by Tendai Ruben Mbofana
Last week, I had an opportunity to have a conversation with a local entrepreneur in the haulage business.
To say he was not a happy man would be putting it lightly.
He was gravely disappointed, dejected, and filled with uncertainty as to where his trucking company was going.
As with every business, loans are an essential cog in their operations – whose availability or lack of can easily be the difference between its survival or demise.
The man was in desperate need of a loan in order to cover some operational costs and fund further expansion.
However, there was a huge problem.
Zimbabwe banks were no longer availing any loans in the more stable and reliable US dollar – thereby posing an imminent treat to the continued survival of many companies – including the man’s haulage enterprise.
He had even begun the process of selling off some of his trucks to offset costs and debts.
No wonder he was distraught – as should be the case with thousands of other entrepreneurs across the country caught in the same sad predicament.
Is the provision of loans actually not the core business of any banking operation – where they derive the bulk of their profits from interests charged?
Surely, did this move not also place the banks themselves in danger of collapsing?
Let us remember that, due to the volatile and unstable nature of the local currency, the greenback (as legal tender in our multi-currency economy) now constitutes 94 percent of all bank loans.
Therefore, it goes without saying that the withdrawal of such a facility risked pushing most businesses out of operation.
As a consequence, the Zimbabwean economy itself was in real danger.
So, why had banks stopped issuing loans in US dollars?
Simply put, the government of Zimbabwe in June last year, had, under Statutory Instrument (SI) 118A of 2022, provided for the multi-currency system to run until the end of 2025, in line with NDS1 (National Development Strategy 1).
In so doing, there was relative confidence and stability in the issuance of loans in US dollars – which gave both banks and entrepreneurs some sleep at night.
With two more years to go till 2025, surely there was no need for anyone to start panicking.
Nevertheless, there was a lot of panic.
This was largely on account of President Emmerson Dambudzo Mnangagwa’s own statements, whereby he repeatedly threatened to ban the use of the US dollar in the country.
As a matter of fact, this would not have been the first time this had happened – since, in 2019, the government of Zimbabwe not only reintroduced the useless despised local currency, but also declared it the sole legal tender.
The effects were immediate!
Savings, insurances, and investments, which had been in the US dollars, were converted into the Zimbabwe dollar (at ZW$3.5 to US$1) – thereafter losing their value in spectacular fashion.
By the end of January 2020, the exchange rate has soared to ZW$25 to US$1.
As we speak today, the official exchange rate peaks at ZW$5,694 to the greenback, and ZW$7,000 on the parallel market.
It then makes so much sense that the market would get jittery at the thought of returning to the mono-currency system.
This is more so on the part of banks who stand to lose in a phenomenal way should they offer loans in US dollars today, only for them to be repaid in an unstable and inconsistent Zimbabwe dollar.
That is why they have understandably ceased availing loans in the greenback.
Nevertheless, with two years still to go until the period stipulated by Statutory Instrument (SI) 118A of 2022, there would have been absolutely no need to panic had Mnangagwa not made his ill-advised threats.
In actual fact, I first heard these threats during his interview with the state broadcaster (ZBC) around June this year.
Common sense should have dictated that the pliable state media journalists would ask Mnangagwa about the possible dire consequences of such a move.
However, true to nature and to be expected, they all giggled like little girls, as if such a terrifying and potentially harmful comment was funny and entertaining!
This was repeated, especially during the election campaign season – as Mnangagwa’s administration sought to force the nation into accepting and using the local currency as a way of strengthening its value.
As the situation stands today, based on official statistics by the RBZ, over 80 percent of all transactions in the country are in the US dollar.
However, command economics has never worked as people can not be forced to love or accept a currency in which they have no trust.
No one in their right mind would willingly keep or accept to be paid in a currency whose value erodes each and every day, and which is even no longer accepted as legal tender by most small establishments (which constitute 70 percent of all businesses in Zimbabwe).
Nonetheless, the greater economy was at risk of collapsing due to these threats by Mnangagwa – predominantly as a result of the earlier mentioned withdrawal of US dollar loans by banks.
It would not have made any sense at all for banks to give out US dollar loans when there was no guarantee that the currency will still be legal tender the following day – in spite of Statutory Instrument (SI) 118A of 2022 which gave a timeline to the end of 2025.
In a country where there are always contradictions, with a government that can just wake up tomorrow and change the law, there was every reason for banks to be wary.
As it turns out, on Friday, 28th October 2023, Mnangagwa promulgated Statutory Instrument (SI) 218 of 2023, which extended the multi-currency system to the end of 2030.
That may be a most welcome development, in finally bringing clarity to this issue – but the damage has already been done.
The very fact that Mnangagwa saw it necessary to enact such a law a whole two years before the expiry of Statutory Instrument (SI) 118A of 2022 shows that he is fully aware of the harm and uncertainty caused by his own reckless statements.
There would have been absolutely no need for this rushed law had the president not sowed this alarm and panic in the economy.
As a leader, he should have known better!
He is supposed to be the anchor of our nation, giving the people hope, light, and direction – even in times of confusion and apprehension.
We certainly do not expect him to be the one actually causing that confusion and apprehension!
Already, quite a significant number of businesses have been adversely affected by this panic and uncertainty – especially due to the withdrawal of US dollar loans by banks.
As I was listening to the news broadcast on the latest announcement by Mnangagwa, I could not help wondering if this had come a bit too late for the entrepreneur I met last week.
Will he still be able to keep his trucking company afloat and salvage whatever little he still has left – having already begun selling off some of his trucks to pay off his expenses?
All this is because we have a president who loves governing the country through threats!
It is so irresponsible, wrong, and unfair!
● Tendai Ruben Mbofana is a social justice advocate and writer. Please feel free to WhatsApp or Call: +263715667700 | +263782283975, or email: email@example.com, or visit website: http://mbofanatendairuben.news.blog/