursory look at the figure ZWL $100,000 may intimidate people to think that these account holders are dealing with large sums of money. At the official exchange rate (pegged by RBZ), this money translates to USD $4000.
However, at the going parallel exchange rate, the money in question is merely USD$2000. To put in context, in the year 2010, the ATMs at banks could withdraw in one transaction, cash to the tune of USD$2000 without questions asked.
However, today, possession of USD$2000 in your Ecocash wallet gets your account frozen.
What does this mean? Imagine an entrepreneur who has been working since January, legally selling goods and services.
This entrepreneur is up to date with his taxes, and has been accepting Ecocash transfers. Now his balance sits somewhere north of 100,000. He was forced to close shop because of the COVID-19 induced national lockdown.
He is hopeful that once the national lockdown is over, he will take his money in Ecocash wallet and order more goods in order to restock.
Suddenly, he wakes up with his account frozen. Even if the situation later-on resolves, perhaps through the courts judging in favour of Econet, or even through the RBZ rescinding its directive, there are a number of questions the entrepreneur will be faced with. Some of which are:- (a) Is it safe to keep money in mobile wallets?, (b) should my business be accepting mobile money as payment for goods and services?, (c) how much risk is associated with keeping money in mobile wallets?, (d) how long will it take before such blanket freezes are directed towards traditional bank accounts?, and (e) how much premium should my business be charging in order to offset this environmental risk? Whatever the answers this entrepreneur comes up with, two things are for sure, that is; electronic money in Zimbabwe carries a huge risk, and there is an extra 2 percent tax charged atop.
It therefore follows that this entrepreneur will have to force his clientele to pay in cash. Certainly, cash carries less risk; unless of course, if one takes a video of himself with the cash. The same RBZ will be on a manhunt, to wrestle that money away from you.
Hiding the money
On the same day (the 07th of May), the RBZ sent out a circular hunting for a man who took himself a video flouting with his money.
Apparently, having cash is offensive to the RBZ. This means our entrepreneur will have to hide the money carefully.
Given that much of the goods traded on the local market are imported, it goes without say that our entrepreneur will be forced to charge in hard currency, and if he has any Zimbabwe Dollars, will have to approach the parallel market for forex trading.
This is not because the entrepreneur is not patriotic, no! Rather, the entrepreneur is simply minimising risk, lest he be arrested by the Financial Intelligence Unit for possessing money exceeding some arbitrary limit. Clearly, Zimbabwe is not open for business. How can people’s accounts be frozen for as little as USD$2000.
Now, let’s turn to foreign investors. Any company that has to do business in any environment carries out a feasibility study. With such arbitrary freezes, how can an investor in his right sense of mind pour out his money into such a volatile environment?
Increase in Risk
Clearly, the RBZ, acting on behalf of the government, is one of the risk amplifiers in the Zimbabwean business environment. Prices will certainly have to go up in order to account for the increase in risk.
Every business player is going to attempt to empty out Electronic balances in order to horde hard cash. This means that the USD exchange rate is going to shoot up, and the Zimbabwe Dollar further lose its value. In fact, the resultant of the RBZ’s actions is not to improve the standing of the Zimbabwe Dollar.
Quite contrary, such actions are worsening the loss of confidence in the Zimbabwe Dollar, hence its value further plummet. The RBZ couldn’t have chosen a worse timing. Its confidence-killing actions are coming just weeks before it pumps in new notes into the market.
Effectively, the RBZ is single handedly crushing the Zimbabwe Dollar by literally pressing it against the anvil of low confidence and the proverbial hammer of increase in money supply.
In conclusion, if local people and local entities can not freely conduct business, how could foreign investors have confidence to invest their money?
Even China has no confidence, hence its insistence on bilateral agreements. Sadly, Zimbabwe is closed for Business, despite the hype.
Kernan Mzelikahle is an apolitical analyst, and may be contacted by cellphone on +263775195334, or by email on email@example.com, twitter handle is @Mzelikahle. This article and others like it may be found on Mthwakazi Forum website: sites.google.com/view/mthwakaziforum
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