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+{"doc_id": "1d498e7a48f68d495aed65db37139ffa", "text": "JANUARY 2015 \n \nMONETARY POLICY STATEMENT \n \n \n \n \n \n \n \n \n \nRebalancing the Economy \nThrough Competitiveness and Compliance \n \n \n \n \n \n \n \nBY \n \nDR. J. P. MANGUDYA \nGOVERNOR \nRESERVE BANK OF ZIMBABWE \n2 \n \nCONTENTS \n \nINTRODUCTION \n \n \n \n \n \n \n \n \n \n 4 \nGLOBAL ECONOMIC DEVELOPMENTS \n \n \n \n \n \n \n 7 \nBALANCE OF PAYMENTS DEVELOPMENTS \n \n \n \n \n \n11 \n \nTrade Balance \n \n \n \n \n \n \n \n \n13 \n \nCurrent, Capital and Financial Account Development \n \n \n \n16\n \nOverall Balance of Payments Position \n \n \n \n \n \n17 \nDOMESTIC ECONOMIC DEVELOPMENTS \n \n \n \n \n \n17 \n \nDomestic Output \n \n \n \n \n \n \n \n \n17 \n \nInflation \n \n \n \n \n \n \n \n \n \n18 \nDeflation (Price Correction) not Deflation \n \n \n \n \n \n19 \nInflation Outlook \n \n \n \n \n \n \n \n \n20 \nFINANCIAL SECTOR DEVELOPMENTS \n \n \n \n \n \n \n20 \n \nStructure and Performance \n \n \n \n \n \n \n \n20 \n \nCapitalisation \n \n \n \n \n \n \n \n \n21 \nSector Profitability \n \n \n \n \n \n \n \n \n23 \n \nFinancial Intermediation (Deposits & Loans) \n \n \n \n \n23 \n \nSectorial Distribution of Loans & Advances \n \n \n \n \n24 \n \nPerformance of Microfinance Sector \n \n \n \n \n \n25 \nFinancial Inclusion \n \n \n \n \n \n \n \n \n26 \nNon-performing Loans \n \n \n \n \n \n \n \n28 \nFinancial Stability \n \n \n \n \n \n \n \n \n28 \nDistressed Banks \n \n \n \n \n \n \n \n \n29 \nTetrad Investment Bank \n \n \n \n \n \n \n \n30 \nMetbank \n \n \n \n \n \n \n \n \n \n30 \nAfrAsia Bank Zimbabwe Limited \n \n \n \n \n \n \n31 \nSTATUS OF RBZ SUBSIDIARIES \n \n \n \n \n \n \n31 \n \nExport Credit Guarantee Corporation (ECGC) \n \n \n \n \n31 \n \nHomelink \n \n \n \n \n \n \n \n \n \n32 \n \nFidelity Printers and Refiners \n \n \n \n \n \n \n33 \n \nAurex \n \n \n \n \n \n \n \n \n \n35 \nPROGRESS ON BANKING SECTOR REFORMS AND INITIATIVES \n \n \n35 \n \nAmendments to Banking Act \n \n \n \n \n \n \n35 \n \nBasel II Implementation \n \n \n \n \n \n \n \n36 \n \nResolution of Non-performing Loans under ZAMCO \n \n \n \n37 \n \nConsumer Protection \n \n \n \n \n \n \n \n39 \n \nCapitalisation of the Reserve Bank \n \n \n \n \n \n \n39 \n \nCredit Reference Bureau (CRB) \n \n \n \n \n \n \n40 \n \nEnhancement of the Guideline on Relationship with External Auditors \n \n41 \n \nSmall Denomination Coins, Bond Coins \n \n \n \n \n \n42 \nPOLICY MEASURES \n \n \n \n \n \n \n \n \n43 \nCONFIDENCE AND PRODUCTION ENHANCEMENT MEASURES \n \n \n44 \n \nDemonetisation of the Zimbabwe Dollar \n \n \n \n \n \n44 \n \nDistribution of Bond Coins \n \n \n \n \n \n \n \n45 \n \nChanging Rand Coins for Bond Coins \n \n \n \n \n \n45 \n \nBank Charges & Lending Margins \n \n \n \n \n \n \n46 \n \nLowering Cost of Access to Banking Services \n \n \n \n \n47 \n \nUS$200 Million Interbank Facility \n \n \n \n \n \n \n48 \n \nHarnessing Diaspora Resources for Economic Recovery \n \n \n \n48 \n \nAccelerated Gold Production Initiative \n \n \n \n \n \n50 \n \nEnhanced Coal Production \n \n \n \n \n \n \n \n52 \n \nPlatinum Refinery Project \n \n \n \n \n \n \n \n53 \n3 \n \n \nRehabilitation of the Manufacturing Sector \n \n \n \n \n52 \nLIBERALIZATION AND COMPLIANCE MEASURES \n \n \n \n \n54 \n \nIncrease in the Free Threshold on External Loans \n \n \n \n \n54 \n \nExtension of Amnesty on Non-recoverable Export Receipts \n \n \n55 \n \nExport Facilitation \n \n \n \n \n \n \n \n \n56 \n \nInward and Outward International Remittances \n \n \n \n \n56 \nBusiness Partner Numbers \n \n \n \n \n \n \n \n58 \nImport Documentation Requirements \n \n \n \n \n \n58 \nLimit on Advance Payments for Imports \n \n \n \n \n \n58 \nUse of Free Funds \n \n \n \n \n \n \n \n \n60 \nAcquittal of Import Bills of Entry \n \n \n \n \n \n \n61 \nAcquittal of Service Payments \n \n \n \n \n \n \n61 \nPenalty Fee for Non-acquittal of Import Bills of Entry \n \n \n \n61 \nValidation of Imports \n \n \n \n \n \n \n \n62 \nCompliance Awareness \n \n \n \n \n \n \n \n62 \nPOLICY ADVICE \n \n \n \n \n \n \n \n \n \n63 \n \nTourism Development \n \n \n \n \n \n \n \n63 \nPricing of Tourism Services Using a two Tier System \n \n \n \n64 \nTrading Wage Freeze for Price Reduction \n \n \n \n \n \n66 \nAddressing Cost Drivers for Competitiveness \n \n \n \n \n67 \nRedefining the Poverty Datum Line \n \n \n \n \n \n70 \nAmendments to the Labour Act \n \n \n \n \n \n \n71 \nEmpowerment Through Linkage Programmes \n \n \n \n \n71 \nConclusion \n \n \n \n \n \n \n \n \n \n72 \n \n \nTABLES \nTable 1: \nGlobal Economic Growth (%) \n \n \n \n \n \n 8 \nTable 2: \nInternational Commodity Prices for 2014 \n \n \n \n \n 9 \nTable 3: \nInternational Commodity Prices for January 2015 \n \n \n \n10 \nTable 4: \nZimbabwe’s Mineral & Total Export Earnings: 2009-2014 \n \n \n12 \nTable 5: \nGlobal Foreign Exchange Receipts & Payments \n \n \n \n13 \nTable 6: \nCore Capital Levels as at 31 December 2014 \n \n \n \n22 \nTable 7: \nGold Bought and Refined by Fidelity in 2014 \n \n \n \n35 \nTable 8: \nRegional Comparison on Advance Payments \n \n \n \n60 \nTable 9: \nSelected Macroeconomic Indicators 2014 (US$) \n \n \n \n69 \n \n \n \n \nFIGURES \nFig 1: Commodity Price Indices (2005=100) \n \n \n \n \n \n11 \nFig 2: Zimbabwe Inflation & ZAR/US Dollar Exchange Rate Profiles \n \n \n14 \nFig 3: Implied REER and Nominal Effective Exchange Rates for Zimbabwe (Jan 2009=100) 15 \nFig 4: General Merchandise Trade (US$ Million) \n \n \n \n \n \n16 \nFig 5: Overall balance of Payments (US$ million) \n \n \n \n \n17 \nFig 6: Annual Inflation Profile (%) \n \n \n \n \n \n \n19 \nFig 7: M3 Annual Growth Rate and Level \n \n \n \n \n \n \n24 \nFig 8: Structure and Level of Domestic Credit \n \n \n \n \n \n25 \nFig 9: 2011 and 2014 FinScope Survey Results \n \n \n \n \n \n27 \nFig 10: Trends for Non-Performing Loans from 2009 to December 2014 \n \n \n28 \nFig 11: Gold Production for 2013 and 2014 (kgs) \n \n \n \n \n \n34 \nFig 12: Fidelity ZimGold \n \n \n \n \n \n \n \n \n51 \n4 \n \nINTRODUCTION \n \nThis Monetary Policy Statement is issued, in terms of Section 46 of the \nReserve Bank of Zimbabwe Act [Chapter 22:15] at a time the nation is in \nneed \nof \nsolutions \nto \naddress \nthe \nintertwined \nchallenges \nof \nuncompetitiveness, low productivity and lack of confidence (or war of \nnegative perception) besetting the economy. \n \nThe major causes of uncompetitiveness of local products are the higher \ncosts of production emanating from high mark-ups to sustain high \noverheads epitomised by high utility tariffs, finance charges and wages \nand salaries which are higher than those obtaining in neighbouring \ncountries and beyond. In addition the continued appreciation of the US$ \nagainst the country’s major trading partners’ currencies has made imports \ncheaper thereby making local goods uncompetitive. \n \nThe combination of the above uncompetitive factors has continued to put \npressure on the balance of payments position of the country as imports \nof finished goods have become the order of the day leading to company \nclosures and job losses. Lack of competitiveness therefore needs to be \nurgently addressed across all sectors of the economy. \n \nMonetary Authorities’ response to the national challenge of lack of \ncompetitiveness due to high mark ups has been to procure the small \ndenomination coins, bond coins, as change for the US$ paper money to \ndeal with the rounding up of prices by businesses. The introduction of \nsmall denomination coins is beginning to have a positive impact on the \nprices of goods and services. The appreciation of the US$, on the other \n5 \n \nhand, is outside the influence of monetary policy and should therefore be \ntaken as a fait accompli. It can only be addressed through higher \nproductivity and enhancing competitiveness which I will address later in \nthis Statement. \n \nGiven the lack of competiveness and its negative effects on the economy, \nwe do not see any room for wage and salary increases within the national \neconomy. Instead, the prevailing circumstances call for a downward \nadjustment in the prices of goods and services in order to promote \ncompetitiveness and ultimately for the recovery of the economy. Further \nwage and salary increases would only serve to choke the economy. \n \nThus, instead of addressing the welfare of consumers (including workers) \nfrom the demand side of the equation i.e. by increasing wages and \nsalaries, I am advocating to address the uncompetitiveness challenge \nfrom a supply side of the equation i.e. for the reduction in prices to \nincrease the purchasing power of the US$. Hence, apart from the inability \nof the economy to carry additional demand burden or load, I am \nconvinced that the economy and consumers would benefit more from a \nprice reduction than from increasing wages and salaries for obvious \nreasons, chief among them being money illusion. Lower prices would \ninduce more demand through the concept of price elasticity of demand \nwhich is good for both consumers and businesses and leading to the \nrebalancing of the economy. \n \nThe second challenge of low productivity is closely related to lack of \ncompetitiveness. Low productivity is attributable to a combination of poor \nwork ethics (poor work attitudes and lack of discipline) and the use of \n6 \n \nantiquated plant and machinery within the domestic economy due to lack \nof capital or financial resources to replace the old equipment. This \nchallenge would need to be partly addressed by amending the Labour Act \nin order to bring it in sync with regional and international best practice to \nfoster productivity. At the same time, mobilisation of financial resources \nfor the modernisation of plant and equipment is also critical. As Monetary \nAuthorities, we are doing our part in mobilising the required resources by \nthe economy to upgrade some of the obsolete equipment. In addition, \nthe sluggish performance of the utilities sector both in terms of cost and \nsupply, especially energy inefficiency, is having a negative impact on \nproductivity \n \nThe third challenge of lack of confidence reflects the war of negative \nperception which increases country risk that has negative effects on \nliquidity and causes despair and despondency amongst many people \nwithin the country. Government is addressing this phenomenon by \nimproving the business investment climate to ensure that Zimbabwe is a \ngood investment destination and to promote the ease of doing business \nin the country. The Reserve Bank is buttressing these Government \ninitiatives by engaging the Diasporans through various outreach \nprogrammes to encourage the Diasporans to invest in their country like \nwhat is happening throughout the world. \n \nAs already stated in my previous Monetary Policy Statement, the above \nchallenges that the economy is facing are not insurmountable. I see \nZimbabwe as an ‘awakening giant’, ready to embrace the ‘Africa Rising’ \nnarrative. The awakening is achieved through rebalancing, recalibrating \nor resizing of the economy which requires the nation to concentrate on \n7 \n \ncompetitiveness and compliance boosting drivers under a positive motto \nthat ‘Zimbabwe is back’ in business. \n \nIn line with the objectives of the Zimbabwe Agenda for Sustainable Socio-\nEconomic Transformation (ZimAsset), we have identified in this Monetary \nPolicy Statement key focus sectors for improving the external financial \nposition (i.e. foreign exchange generation to shore up the much needed \nliquidity) of the country. These are mining, (gold, diamonds, platinum, \nchrome and coal); tourism; horticulture, tobacco and the Diaspora. \nAgriculture remains critical for food security and supplying inputs to the \nmanufacturing sector. The manufacturing sector’s central role, on the \nother hand, should substantially be viewed as spearheading value addition \nand beneficiation that is necessary for economic recovery. \n \nGLOBAL ECONOMIC DEVELOPMENTS \n \nGlobal economic activity remained subdued in 2014, as the world \neconomy experienced a slower growth rate of 3.3% in 2014 (same as in \n2013) against the initially projected 3.7 %. Economic activity was weighed \ndown by the intensification of geo-political tensions between the Russian \nFederation and Ukraine, as well as political instability in the Middle East \nand North Africa. \n \nNotwithstanding these downside risks, advanced economies grew from \n1.4% in 2013 to an estimated 1.8 % in 2014, largely underpinned by a \nrebound in economic activity in USA. In addition, supportive quantitative \neasing, robust labour market reforms, revival in investment, and a \nreduction in the pace of fiscal tightening, increased contributions from net \nexports and the stabilization of domestic demand, spurred economic \n8 \n \nrecovery in the Euro-area. The recovery in advanced economies, albeit in \nan uneven manner, was attributed to the expansion in aggregate demand. \n \nIn emerging markets and developing economies, activity is estimated to \nhave slowed down from 4.7 % in 2013 to 4.4 % in 2014. Notably, the \nweakening of economic activity in China, from 7.8 % in 2013 to 7.4 % in \n2014, combined with heightened political tension in Thailand, contributed \nto the downside risks to recovery prospects in emerging market \neconomies. \n \nReflecting the deceleration of economic activity in China, one of the \nworld’s largest commodity consumers, international commodity prices \nretreated in 2014 as shown in Tables 1,2 and 3 and Figure 1. \n \nTable 1: Global Economic Growth (%) \n \n2013 \n2014 \n2015 \nProjection \n2016 \nProjection \nWorld Output \n3.3 \n3.3 \n3.5 \n3.7 \nAdvanced Economies \n1.4 \n1.8 \n2.4 \n2.4 \nUS \n2.2 \n2.4 \n3.6 \n3.3 \nEuro-Area \n-0.5 \n0.8 \n1.2 \n1.4 \nJapan \n1.6 \n0.1 \n0.6 \n0.8 \nEmerging Market & \nDeveloping Economies \n4.7 \n4.4 \n4.3 \n4.7 \nChina \n7.8 \n7.4 \n6.8 \n6.3 \nIndia \n5.0 \n5.8 \n6.3 \n6.5 \nSub-Saharan Africa \n5.2 \n4.8 \n4.9 \n5.2 \nLatin America & the \nCaribbean \n2.8 \n1.2 \n1.3 \n2.3 \nSource: World Economic Outlook Update, January, 2015 \n \nAgainst the background of declining international commodity prices, \neconomic growth in Sub-Saharan Africa, declined from 5.2% in 2013 to \n9 \n \n4.8% in 2014. This notwithstanding, growth patterns in the sub-region \nremained uneven. For instance, in South Africa, economic growth in 2014 \nwas constrained by recurrent industrial tensions and delays in fixing \ninfrastructure gaps, including electricity constraints. In contrast, economic \nactivity remained resilient in Nigeria, despite poor security conditions and \na decline in oil production. \n \nIn addition, commodity dependent economies, particularly in Sub-Saharan \nAfrica, including Zimbabwe, have experienced reduced export revenues, \nand deterioration in their balance of payments positions. \n \nTable 2: International Commodity Prices for 2014 \n2013/2014 \nGold \nPlatinum \nCopper \nNickel \nCrude Oil \nUS$/oz \nUS$/oz \nUS$/tonne \nUS$/tonne \nUS$/barrel \n2013 \nAverage \n1,411.46 \n1,486.55 \n7,332.10 \n15,031.80 \n108.86 \nJanuary \n1,244.27 \n1,420.95 \n7,291.47 \n14,101.25 \n107.42 \nFebruary \n1,299.58 \n1,409.53 \n7,149.21 \n14,203.55 \n108.81 \nMarch \n1,336.08 \n1,451.62 \n6,650.04 \n15,678.10 \n107.40 \nApril \n1,298.45 \n1,430.33 \n6,673.56 \n17,373.60 \n107.79 \nMay \n1,288.74 \n1,456.27 \n6,891.13 \n19,401.08 \n109.68 \nJune \n1,279.10 \n1,452.76 \n6,821.14 \n18,628.81 \n111.87 \nJuly \n1,310.59 \n1,492.18 \n7,113.38 \n19,117.65 \n106.98 \nAugust \n1,295.13 \n1,446.33 \n7,001.84 \n18,600.20 \n101.92 \nSeptember \n1,236.55 \n1,359.48 \n6,872.22 \n18,034.80 \n97.34 \nOctober \n1,222.49 \n1,259.76 \n6,737.48 \n15,812.37 \n87.27 \nNovember \n1175.33 \n1208.32 \n6712.85 \n15807.05 \n78.44 \nDecember \n1200.62 \n1215.32 \n6446.45 \n15962.05 \n62.33 \n2014 \nAverage \n1,265.58 \n1,383.57 \n6,863.40 \n16,893.38 \n98.938 \nChange (%) \n-10 \n-7 \n-6 \n12 \n-9 \nWorld Bank Commodity Price Data \n \n \n \n \n10 \n \nTable 3: International Commodity Prices for January 2015 \nPeriod \nGold \nPlatinum \nCopper \nNickel \nCrude Oil \n2015 \nUS$/ounce \nUS$/ounce \nUS$/tonne \nUS$/tonne \nUS$/barrel \n2-Jan \n1,178.13 \n1,200.50 \n6,305.00 \n14,875.00 \n56.10 \n9-Jan \n1,214.50 \n1,223.00 \n6,150.50 \n15,430.00 \n50.54 \n16-Jan \n1,267.88 \n1,259.50 \n5,720.00 \n14,355.00 \n49.48 \n*Average (16 Jan) \n1,220.79 \n1,227.68 \n6,044.59 \n14,921.82 \n50.49 \nSource: World Bank Commodity Price Data \n \nGoing forward, global economic activity is expected to improve from 3.3% \nin 2014 to 3.5% and 3.7% in 2015 and 2016, respectively. The rebound \nin global activity is underpinned by expected re-acceleration of economic \nactivity in advanced economies (2.4%) and USA (3.6%), compared to \n1.8% and 2.4%, respectively in 2013. Economic activity in Emerging \nMarkets and Developing Economies and Sub-Saharan Africa is, however, \nprojected to remain almost the same at 4.3% and 4.7% respectively in \n2015. The decline in oil prices is expected to have a positive re-distribution \neffect from oil exporting to oil importing countries. \n \nDespite the growth impetus provided by the decline in oil prices, offsetting \neffects from economic slow-down in oil producing countries as well as the \nstagnation and low inflation in the Euro-area and Japan, global economic \ngrowth is projected to grow by 3.5% and 3.7% in 2015 and 2016, \nrespectively. The ability of the Euro-zone economies to navigate around \nthe possible threat of a deflation and stagnation through quantitative \neasing, is envisaged to shore up global economic growth. \n \n \n \n11 \n \nFigure 1: Commodity Price Indices (2005 = 100) \n \nSource: IMF Commodity Price System, 2014 \n \nBALANCE OF PAYMENTS DEVELOPMENTS \n \nGlobal economic developments continue to have a strong bearing on the \ncountry’s external sector financial position or the balance of payments \ndevelopments particularly in view of Zimbabwe’s strengthening business \nand economic ties with the rest of the world. In particular, commodity \ntrade continues to be influenced by developments in external demand and \nsupply conditions that determine price trends. This is particularly so, as \nmineral exports accounted for an average of 51% of total export earnings \nbetween 2009 and 2014 as shown below in Table 4. \n \n \n \n \n \n110\n120\n130\n140\n150\n160\n170\n180\n190\n200\n2014M01\n2014M02\n2014M03\n2014M04\n2014M05\n2014M06\n2014M07\n2014M08\n2014M09\n2014M10\n2014M11\n2014M12\nFood Price Index\nMetal Price Index\nEnergy Price Index\n12 \n \nTable 4: Zimbabwe’s Mineral & Total Export Earnings: 2009-2014 \n \n2009 \n2010 \n2011 \n2012 \n2013 \n2014 \nAverage \nShares \nMineral Exports \n659.6 \n1,568.8 \n2,126.8 \n2,189.1 \n2,055.8 \n1,905.5 \n \nTotal Exports \n1,613.3 \n3,243.7 \n4,416.3 \n3,808.2 \n3,694.2 \n3,621.3 \n \nMineral Exports/Total Exports \n41% \n48% \n48% \n57% \n56% \n53% \n51% \nSource: Zimstat and RBZ \n \nThe decline in metal prices experienced in 2014 undermined export \nearnings for most mining houses, resulting in lower fiscal revenues for \nGovernment, and further deterioration of the country’s balance of \npayments position. This development has effectively undermined the \ncontribution made by commodities to the development process. \n \nImportantly, the marked appreciation of the US dollar against Zimbabwe’s \nmajor trading currencies further exacerbated Zimbabwe’s external sector \nposition. This development increased the uncompetitiveness of \nZimbabwe’s external financial position since the appreciation of the US \ndollar makes Zimbabwe’s imports cheaper while simultaneously \nundermining the competitiveness of the country’s exports. \n \nLack of export competitiveness and a relatively high import bill combined \nwith limited access to affordable offshore lines of credit and depressed \ncapital and financial inflows resulted in the continued precarious balance \nof payments position thereby affecting the country’s ability to build foreign \nexchange reserve buffers, critical to absorb exogenous shocks. \n \nOn a total inflow (receipts) and outflow (payments) of foreign exchange \nbasis as recorded by the Reserve Bank, the country received US$7.6 billion \nand utilised US$8.9 billion in 2014 as shown in Table 5 below. \n \n13 \n \nTable 5: Global Foreign Exchange Receipts & Payments \nDescriptors \nYear 2013 \n(US$ millions) \nYear 2014 \n(US$ millions) \nGlobal Foreign Currency Receipts (Inflows) \n 7,712.4 \n 6,496.9 \nGlobal Foreign Currency Payments (Outflows) \n 8,887.1 \n 8.706.2 \nGlobal Foreign Currency Net Position \n(1,174.7) \n(2,209.3) \nIndividual Diaspora Remittances \n 794.0 \n 837.4 \nInternational Organisations Remittances \n 1,092.7 \n 919.1 \nMajor Exports: Gold \n Platinum \n Tobacco \n Diamonds \nMajor Exports as %age of Total Exports \n 566.2 \n 573.2 \n 910.3 \n 455.9 \n 67.8 \n 563.8 \n 561.8 \n 842.4 \n 396.1 \n 65.3 \nTotal FCA Balances \n 4,449.0 \n5,122.0 \n \n \nTrade Balance \nOver the period January to December 2014, the country’s merchandise \nimports amounted to US$6.4 billion, which significantly surpassed \nmerchandise exports of US$3.1 billion, culminating in a trade deficit of \nUS$3.3 billion. The subdued export performance reflected, in part, the \nretreat in international commodity prices, lack of competitiveness \nattributable to infrastructure deficits, high utility costs and high cost of \ncapital and finance. \n \nImports continued to outpace exports as the country continues to lose \ncompetitiveness due to the strengthening of the United States dollar \nagainst the currencies of Zimbabwe’s major trading partners. Figures 2 \nand 3 below show the country’s implied Real Effective Exchange Rate \n14 \n \n(REER) and Nominal Effective Exchange Rates (NEER), both of which have \nbeen appreciating since July 2011. \n \nWithin the auspices of the multiple currency system, exchange rate \ndevelopments remain beyond the country’s control. As such, the ability of \nthe country to cushion itself from the vulnerabilities attributed to real \nexchange rate developments remains a challenge on the back of limited \nfiscal space. \n \nFigure 2: Zimbabwe Inflation &ZAR/US Dollar Exchange Rate Profiles \n \n \n \n \n \n \n \n \n0.00\n2.00\n4.00\n6.00\n8.00\n10.00\n12.00\n14.00\n-6.00\n-4.00\n-2.00\n0.00\n2.00\n4.00\n6.00\n8.00\nOct-12\nDec-12\nFeb-13\nApr-13\nJun-13\nAug-13\nOct-13\nDec-13\nFeb-14\nApr-14\nJun-14\nAug-14\nOct-14\nDec-14\nZAR/US EXCHANGE RATE\nINFLATION %\nZIM INFLATION RATE\nZAR/US Rate\nSource RBZ \n15 \n \nFigure 3: Implied REER and Nominal Effective Exchange Rates1for \nZimbabwe (January 2009=100) \n \n \nThe trade deficit narrowed by 14 % from US$3.9 billion in 2013 to US$3.3 \nbillion in 2014, reflecting the positive effects of the decline in crude oil \nprices and the policies put in place by the Reserve Bank for business to \nutilize resources for bonafide transactions. \n \n1 An increase in the REER and NEER represents depreciation of the same, as the US dollar nominal exchange \nrates were indirectly quoted. Conversely, a declining trend in these exchange rate indices represents an \nappreciation. \n60.0\n70.0\n80.0\n90.0\n100.0\n110.0\n120.0\n130.0\n2009 Jan\nApr\nJul\nOct\n2010 Jan\nApr\nJul\nOct\n2011 Jan\nApr\nJul\nOct\n2012 Jan\nApr\nJul\nOct\n2013 Jan\nApr\nJul\nOct\n2014 Jan\nApr\nJul\nOct\nNEER\nREER\n16 \n \nFigure 4: General Merchandise Trade (US$ Million)\n \nSource: Zimstat \n \n \nCurrent, Capital and Financial Account Developments \n \nThe sizeable trade deficit realized in 2014, as well as outflows in the \nincome and services accounts, culminated in the incurrence of a current \naccount deficit estimated at 25% of GDP in 2014. Net inflows in current \ntransfers, though considerable, were outweighed by the deficit in goods, \nservices and income accounts. \n \nIn the absence of foreign reserve buffers, the current account has largely \nbeen financed by inflows from the Diaspora, and debt creating short term \nand long term offshore lines of credit to the private sector. The Central \nBank thus encourages acceleration of the on-going ease of doing business \nreforms in order to create an investment climate that is attractive to all \nforms of productive capital that support export growth. \n \n \n \n-400\n-200\n0\n200\n400\n600\n800\nJan\nFeb\nMar\nApr\nMay\nJun\nJul\nAug\nSep\nOct\nNov\nDec\nExports\nImports\nTrade Balance\n17 \n \nOverall Balance of Payments Position \nNotwithstanding the huge current account deficit and subdued capital and \nfinancial inflows, the overall balance of payments position is estimated to \nhave marginally improved from a deficit of US$366 million in 2013 to an \nestimated deficit of US$351 million in 2014, as shown in Figure 5 below: \n \nFigure 5: Overall Balance of Payments (US$ Million) \n \nSource: Reserve Bank of Zimbabwe \n \n \nDOMESTIC ECONOMIC DEVELOPMENTS \n \nDomestic Output \n \nReflecting the effects of adverse external sector developments on the \ndomestic economic activity, economic growth is estimated to have \ndeclined from 4.5% realised in 2013 to 3.1% in 2014. With the exception \nof the strong performance in the agriculture sector, which grew by 23.4% \nin 2014, performance in most of the sectors remained subdued. The \nagriculture sector benefited from the favourable 2013/14 rainfall season \n-4000\n-3000\n-2000\n-1000\n0\n1000\n2000\n3000\n4000\n2008\n2009\n2010\n2011\n2012\n2013\n2014\n2015\nCurrent Account\nCapital Account\nOverall Balance\n18 \n \nand support from Government and cooperating partners. This resulted in \nmore than anticipated performances by major crops like maize and \ntobacco. \n \nChallenges in manufacturing, mining and other sectors, however, \ncontinue to weigh down the economy’s growth potential. These sectors \nare estimated to have shrunk by -4.9% and -2.1% in 2014, respectively. \n \nThe decline in the manufacturing activity, reflected by the fall in capacity \nutilisation from 40% in 2013 to an estimated 36% in 2014, emanated \nfrom persistent challenges which include antiquated plant and machinery, \ninflux of cheap imports, high cost of production, and weak demand \nassociated with the prevailing liquidity constraints and imports. \n \nThe mining industry performance was set back by the general decline in \ndiamond exports, international commodity prices, frequent power \noutages, obsolete equipment and inadequate funding for recapitalization, \namong other challenges. \n \nGoing forward, the economy is projected to further grow by 3.2% in 2015, \ndriven mainly by services, mining and manufacturing sectors. Investments \nin various infrastructural projects already being implemented in electricity, \ntransport and housing, under ZimAsset are expected to provide additional \ngrowth impetus. \n \nInflation \nAnnual average inflation, which fell from 3.7% in 2012 to 1.6% in 2013, \ndeclined further to -0.2% in 2014, reflecting the dampening of inflationary \n19 \n \npressures, on the back of cheaper imports, mainly from South Africa and \nlimited access to credit lines by key productive sectors of the economy. \n \nDuring the final quarter of 2014, the economy registered an annual \ninflation rate of -0.001% in October 2014, and -0. 8% in both November \nand December 2014. The decline in annual inflation in the 4th quarter \n2014 were driven by both food and non-food inflation. Annual non-food \ninflation, which stood at 1.59% in October 2014, significantly fell to 0.17% \nin November and further to 0.13% in December 2014. \n \nFigure 6 below depicts that annual inflation has been on a downward \ntrend since the beginning of 2012. \n \n \n \nDisinflation (Price Correction) not Deflation \n \nThe Reserve Bank’s considered view is that the reduction in the rate of \ninflation in the national economy was and is a necessary process towards \ncorrecting the high prices obtaining in the country. It is disinflation and \n-6\n-4\n-2\n0\n2\n4\n6\n8\nJan-12\nFeb-12\nMar-12\nApr-12\nMay-12\nJun-12\nJul-12\nAug-12\nSep-12\nOct-12\nNov-12\nDec-12\nJan-13\nFeb-13\nMar-13\nApr-13\nMay-13\nJun-13\nJul-13\nAug-13\nSep-13\nOct-13\nNov-13\nDec-13\nJan-14\nFeb-14\nMar-14\nApr-14\nMay-14\nJun-14\nJul-14\nAug-14\nSep-14\nOct-14\nNov-14\nDec-14\n(%)\nSource: ZIMSTAT, January 2015\nFigure 6: Annual Inflation Profile (%)\n20 \n \nnot deflation. Instances of disinflation are not uncommon and are viewed \nas normal to correct some of the macroeconomic fundamentals due to \nmarket failure. The disinflation in Zimbabwe is therefore a good \ndevelopment as it increases the consumers’ purchasing power. \nDisinflation is different from a deflation phenomenon which is caused by \nbusinesses lowering prices in a desperate attempt to get consumers to \nbuy their products. \n \nIn the case of Zimbabwe, businesses are lowering prices not because of \nlower demand but because imports are coming into the country cheaper \ndue to the weakening of the major trading partners’ currencies against \nthe local unit of account, the US$. There has been a shift of demand from \nlocal products to imports due to price factor which in itself is due to lack \nof competitiveness. \n \nInflation Outlook \nIn view of the above, the country’s inflation developments are expected \nto continue to be influenced by the changes in oil and food prices as well \nas the Rand/US$ exchange rate dynamics. Broadly, inflation is expected \nto remain in the negative territory for the greater part of 2015, reflecting \nthe effects of depressed international oil and food prices, weaker \ncurrencies against the US$ and the positive effect of disinflation in the \neconomy. \n \nFINANCIAL SECTOR DEVELOPMENTS \nStructure and Performance \nThe banking sector has generally remained stable in spite of the \n21 \n \nchallenging operating environment. The challenges being faced by the \nbanking sector largely mirror the macro-economic constraints in the \neconomy. Notably, credit risk remains the most significant challenge \nfacing the banking sector, whilst liquidity constraints also compound the \nsmooth operation of some banking institutions. \n \nFollowing the closure of Capital Bank Limited and Allied Bank Limited, the \ncountry’s banking sector has gone down to 19 operating institutions, \ncomprising 14 commercial banks, one (1) merchant bank, three (3) \nbuilding societies and one (1) savings bank. In addition, there are 147 \nregistered moneylending and credit-only microfinance institutions. \n \nOn 15 January 2015, the Reserve Bank issued the first deposit taking \nmicrofinance institution licence to African Century Limited which has met \nthe stipulated minimum requirements. The institution will commence \ndeposit-taking microfinance business upon the successful completion of a \npre-opening inspection. The coming on board of deposit-taking \nmicrofinance institutions is envisaged to enhance access to financial \nservices particularly by the lower income groups of our society, thereby \npromoting a savings culture in the economy. \n \nCapitalisation \nOn aggregate, the banking sector’s core capital increased from $790.4 \nmillion as at 31 December 2013 to $811.2 million as at 31 December 2014, \non the back of improved profitability. A total of 13 out of 19 operating \nbanking institutions were in compliance with the prescribed minimum core \ncapital requirements as at 31 December 2014. The banking institutions \n22 \n \nwhich are not compliant with minimum capital requirements are instituting \nvarious measures to ensure compliance. In this regard, most banking \ninstitutions have since submitted plans indicating the preferred strategic \ngroup in which they will operate effective December 2020 and the \naccompanying recapitalisation plans which are currently being evaluated \nby the Reserve Bank. \n \nOne banking institution has already surpassed the $100 million minimum \ncapital requirement for the Tier 1 strategic group which is effective in \n2020, while 4 have capital levels above $50 million as indicated in Table \n6 below. \n \nTable 6: Core Capital Levels as at 31 December 2014 \nInstitution \nCore Capital \nCBZ Bank \n$109.81m \nCABS \n$92.82m \nStanbic \n$79.73m \nCBZ BS \n$65.54m \nBancABC \n$63.33m \nStandard Chartered \n$61.90m \nSteward \n$43.92m \nBarclays \n$41.67m \nNMB Bank \n \n$37.01m \nEcobank \n$36.89m \nMBCA \n$36.21m \nFBC Bank \n$31.84m \nFBC BS \n$29.54m \nMetbank \n$24.62m \nZB BS \n$15.58m \nPOSB \n$12.85m \nAgribank \n$12.37m \nZB Bank \n$9.56m \nAfrasia \n$6.01m \nTetrad \n($31.73m) \n \n \nGoing forward, boards and senior management of banking institutions are \nexpected to work in close collaboration with the shareholders in order to \nmeet the banks’ own interim capital growth targets. In this regard, there \n23 \n \nis need for intermediate annual targets that banking institutions should \nachieve. \n \nSector Profitability \nThe banking sector remained profitable, with an aggregate net profit of \n$52.8 million for the year ended 31 December 2014, which is well above \nthe $3.4 million reported for the same period in 2013. \n \nA total of 14 banks out of the 19 operating banking institutions recorded \nprofits for the year ended 31 December 2014. The losses recorded by the \nother banking institutions are attributed to high levels of non- performing \nloans, liquidity constraints and incapacity to generate sufficient revenue \nto cover the high operating expenses. \n \nIn order to enhance their revenues, banks are instituting revenue \nenhancing measures coupled with cost containing measures to bolster \ntheir earnings capacity, and maximize profits. \n \nFinancial Intermediation (Deposits & Loans) \n \nDespite the deceleration in economic activity and adverse external sector \ndevelopments, annual broad money (i.e. bank deposits excluding \ninterbank deposits) grew by 13.6% from US$3.9 billion in January 2014 \nto US$4,4 billion by December 2014. The growth in money supply during \nthe year, is partially attributed to the liquidity inflows related to the \ntobacco selling season earlier in the year. The 2014 tobacco selling season \nrealised over US$600 million from sales of 216 million kilogrammes of the \ncrop. \n24 \n \nAs at 31 December 2014, banking sector deposits (including interbank \ndeposits) grew by 4% to $5.1 billion, whilst loans and advances were $4.0 \nbillion, translating to a loan to deposits ratio of 78.9%. \n \nDeposits have, however, remained short-term in nature hindering \nmeaningful financial intermediation. The situation is exacerbated by \nlimited inter-bank trading, general market illiquidity and limited lender of \nlast resort function of the Reserve Bank. \n \nFigure 7 below shows the annual M3 growth, levels and structure of \ndeposits held by banks. \n \nFigure 7: M3 Annual Growth Rate and Level \n \n \n \n \nSectoral Distribution of Loans & Advances \nTotal loans and advances increased from $3.7 billion as at 31 December \n2013 to $4.0 billion as at 31 December 2014. The distribution of the \nbanking sector lending to the various sectors as at 31 December 2014 is \n-2%\n0%\n2%\n4%\n6%\n8%\n10%\n12%\n14%\n16%\n18%\n0\n500\n1,000\n1,500\n2,000\n2,500\n3,000\n3,500\n4,000\n4,500\n5,000\nMillions \nDemand\nOver 30-days\nSavings\nUnder 30-days\nGrowth\n25 \n \nas indicated in Figures 8 below. \nFigure 8: Structure and Level of Domestic Credit \n \n \n \nPerformance of Microfinance Sector \nThe Microfinance Institutions��� (MFIs’) performance as measured by \naggregate lending has largely remained subdued due to inadequate \nfunding. The sector’s total loans amounted to $151.8 million as at 30 \nSeptember 2014 down from $164.2 million as at 31 December 2013. \n \nPortfolio quality as measured by the Portfolio at Risk (PaR) (30 days) \nimproved from 21.6% as at 30 September 2013 to 12.1% as at 30 \nSeptember 2014. The noted improvement in the PaR is attributable to \nenhanced credit risk management systems in the sector. In addition, some \nMFIs are increasingly making use of credit checks. \n \nThe microfinance sector’s aggregate loan portfolio remains skewed \ntowards consumption at the expense of productive sector funding. \nConsumption lending which largely comprises salary based loans \nLight and Heavy \nIndustry\n25%\nState\n3%\nIndividuals\n21%\nTrade and Services\n2%\nAgriculture\n18%\nConstruction and \nProperty\n1%\nTransport & \nDistribution\n16%\nFinancial Services\n1%\nOther\n8%\nEnergy and \nMinerals\n5%\n26 \n \nconstituted 54.2% of total loans as at 30 September 2014. \nThe Reserve Bank has been working with the sector’s key stakeholders to \npromote productive lending. The efforts have started bearing positive \nfruits as witnessed by the increase in the proportion of productive lending \nfrom 29.1% as at 31 December 2013 to 45.6% of total loans as at 30 \nSeptember 2014. \n \nSkills and capacity of microfinance institutions remain weak. The Reserve \nBank \nis \nworking \nwith \nmicrofinance \nstakeholders \ntowards \nthe \nestablishment of capacity building programs tailored for the microfinance \nindustry. These efforts should result in the introduction of certification, \ndiploma and degree programs in microfinance in the very short-term. \n \nThere has been a notable increase in microfinance activities by \nconventional banking institutions. Banks are permitted to engage in \nmicrofinance business under the Microfinance Act [Chapter 24:29]. In line \nwith best practice, however, and in order to level the playing field, the \nReserve Bank enforces applicable microfinance regulations on banking \ninstitutions’ microfinance portfolios. \n \nFinancial Inclusion \nThe microfinance sector plays a vital role in enhancing financial inclusion \nlevels through the provision of appropriate financial services and capacity \nbuilding, particularly among the low income groups. \n \nConcerted efforts by MFIs to reach out to remote and outlying areas that \nhave not been adequately served by banking institutions as part of \nbroader financial inclusion initiatives, remains commendable. Towards this \n27 \n \nend, there were 482 MFI branches serving 220,357 clients with 252,565 \nloan accounts throughout the country as at 30 September 2014. \n \nFrom the Reserve Bank’s standpoint, it is heartening to note significant \nimprovements in the level of financial inclusion in the economy as \nreflected by the results of the 2011 and 2014 FinScope surveys, shown in \nFigure 9 below: \n \n \nSource: FinMark Trust \n \nImportantly, increased use of mobile financial services have significantly \nimproved the availability of financial products to the previously unbanked \nsegments of society. Within this context, providers of financial services \nare urged to continue embracing technology so as to reach out to \nmarginalised communities. \n \nIn addition, the introduction of agency banking by some financial sector \nplayers is also enhancing financial inclusion particularly through increased \nefficiency and customer convenience. \nFigure 9 \n28 \n \nNon-Performing Loans \nCredit risk remained a key challenge as evidenced by the average non-\nperforming loans to total loans (NPL/TL) ratio of 16% as at 31 December \n2014, compared to 20% as at 30 September 2014 as shown in Figure 10 \nbelow. \n \n \nThe decline in the NPL ratio noted over the quarter is largely attributable \nto the closure of Interfin and Allied banks and general improvement in \nloan quality in a few banks. \n \nFinancial Stability \nThe Reserve Bank is pleased to publish its maiden Financial Stability \nReport (FSR) together with this Monetary Policy Statement. \n \nThe FSR evaluates key factors and recent developments in the country’s \nbanking and financial sectors, macroeconomic conditions and the global \neconomy which affect the health and prospects of the financial system. \n0.32%\n3.55%\n3.20%\n4.24%\n6.17%\n7.35%\n12.28%\n13.47%\n15.64%\n16.96%\n18.49%\n20.45%\n15.91%\n0.00%\n5.00%\n10.00%\n15.00%\n20.00%\n25.00%\nNPLs/ Total Loans\nTrend of NPL's from 2009 to December 2014 \nFigure 10\n29 \n \nThe report is a worthwhile exercise in identifying and monitoring key \nfinancial trends and emerging risks as well as indicating the macro-\nprudential supervision challenges impacting the financial sector. Going \nforward, the report shall be produced on an annual basis. \n \nFurther, as part of enhancing its supervisory tool kit for promoting \nfinancial sector stability, the Reserve Bank shall conduct Financial Stability \nStress Tests with effect from the third quarter of 2015. These stress tests \nwill complement the current micro-prudential stress testing undertaken by \nbanking institutions using own assumptions and scenarios. The financial \nstability stress tests and banking institutions’ Internal Capital Adequacy \nAssessment Programs shall be used to inform the determination of \neconomic capital to be held by each banking institution. \n \nThe Reserve Bank shall issue standardised assumptions after adequate \nconsultations with the banking sector to promote comparability and \nensure a shared understanding of the sources of vulnerabilities by both \nsupervisors and bankers. \n \nDistressed Banks \nDuring the last half of 2014, the Reserve Bank closed two banking \ninstitutions, namely, Capital Bank Limited and Interfin Banking \nCorporation. The Reserve Bank cancelled Allied Bank Limited’s banking \nlicence on 8 January 2015, following voluntary surrender of the licence by \nthe institution’s board of directors. The surrender of the licence is against \nthe background of unsuccessful recapitalization initiatives and resultant \nfailure by the bank to trade out of solvency and liquidity challenges. The \nlegal processes to liquidate the bank have commenced. \n30 \n \nResultantly, the number of distressed banks in the sector went down to \nthree. Metbank, Afrasia Bank Zimbabwe Limited and Tetrad Investment \nBank, continue to experience some liquidity and solvency challenges. \nThese banks are, however, of low systemic importance, with market \nshares of 4.46%, 4.18% and 4.97% in terms of loans, assets and deposits \nas at 31 December 2014. \n \nThe Reserve Bank has engaged these banking institutions’ boards and \nshareholders with regards to the proposed turnaround strategies. As \nMonetary Authorities we continue to closely monitor progress in the \nimplementation of the various plans. The Reserve Bank’s objective is to \nensure that the financial sector is free from distressed banks by 30 June \n2015. \n \nTetrad Investment Bank \nThe scheme of arrangement, which the bank entered into with its \ncreditors to provide ample time to facilitate recapitalization, expired on 31 \nJanuary 2015. The bank is now under provisional judicial management \nwith a close date of 5 April 2015. \n \nMetbank \nIn an endeavour to address the current liquidity challenges at the bank, \nMetbank management and shareholders have embarked on various fund \nmobilisation strategies in order to pay out outstanding liabilities. To date, \nmost of the small depositors with balances of $10,000 or less have been \nfully reimbursed. \n \nFurther, Metbank shareholders are currently negotiating with a foreign \n31 \n \nprospective shareholder who is expected to infuse fresh capital injection \nto compliment other business strategies the bank is pursuing to stabilize \nand spur the bank to full recovery. \n \nAfrAsia Bank Zimbabwe Limited \nThe bank is currently negotiating with potential investors with the \nobjective of taking up significant equity in the institution. It is envisaged \nthat this development will be key to the institution’s various measures to \nameliorate its funding constraints. \n \nSTATUS OF THE RESERVE BANK SUBSIDIARIES \nExport Credit Guarantee Corporation \n \nExport Credit Guarantee Corporation’s (ECGC) primary objective is to \npromote growth and diversification of Zimbabwe’s export trade through \nthe provision of financial services that address the needs of exporters. \n \nECGC offers various products including the following: \ni. \nCredit insurance and guarantee services which enable exporters to \ncompete more effectively in export markets; \nii. \nExport payments insurance policy; \niii. \nExport Finance Guarantee; \niv. \nGeneral insurance; \nv. \nInvoice discounting for exporters; \nvi. \nLines of credit cover; \nvii. \nSuppliers and buyers credit insurance cover; \nviii. \nDomestic credit insurance; and \nix. \nZimra bonds. \n32 \n \nI am happy to advise that ECGC has been fully capitalised and will resume \nits operations in March 2015. ECGC is an important player in the export \nsector and will play a critical part in the growth of the Small and Medium \nScale Enterprises. \n \nHomelink \nHomelink’s role is to harness foreign currency from non-residents and \nother holders of free funds by providing products and services that meet \ninvestment and consumption needs of the Diasporans. \n \nThe actions of the company are driven by the vision to be the Leading \nGlobal Partner in Financial & Investment Solutions for Diasporans. \n \nThe company is profit making and is on a growth path. It plans to grow \nits balance sheet currently at $20 million to $100 million by December \n2017. It is structured into four (4) business units, namely Proplink, \nEasylink Money Transfer (Pvt) Ltd, Investlink and Masterlink Capital \nServices (Pvt) Ltd. \n \nProplink is dedicated to housing and stands development. Houses and \nstands are sold to the Diasporans and local customers mainly on \nmortgage. For their convenience, clients also have an option to purchase \nhouses on the open market with Proplink providing financing. \n \nEasylink Money Transfer (Pvt) Ltd is an agent of Western Union \nInternational responsible for money transfer services. Customers receive \nmoney sent from the Diaspora through the unit’s widely distributed \nbranches located in cities, towns and some outlying areas such as Gutu, \n33 \n \nChiredzi and Victoria Falls. Customers are also able to send money within \nZimbabwe through Easylink branches without the need to have a bank \naccount. \n \nThe wide geographical distribution comes as a relief to recipients who \nused to travel long distances to towns to receive their money. This is in \nline with the Central Bank’s thrust of ensuring financial inclusion to as \nmany people as possible. \n \nMasterlink Capital Services (Pvt) Ltd addresses short term financing needs \nof customers within and outside of Zimbabwe. \n \nInvestlink promotes the investment needs of the Diasporans. The unit \nscans for investment opportunities in the country; these are then parcelled \nto the Diasporans who will mobilize capital from outside of Zimbabwe \nbringing Diasporan Direct Investment into various sectors of the economy. \n \nFidelity Printers and Refiners \nFidelity Printers and Refiners has continued to increase the volume of gold it \nhandled by 10% from 12.661 tonnes in 2013 to 13.899 tonnes in 2014 as \nshown in Figure 11. It is projecting deliveries to increase by 7.1% in 2015 to \n15 tonnes. \n \n \n \n \n \n \n \n \n \n34 \n \nFigure 11: Gold Production for 2013 and 2014 (kgs) \n \n \n \nOver the period 2012 to 2014, the country witnessed a decline in \ndeliveries from large scale gold producers to Fidelity Printers and Refiners \nfrom 10.86 tonnes in 2012 to about 9.96 tonnes in 2014. A decline of \nabout 8.3%. \n \nDuring the same period, Gold deliveries from small scale producers, \nhowever, increased by 51.1% from 2.6 tonnes in 2012 to 3.9 tonnes in \n2014. \n \nEfforts to harness gold by the Ministry of Mines and Mining Development \nthrough the Gold Mobilisation Committee from the small scale sector \nincluding artisanal miners are starting to bear fruit. Measures by this \nCommittee to ensure increased production by the sector will see more \ngold deliveries to Fidelity Printers and Refiners. \n \n \n \n \n0.0\n200.0\n400.0\n600.0\n800.0\n1,000.0\n1,200.0\n1,400.0\n1,600.0\nJan\nFeb\nMar\nApr\nMay\nJun\nJul\nAug\nSep\nOct\nNov\nDec\n2013\n2014\n35 \n \nGold Bought and Refined by Fidelity in 2014 \nTable 7 \n \n \n \nQuantity/kg \nLarge scale \nSmall scale \nTotal \nJanuary \n784.28 \n142.51 \n926.79 \nFebruary \n761.58 \n169.77 \n931.35 \nMarch \n802.52 \n237.97 \n1040.49 \nApril \n827.08 \n212.28 \n1039.36 \nMay \n790.21 \n230.32 \n1020.53 \nJune \n780.08 \n239.4 \n1019.48 \nJuly \n904 \n344.5 \n1248.5 \nAugust \n868.03 \n414.04 \n1282.07 \nSeptember \n915.93 \n421.24 \n1337.17 \nOctober \n838.22 \n430.19 \n1268.41 \nNovember \n784.54 \n525.65 \n1310.19 \nDecember \n905.51 \n569.97 \n1475.48 \nTotal \n9961.99 \n3937.85 \n13899.84 \n \nAurex (Private) Limited \nThis subsidiary shall be resuscitated in March this year for the purposes \nof diamond cutting and polishing over and above manufacturing of \njewellery. Its revival which is in line with the objectives of ZimAsset of \nbeneficiation of minerals, is quite timely given Government policy. \n \nPROGRESS ON BANKING SECTOR REFORMS AND INITIATIVES \n \nAmendments to Banking Act \nThe amendments to Banking Act were approved by Cabinet. The \namendments are designed to strengthen the supervisory and regulatory \nframework. The major provisions include corporate governance, troubled \nbank resolution, resolution of NPLs, credit referencing system, registration \nof bank holding companies and consumer protection. \n \nWith effect from 2 January 2015, the Infrastructure Development Bank of \n36 \n \nZimbabwe (IDBZ) and Small & Medium Enterprises Development \nCorporation (SEDCO) were brought under the supervisory purview of the \nReserve Bank of Zimbabwe through amendments to the Banking Act, \n[Chapter 24:20]. This means that the two institutions will now be required \nto comply with the Reserve Bank’s regulatory requirements. \n \nBasel II Implementation \nThe Reserve Bank is reviewing a number of proposed revisions to Basel \nII framework which are under consideration by the Basel Committee on \nBanking Supervision (BCBS) and community of bank supervisors on the \nglobal arena. In particular, the proposed revisions to the Standardised \nApproach for credit risk seek to strengthen the existing regulatory capital \nstandard in several ways. These include: \na) reduced reliance on external credit ratings; \nb) enhanced granularity and risk sensitivity; \nc) updated risk weight calibrations; \nd) more comparability with the internal ratings-based (IRB) approach \nwith respect to the definition and treatment of similar exposures; and \ne) better clarity on the application of the standards. \n \nThese developments will significantly affect the design of the Basel II \nframework that will be implemented by banks in Zimbabwe. The Reserve \nBank adapted the Standardised Approach for credit risk for the local \nmarket. \n \nThe Basel Committee is also reviewing the Operational and Market risk \nstandardised approach frameworks to incorporate lessons from the global \nfinancial crisis. The Committee is going to substitute gross income as a \n37 \n \nproxy of operational risk with an income statement based measure of size, \nwhile market risk revisions are, inter alia, focused on clarification of the \nseparation of the trading and banking book. \n \nIn this regard, banking institutions are hereby required to continue parallel \nrunning the old framework and Basel II framework until the current \nconsultations are finalised. The requisite policy positions will thus be \ncommunicated to the market in due course. \n \nMeanwhile, banking institutions are required to submit their ICAAP \ndocuments by 31 March 2015 in line with the requirements in Circular No. \n3-2014/BSD: Supervisory Expectations for Internal Capital Adequacy \nProcess. \n \nResolution of Non-Performing Loans under ZAMCO \nFurther to my Maiden Monetary Policy regarding the establishment of the \nZimbabwe Asset Management Corporation (ZAMCO), an independent \nasset management company, to resolve the scourge of NPLs, I am pleased \nto advise that the company is now operational, with the requisite \ngovernance structures. The Corporation is modelled along similar asset \nmanagement companies formed in other countries such as in South Korea \n(Korea Asset Management Corporation), Nigeria (Asset Management \nCorporation of Nigeria), Indonesia (Indonesian Bank Restructuring \nAgency) and Malaysia (Danaharta). \n \nAn autonomous eight member board was appointed and has met more \nthan four times since its formation. A fully fledged secretariat is in place \nand currently seized with putting in place structures, systems, policies and \n38 \n \nprocedures. \n \nThe Reserve Bank is committed to ensuring that ZAMCO’s systems and \nprocesses are in line with international best practice. In that regard, I am \npleased to advise that ZAMCO received technical assistance from IMF in \nDecember 2014. \n \nZAMCO’s strategy for funding the acquisition of NPLs will comprise a \nnumber of options including Government funding through long term debt \ninstruments already approved by Government as enunciated in the 2015 \nNational Budget Statement. To date, ZAMCO has acquired NPLs \namounting to $65 million using other financing mechanisms provided for \nin its funding strategy. \n \nZAMCO will acquire NPLs that meet its eligibility criteria. The initial \nacquisition phase will focus on NPLs that are fully secured and which are \nnot insiders. This NPLs acquisition approach is meant to prevent creating \nmoral hazard in the banking sector. This will also avoid ZAMCO being \nseen as pardoning past bad lending decisions. \n \nAs part of the preparatory work the Reserve Bank in conjunction with \nZAMCO carried out a market-wide exercise in December 2014 to ascertain \nthe level of NPLs that meet the eligibility criteria. Banking institutions will, \nby 31 March 2015, be advised of NPLs in their respective loan portfolios \nthat meet ZAMCO’s eligibility criteria. \n \nMarket wide acquisition of the NPLs will be conducted on a phased \napproach basis once legal due diligence and independent valuation \n39 \n \nprocesses on eligible NPLs and their respective underlying collateral are \nundertaken and completed. The phased acquisitions of NPLs from banks \nwill commence once ZAMCO has finalized its operational modalities which \nwill be communicated to all banking institutions. \n \nConsumer Protection \nThe country, through the Ministry of Finance and Economic Development, \nis receiving World Bank technical assistance in consumer protection and \nfinancial literacy. \n \nMeanwhile, the Reserve Bank has requested the Ministries of Primary & \nSecondary Education, and Higher & Tertiary Education; and tertiary \ninstitutions to consider incorporating programs into their curricula \nearmarked at improving financial literacy levels in the country. \n \nAmendments will be effected to the Banking Act to include consumer \nprotection provisions prohibiting unfair, deceptive and predatory lending \npractices. Any such banking practices will attract stiff monetary penalties. \n \nCapitalisation of the Reserve Bank \n \nI am pleased to advise that Government has capitalised the Reserve Bank \nto the tune of US$ 100 million using long dated debt instruments. This \nimportant milestone shall go a long way in building confidence within the \neconomy and in providing the necessary conditions towards the \nresumption of the Bank’s Lender of Last Resort function. \n \n40 \n \nThis important step in the capitalisation of the central bank now needs to \nbe supported by the passing of the Reserve Bank Debt Assumption Bill by \nParliament. The prayers of the Reserve Bank are for Parliament to pass \nthe Bill, which is in its second reading, in order to cleanse the Bank’s \nbalance sheet and to bring normalcy in the financial sector. \n \nCredit Reference Bureau \n \nThe Reserve Bank is pleased to advise that a Credit Registry Department \nhas been established as a unit in the Bank Supervision division. The unit \nwill coordinate the collection of credit information from all banking \ninstitutions and microfinance institutions and maintain the databank for \nthe credit registry. \n \nA number of Credit Reference Bureau (CRB) project processes and \nactivities are scheduled for execution over the next 12 months to ensure \nthat the CRB is successfully rolled out. In the meantime, the requisite \namendments to the Banking Act have been approved by Cabinet to \nprovide for adequate legislation to cover operations of the credit registry \nand appropriate regulations for the licensing and operation of private \ncredit reference bureaus. \n \nThe Reserve Bank shall engage all the data providers in the sector, such \nas banks and MFIs, through workshops to build enough capacity \nparticularly on the preliminary steps such as the data clean-up exercise \nand usage of credit information and reports. \n \n41 \n \nThe Reserve Bank shall, in collaboration with data providers as well as the \nCredit Providers Association and private credit bureaus, work on the \ndevelopment of a standard data submission template to enable data \nproviders to submit data in a standardised format. \n \nGoing forward, the Reserve Bank shall also conduct education and \nsensitization campaigns in order to promote an understanding of the \nbenefits accruing from the establishment of CRB. \n \nEnhancement of the Guidelines on Relationship with External Auditors \n \nThe developments in the local banking sector over the last few years as \nwell as the Global Financial Crisis which started in the USA in 2007 have \nrevealed weaknesses in risk management, control and governance \nprocesses at banks. In addition, bank supervisors noted the need to \nimprove the quality of external audits of banks and strengthen \ncommunication between supervisory authorities and external auditors of \nbanking institutions. \n \nExternal auditors of banks play a pivotal role in promoting financial \nstability when they deliver quality bank audits which foster market \nconfidence in banks’ financial statements. In an endeavour to provide a \nframe of reference to promote effective independent oversight of the \nbanking sector by external auditors of banks, the Reserve Bank in \ncollaboration with the Institute of Chartered Accountants of Zimbabwe is \ndeveloping a revised Guideline on the Relationship between Supervisors \nand \nExternal \nAuditors. \nThe \nsupervisory \nexpectations \nand \nrecommendations contained therein also provide guidance to assist audit \n42 \n \ncommittees in the governance and oversight of the external audit \nfunction. The enhanced framework shall be issued to the market in \nFebruary 2015. \n \nSmall Denomination Coins, Bond Coins \n \nThe small denomination coins that the Reserve Bank of Zimbabwe \nintroduced into the national economy on 18 December 2014 in \ndenominations of 1c, 5c, 10c and 25c to circulate freely side by side with \nthe US$, Rand, etc are called Bond Coins. The 50c denomination shall be \nintroduced by 31 March 2015. The coins are legal tender issued in terms \nof Section 44 of the Reserve Bank of Zimbabwe Act [Chapter 22:15]. They \nare called bond coins to reflect the fact that these coins are backed, \nanchored, cemented or bonded to a US$ facility that is giving the coins \nthe strength of being at par or one to one with the US cents. \n \nThe coins are meant to boost competitiveness through instilling or \npromoting a proper pricing system for goods and services in the country \nunder the multiple currency system. Competitiveness is basically a price \nphenomenon. A phenomenon caused by the negative effects of rounding \nup of prices by businesses on the grounds that there were no small \ndenomination coins to correspond and strengthen the US$ pricing system \nin the country. For instance, due to lack of change the general minimum \nprice of a sweet in the country is 5c whilst a 500ml bottle of water at 50c \nis more expensive than the cost insurance and freight (c.i.f) price of a litre \n(1litre) of diesel. This is ridiculous. \n \n43 \n \nIn view of the above few examples, it is clear the coins are necessary in \nany economy for providing change and to ensure that money is divisible. \nConsumers benefit with a low denomination coin as it is proven worldwide \nthat businesses would raise prices without the penny or cent. Coins are \ntherefore essential to eliminate the ‘rounding tax’ that reduces consumers’ \npurchasing power. \n \nA system of rounding up prices leads to uncompetitiveness of local \nproducts and a shift of demand to imports. Rounding up of prices is \nregressive and hurts those least able to afford because they make small \ncash purchases. The coins are therefore pro-consumers (and pro-poor) \nand a good panacea to the challenge of lack of competitiveness. \nConsumers should therefore rise and shine and demand change for them \nto enhance their purchasing power. Consumers should not accept forced \nsales. \n \nThe Reserve Bank is satisfied with the uptake of the coins and the impact \nthat they have had so far on prices of goods and services. Companies \nsuch as Delta, Econet, Innscor, Mahommed Mussa, to mention a few have \nstarted to reduce their prices and have undertaken to continue to review \nthe prices as a result of the availability of change. \n \nPOLICY MEASURES \nIn order to provide pragmatic solutions to the economic challenges \nbesetting the national economy and to rebalance or recalibrate it in order \nto realise the vision of an ‘awakening giant’ which is consistent with \nZimAsset, the Reserve Bank is putting in place the following measures \nwhich are in two parts; namely confidence and production enhancement; \n44 \n \nand liberalisation and monitoring of foreign payments in line with best \npractice. \n \nCONFIDENCE AND PRODUCTION ENHANCEMENT \nDemonetization of the Zimbabwe Dollar \nIn line with the policy pronouncement made by the Minister of Finance \nand Economic Development in both the 2014 Budget Statement and the \nMid-Term Budget Statement the Reserve Bank shall be demonetizing the \nZ$ balances by 30 June 2015. It is envisaged that US$20 million shall be \nused for this purpose. All genuine or normal bank accounts, other than \nloan accounts, as at 31 December 2008 would be paid an equal flat \namount of US$5 per account. The then prevailing United Nations (UN) \nexchange rate would be used to convert Z$ balances that were as a result \nof arbitrage opportunities “burning” and for Z$ cash to be received from \nthe walk-in banking public. \n \nThe Reserve Bank shall soon publicise the modus operandi of the \ndemonetisation process. \n \nThe significance of this policy measure is to bring to finality to this long \noutstanding Government obligation to the banking public and to formally \npronounce the demise of the local currency. This is critical to buttress \nGovernment’s commitment to the multiple currency system which \nGovernment is committed to preserve up until the following economic \nfundamentals have reached acceptable and sustainable levels: \ni. \nMinimum foreign exchange reserves equivalent to one (1) \nyear of import cover; \nii. \nGovernment budget; \n45 \n \niii. \nInterest rates; \niv. \nLevel of domestic business confidence (business sentiment); \nv. \nInflation rate; \nvi. \nState of (and confidence in) the financial sector; \nvii. \nConsumer confidence; \nviii. \nAbility of wages to keep up with prices; and \nix. \nHealth of the job market. \n \nThe reality of the national economy is that all the above economic \nfundamentals or indicators are weak to even contemplate the return of \nthe local currency. \n \nDistribution of Bond Coins \nCurrently Bond coins are issued by the Reserve Bank through banks for \ntheir onward distribution to the public. This system has its own challenges \nwhich have led to some parts of the country not being able to get access \nto the coins. In order to improve the distribution channel, with immediate \neffect, all Easy Link Money Transfer Agent outlets shall supplement banks \nin making the coins available to the public without charging commission \nor withdrawal fees. \n \nThe Reserve Bank shall also be launching a Consumer Rise and Shine \nawareness campaign for the promotion of bond coins in close \ncollaboration with the Consumer Council of Zimbabwe. \n \nChanging Rand Coins for Bond Coins \nIn addition to distributing bond coins, Easy Link Money Transfer Agent \noutlets shall, with immediate effect, accept to change Rand coins for Bond \n46 \n \ncoins at the prevailing exchange rate of the Rand to the US$. This policy \nmeasure in intended to ensure that the public get fair value for their Rand \ncoins unlike the current situation where consumers are being short \nchanged. \n \nBank Charges and Lending Margins \n \nThe Reserve Bank is pleased to observe that a number of local financial \ninstitutions have adjusted interest rates downwards to levels below 10% \nper annum for their performing customers in the productive sectors of the \neconomy. Such development is greatly appreciated and should be \nintensified. \nThe Reserve Bank would like to encourage those that are on the wrong \nside of history and still charging interest rates of 4% above the cost of \nfunds per annum to conduct a self-introspective exercise of their risk \nmanagement philosophy. Facility fees or arrangement fees of above 2.5% \nare high and interest rates of 4% above the costs of funds per annum for \nproductive sectors of the economy are not sustainable as they are a good \nbreeding ground for non-performing loans which the Reserve Bank is \ntrying to rein in. Financial institutions in this category are therefore \nexpected to compliment the gesture extended to them by Monetary \nAuthorities under ZAMCO and to reflect the benefits to the financial sector \nof the establishment of the Credit Reference Bureau. It is also critical for \nbanks to note that quality low profits are much better than high \nunrealisable profits. \n \nCompliance by banks to the above indicative pricing would translate into \nthe lowering of finance costs that are debilitating businesses in Zimbabwe \n47 \n \nleading to some company closures. Reduction in the cost of doing \nbusiness through addressing finance costs would result in businesses \nreducing their prices which is necessary for resuscitating and stimulating \nthe economy. \n \nLowering Cost of Access to Banking Services \nThe Reserve Bank has observed that in a number of jurisdictions such as \nSouth Africa, India and Canada, conscientious efforts and collaborative \narrangements between monetary authorities and banking institutions \nhave allowed for the operation of low cost accounts to make banking more \naccessible to the public and, specifically, to increase banking reach to all \ncommunities. In South Africa, for example, the low income transacting \naccount is called Mzansi Account. \n \nThe Reserve Bank is pleased to note that some local banks are already \nproviding low cost bank accounts to the banking public in Zimbabwe. In \norder to widen such initiatives and promote financial inclusion, the \nReserve Bank and the Bankers Association of Zimbabwe (BAZ) have \nresolved that banks, without low cost accounts, should at least provide \nthe banking public with basic banking services at low or no cost with the \nfollowing minimum features: \n \ni. Account opening deposit of $5; \nii. Depositors to earn some interest on the balance in their account; \niii. No balance statement fees; \niv. Average account balance of $300; and \nv. Copy of national Identity Card (ID) suffice for account opening. \n \n48 \n \nUS$200 Million Interbank Facility \nThe interbank facility supported by the African Export-Import Bank \n(Afreximbank) under the Afreximbank Trade Debt Backed Securities \n(AFTRADES) is now operational. This is a great financial milestone. \n \nThe Reserve Bank would like to express its great appreciation to \nAfreximbank for its commitment to turn around the fortunes of the \nZimbabwe financial sector by structuring and underwriting this facility. \n \nThe facility would be managed by the Reserve Bank as an agent bank for \nAfreximbank for the purposes of managing the surplus and deficit \nparticipants’ requirements under AFTRADES. The initial borrowers under \nAFTRADES have already been assessed and approved by Afreximbank. \nLending to these approved banks would be strictly against acceptable \ncollateral. \n \nThe surplus banks’ risk under AFTRADES would be transferred offshore to \nAfreximbank. \n \nThe Reserve Bank is pleased with this interbank market facility which is \ngoing to address the circulation of liquidity or funds within the local \nfinancial sector. The facility shall also be used as a precursor program for \nthe lender of last resort function by the Reserve Bank. \n \nHarnessing Diaspora Resources for Economic Recovery \nThe Reserve Bank estimates that Diaspora remittances into the country \ncurrently stand at around US$1.7 billion and gravitating towards US$2 \nbillion (translating to above 50% of exports) per year, with around 50% \n49 \n \n(US$840 million in 2014 and US$790 million in 2013) coming through local \nformal banking channels. This sector is too important to ignore. \n \nTo this end, Government and the Reserve Bank are putting in place \nmeasures to promote investment from the Diasporans, over and above \nremittances. Through Homelink’s newly set up business unit, Investlink, \nthe Reserve Bank is spearheading investments needs of the Diasporans \nthrough integration with economic activities in the country. The \nDiasporans will syndicate, form consortiums and pool resources for \ninvestment in sectors like; \n \nEnergy solutions through mini-hydro power projects. \n \nTourism sector development through the Theme Parks \nrecently announced by the Tourism Minister. \n \nAgricultural sector particularly irrigation and horticulture for \nthe export markets as a way of harnessing foreign currency. \n \nVarious manufacturing subsectors, including small scale and \nlarge scale mining where the Diasporans, as Zimbabwean \nambassadors, are expected to exploit provisions of the \nIndigenization Policy and partner with foreigners in these \nsectors. \n \nIndustry in general through the Zimbabwe Investment \nAuthority (ZIA), as well as \n \nTrading on the Zimbabwe Stock Exchange (ZSE). \n \nThe prevalence of high interest rates obtaining in the country presents \nyet another opportunity for the Diasporans to invest in their country and \nobtain investments rates higher than in their countries of temporary \nresidence. \n50 \n \nOther countries’ experience with their Diasporans have shown that the \nDiaspora is a key sector in economic development. A number of African \ncountries such as Ethiopia, Rwanda, Nigeria, Kenya, Egypt to mention a \nfew, have immensely benefited from Diaspora resources just the way \nother countries like India, China, Israel, etc have benefited. \n \nAccelerated Gold Production Initiative \nIn the medium term i.e. in the next 5 years, gold will be driving the \neconomy’s mineral export revenue. Diamonds with further exploration \nare also expected to maintain their strong contribution to the mineral \nexport revenue although declines witnessed recently on alluvial \nproduction calls for swift responses in the country’s vast diamond fields. \n \nThe view of the Reserve Bank is that gold production must be accelerated. \nThe Reserve Bank as the primary market for all gold produced locally \nthrough Fidelity Printers and Refiners would want to see a market and \npolicy driven growth in gold production to buttress the Ministry of Mines \nand Mining Development’s gold mobilisation programme. \n \nAccordingly, the Reserve Bank has mobilised an initial amount of US$50 \nmillion that will be managed by Fidelity Printers and Refiners to accelerate \ngold production in Zimbabwe. This fund will finance Fidelity’s own mining \nprojects and also support viable gold projects. \n \nThe Accelerated Gold Production Initiative’s vision is to increase gold \nproduction to 30 tons per year by 2020, i.e. revenue of around US$1.5 \nbillion at current prices. This target is achievable as in 1999, the country \nproduced its highest ever gold tonnage at 27 tons at a time when artisanal \n51 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n52 \n \nproduction was very minimum at around 5%. Thirty percent (30%) of the \ngold the country’s gold production is now coming from the artisanal and \nsmall scale producers. \n \nGold, like diamonds, has also contributed the most leakages that the \ncountry has ever experienced especially though Beitbridge border post. \nMeasures to curb leakages are currently being implemented in full force \nthrough the gold mobilisation programme. \n \nFidelity Printers and Refiners shall enter into an agreement with ZMDC for \nthe establishment of a special purpose vehicle to exploit gold under \nFidelity’s ZimGold as shown in Figure 12 below. This vehicle will focus on \nharnessing low hanging gold resources with particular emphasis on \nalluvial and prolific reef deposits supported by bulk open pit mining and \non old underperforming assets as a preferred mining method to enhance \ngold deliveries. ZimGold will structure its operation such as to provide for \ncontract gold mining and own gold mining. It will also acquire interest in \nbrownfields projects and venture capital gold structures to boost \nproduction. \n \nEnhanced Coal Production \nThe Reserve Bank has also arranged an US$18 million facility to be used \nby Hwange Colliery for the purchase of equipment that they need for \nenhancing coal production. This is necessary to enable Hwange Colliery \nto be able to supply the requisite coal needed for the generation of \nelectricity by the Zimbabwe Power Company (ZPC) mainly at Hwange \nThermal Power Station. Some of the coal would be for export. \n \n53 \n \nPlatinum Refinery Project \nPlatinum exports in mate form at around US$45 million per month (or \naround US$540 million per year) are quite impressive. This makes the \nconstruction of a platinum refinery an important development that \nrequires to be accorded a national project status to ensure that all the \nplatinum is beneficiated in Zimbabwe. The Reserve Bank shall continue to \nmonitor developments under this project as it is an essential source of \nexport revenue to the country. \n \nRehabilitation of the Manufacturing Sector \nThe Reserve Bank, in close liaison with the Ministry of Industry and \nCommerce and the Industrial Development Corporation, is desirous to find \nsolutions to address the current predicament of the manufacturing sector. \nThe replacement of obsolete equipment in this sector would need to be \ndone on a gradual basis starting with low hanging integrated subsectors. \nTo this end, the Reserve Bank shall during the course of the year, assist \nin mobilising resources for expanding and restructuring the Distressed \nIndustries and Marginalised Areas Fund (DMAF) to cater for the medium \nfinance requirements of the manufacturing sector. \n \nIn addition, the Reserve Bank shall in collaboration with banks and \nthrough ZAMCO, identify specific cases that need resuscitation through \nfinancial restructuring and/or financial engineering like in the case of \nLobels, Archer Clothing, Matabeleland Blankets, etc. Cairns would be yet \nanother example that needs financial restructuring. \n \nThe Reserve Bank is convinced that the above restructuring models, if \nwell managed and carefully thought through, on a case by case basis, \n54 \n \nwould assist to breathe new life in industry in addition to the positive \nimpact of foreign direct investment into this sector. \n \nLIBERALIZATION AND COMPLIANCE MEASURES \n \nThe liberalization of current account transactions and the adoption of the \nmulticurrency system in February 2009, culminated in the removal of \nrestrictions on cross border payments. This Exchange Control \nliberalization framework was adopted in compliance with the SADC`s \nProtocol on Exchange Controls, which seeks to ensure removal of trade \nrestrictions among member countries. \n \nConsistent with the SADC Protocol on Exchange Controls, the Reserve \nBank believes that it is necessary to further liberalize exchange control \nregulations whilst at the same time complying with best practice in order \nto mitigate incidences of externalization through transfer pricing which \nhas been prevalent following import liberalization. Accordingly the \nReserve Bank is further liberalizing exchange control regulations and \ninstitute the following measures; \n \nIncrease in the Free Threshold on External Loans & Foreign Underwriting \n \nUnder the current framework, companies are allowed to access offshore \nlines of credit of up to USD7.5 million without prior approval by the \nExternal Loans and Exchange Control Review Committee while those \nfacilities above this threshold requires prior approval. In order to continue \nto remove administrative burden in accessing funding required for \ndevelopmental projects, the threshold of contracting external loans and \n55 \n \nforeign underwriting of facilities without prior Exchange Control approval \nhas, with immediate effect, increased to US$10 million. The current \npractice of notifying Exchange Control through Authorised Dealers \nremains in place. \n \nIn order to enhance monitoring and accurate reporting of offshore loans, \nall loans contracted and those approved by Exchange Control shall be \ngranted a validity period by which drawdowns are expected to have been \nmade. In the event that the validity period lapses and no drawdown would \nhave been made, the borrower, where required, shall resubmit the loan \nagreement to Exchange Control for consideration and issuance of a \ncurrent authority. \n \nExtension of Amnesty on Non-Recoverable Export Receipts \n \nAs at 31 December 2014, a total of USD68.7 million (63%) had been \nexceptionally acquitted from a total of USD108 million that was declared \nnon-recoverable under absolute amnesty on non-recoverable overdue \nexport receipts. \n \nIn order to accommodate major exporters with non-recoverable export \nproceeds that are eligible for absolute amnesty, the period for submission \nof applications for Absolute Amnesty has been extended to 31 March \n2015. Authorised Dealers are required to compliment the generous \nextension granted by the Reserve Bank by building adequate capacity to \nensure that all applications eligible for amnesty are cleared within this \nperiod to avoid unnecessary red flagging and fines. \n \n56 \n \nExport Facilitation \n \nThe Reserve Bank is desirous to ensure that export documentation is \nexpediously processed by relevant Government agencies. On its part the \nReserve Bank through Exchange Control shall ensure that CD1 Forms are \nprocessed within a day. Exports permits, where required, should similarly \nbe issued on a similar basis to enhance competitiveness and removal of \nlogjam in production. \n \nInward and Outward International Remittances \n \nThe Reserve Bank has noted that international remittances continue to \nplay a critical role in bridging the country’s financing gap and providing \nthe much needed liquidity in the economy. Total remittances from the \nDiaspora amounted to $840 million in 2014, compared to US$790 million \nrealized in 2013. \n \nIn order to ensure that the country continues to benefit from international \nremittances inflows, the Reserve Bank has reviewed the current Exchange \nControl framework for international remittances and shall introduce an \nenhanced and integrated framework with effect from 1 April 2015. \n \nUnder the new framework, Zimbabwean registered money transfer \noperators and bureaux de change shall be designated as Limited \nAuthorised Dealers and shall now be allowed to conduct both inward and \noutward money transfers. The new Exchange Control framework for \ninternational person-to-person remittances shall be administered through \nthe following three-tier system. \n57 \n \n \ni \nTier one (1) shall be locally incorporated money transfer \noperators (MTOs) partnering with approved international \nmoney transfer organizations (MTOs) to carry out both \ninward and outward international remittances, as well as \nbuy and sell foreign exchange on a spot basis. \nii Tier two (2) shall be locally incorporated money transfer \noperators (MTOs) acting alone, or operating own systems \nto carry out both inward and outward international \nremittances, as well as buy and sell foreign exchange on a \nspot basis. \niii Tier three (3) shall be bureaux de change who shall only \nbuy and sell foreign currency on a spot basis. \n \nIn order to enhance monitoring and accounting of international \nremittances as well as mitigating against money laundering and terrorist \nfinancing, the Reserve Bank of Zimbabwe shall employ a robust \ncompliance monitoring framework including electronic surveillance and \nreporting or such electronic platform that the central bank may designate \nfor the purpose. All licensed dealers shall be required to participate and \ncontribute to the establishment of the integrated and centralized payment \ngateway system. \n \nThe Reserve Bank of Zimbabwe shall give details of the new exchange \ncontrol regulatory framework and operational guidelines by 28 February \n2015. \n \n \n58 \n \nBusiness Partner Numbers \nThe Zimbabwe Revenue Authority (ZIMRA) Business Partner Numbers \n(BPNs) shall be used by Exchange Control for ease of identifying and \nmonitoring import payments. All corporate importers should therefore \nwith immediate effect include their BPNs on all import documentation \nwhen processing payments through their Authorised Dealers. \n \nImport Documentation Requirements \nFor cross border payments, all importers shall be required to submit \ncurrent invoices, i.e. not more than 14 days, to their Authorized Dealers, \nbefore any payment can be processed, irrespective of the amount \ninvolved. The invoice must clearly indicate; \n \ni. \nConsignor and consignee details; \nii. \nValue and nature of goods being paid for; \niii. \nTerms of payment, that is, credit terms or whether advance \npayments; \niv. \nDelivery period; and \nv. Declaration by the importer stating that the same application \nhas not been submitted through another bank. \n \nGovernment shall expedite the issuance of import permits, where \nrequired, for the importation of raw materials for manufacturing goods as \nsuch products are necessary to substitute imports. \n \nLimit on Advance Payment for Imports \nIn line with best practice and in compliance with the country’s \nmembership of the Financial Action Task Force (FATF) on Anti-Money \n59 \n \nLaundering and Counter Financing of Terrorism (AML/CFT), it is \nimperative that the country mitigates red flag indicators that are routinely \nused to identify trade-based money laundering activities which include: \n \ni. \nSignificant discrepancies between the description of the \ncommodity on the bill of lading and the invoice; \nii. \nSignificant discrepancies between the description of the \ncommodity on the bill of lading (or invoice) and actual goods \nshipped; \niii. \nThe size of shipment appears inconsistent with the scale of the \nexporter’s or importer’s regular business activities; \niv. \nThe shipment dies not make economic sense; \nv. \nThe transaction involves the use of repeatedly amended invoices. \n \nIn view of the above and in order to minimise illicit financial flows under \nthe guise of payment for imports and in line with other countries’ practice \nas shown in Table 8 below, the use of the advance payment method for \nimports shall, with immediate effect, be limited to US$100 000, or its \nequivalent, per transaction for corporates, and 30% of invoice value as \ndown payment for capital goods. This measure shall not apply to special \ncircumstances, e.g. fuel, electricity, etc., which shall be treated differently \nby Authorised Dealers as shall be communicated to them by the Reserve \nBank. \n \nIn line with the absolute Exchange Control amnesty granted last year, the \nReserve Bank would like to advise of the continuity of the amnesty on \ninstances where there were no imports being sourced that the funds \nexternalised should be repatriated back to Zimbabwe \n60 \n \n Table 8: Regional Comparison on Advance Payments \nCountry \nCurrent Practice \nSouth Africa \n33% of invoice value \nMozambique \nUS$50 000 \nZambia \nUS$100 000 \nZimbabwe \nNo Limit \n \nBusiness is encouraged to also use other secure methods of payment that \ninclude documentary collection, open account, letters of credit and or \nconsignment sales. Exceptions shall be treated on a case by case basis \nby Authorised Dealers under a framework to be advised by Exchange \nControl. \n \nUse of Free Funds \nThe Reserve Bank is seriously concerned by the abuse of individual or \npersonal accounts to externalize business earnings under the pretext of \n‘free funds’ for family upkeep, medical, etc, thereby circumventing or \nevading taxes. This practice of promoting illicit financial flows is \ncounterproductive and should be stopped. The Reserve Bank has no \nappetite to put impediments on the conduct of free funds accounts but \nwe cannot also remain naïve at the wanton abuse of the liberalised facility \nby a few nationalities. \n \nAccordingly, the Reserve Bank would like to remind the banking public to \nadhere to good principles in conducting transactions in their free funds \naccounts and for banks to continuously exercise and/or conduct Customer \nDue Diligence (CDD) or to adhere to the Know Your Customer (KYC) \nprinciples at all times. \n61 \n \nAcquittal of Import Bills of Entry \nAll foreign payments for goods by corporates are required to be acquitted \nin CEBAS within 90 days from the date of payment or at any duration \napproved by Exchange Control, upon submission of the relevant ZIMRA \nImport Bills of Entry. \n \nAll cross border payments for individuals and corporates shall continue to \nbe captured in CEBAS in order to fully comply with the recording and \naccounting for imports. \n \nAcquittal of Service Payments \nPayments in respect of services shall be acquitted in CEBAS upon \nsubmission of a Certificate of Completion and Declaration Form confirming \nthat the service was rendered. \n \nAs Monetary Authorities, we urge all local entities entering into service \ncontracts to try and include a skills training component as much as \npossible and contract local companies wherever possible. \n \nPenalty Fee for Non-Acquittal of Import Bills of Entry \nFor the period February 2009 to 30 June 2014, the value of the \naccumulated outstanding Import Bills of Entry amounted to around \nUS$5.8 billion. In a bid to ensure that importers clear such outstanding \nadvance payments and enforce compliance, on 1 September 2014, \nExchange Control granted a 90 day amnesty for importers to acquit their \nImport Bills of Entry. The amnesty expired on 31 December 2014. The \noutstanding bills that have not been acquitted as at 31 January 2015 stood \nat US$1.8 billion. \n62 \n \nNon-acquittal of foreign payments, with effect from 1 January 2015, are \nattracting an administrative penalty fee of 1% on the total un-acquitted \npayments. This penalty is necessary as some businesses lacked \nseriousness in the use and accounting for financial resources. Despite the \nliberalised exchange control environment and the generous amnesty, \nsome businesses started to panic only when penalty fee was instituted. \nThat wanton abuse of systems and procedures is poor corporate \ngovernance which should be avoided. \n \nIn order for the Reserve Bank to continue to play a more facilitative role \nin economic recovery and to take into account of the representation by \nindustry and commerce without nullifying the penalties already charged \nto offenders, the RBZ is with immediate effect, giving absolute amnesty \non all import bills of entry not acquitted prior to 31 December 2013. In \ndoing this, the Reserve Bank is trading amnesty for compliance. Going \nforward RBZ is adopting a zero tolerance on export and import \ndocumentation requirements. \n \nValidation of Imports \nIn addition to off-site validations of import transactions, Exchange Control \nshall carry out random ex-post physical on-site import validation of \nimports to verify whether the country received true and fair value from its \nnational resources. \n \nCompliance Awareness \n \nThe Reserve Bank has noted the need to conduct public awareness \ncampaign on compliance with best practices on foreign payments. In this \n63 \n \nregard, compliance workshops for stakeholders will be held in April 2015. \nThe stakeholders to be included are law enforcement agencies, regulatory \nbodies, industry and commerce and civil society. \n \nPOLICY ADVICE \nTourism Development \nTourism is one of the fastest growing industries in the world. According \nto the United Nations World Tourism Organisation (UNWTO), the sector \nranks fourth after energy and fuels in terms of global exports. In \nZimbabwe, tourism has emerged as a major driver of economic and social \ndevelopment through generating foreign earnings, creating incomes, \nstimulating domestic consumption, and creating employment in both rural \nand urban areas. Its current contribution to national income is just below \nUS$1 billion \n \nTourism should be considered as a low hanging sector for the special \neconomic zones concept. The logical starting point would need to be \nVictoria Falls where the country is endowed with the seventh wonder of \nthe world, the Victoria Falls, (Mosi- Oa- Tunya). We now need policy \nmeasures to harvest from this natural resource and have a vision of \nmaking Victoria Falls as the ‘Tourist Hub of Africa’. \n \nThis vision which dovetails well with the Ministry of Tourism and \nHospitality’s vision of a US$5 billion tourism sector by 2020. This sector \nhas a potential of growing very fast and requires less effort than the real \nsectors of the economy. \n \n64 \n \nThe initial priority to realise the above dream would be to complete the \nmaster plan of the Victoria Falls and to provide it with the necessary \ndesignation of a special economic zone with facilities such as international \nbusiness centre, offshore international banking that provides safe haven \nto all investors, thematic parks, cable cars, e.t.c. Benefits that would \naccrue to the economy from such developments could be tremendous, \nfrom employment, foreign exchange generation, e.t.c. \n \nBecause of its importance to economic development, the pricing of the \ntourism services plays a critical role in stimulating domestic tourism and \nattracting foreign tourists. \n \nPricing of Tourism Services Using a Two Tier System \nDuring the period prior to the introduction of the multi-currency in 2009, \nthere was a two tier pricing system of tourism products. Under this \nsystem, local tourists were charged in local currency and foreigners in \nforeign currency. Effectively, this translated to different prices being \ncharged to the local and foreign tourists. \n \nAfter the introduction of the multi-currency system, Zimbabwe moved \ntowards a unified pricing system where locals and foreigners would be \ncharged the same price. The only exemption to this system were National \nParks and Nationals Museum who continued to charge higher prices to \nforeigners than what is charged to locals. \n \nThe unified system of charging tourism products resulted in higher prices \nto both the local and foreign tourist as prices of Zimbabwe tourism \nproducts are higher than regional prices. Furthermore, some would be \n65 \n \nlocal tourists are failing to visit tourist facilities in Zimbabwe due to higher \nprices, hence stifling domestic tourism which should be highly \nencouraged. \n \nIn a bid to promote local individual and family visits, the Reserve Bank is \nof the view that local tourist facilities should re-introduce the two tier \npricing system. This measure will promote domestic tourism. \n \nDomestic tourism is a major component of any country’s tourism industry \nas it provides a sustainable base for the local industry when there is a \ndown turn in international tourist arrivals. Reference can be made to \ncountries such as South Africa where tourism growth is underpinned by a \nvibrant domestic market. However, in Zimbabwe, the majority of the \ndomestic tourists are mainly people on business and conferencing, whose \nconsumption of other tourist products is limited. \n \nSimilarly, tourists from within the Southern African Development \nCommunity (SADC) could also be accorded a price similar to the domestic \ntourists and authority to pay for their stay in Zimbabwe in any currency \nauthorised under the multiple currency system without the need to \nconvert to US$s. This would make tourism competitive especially given \nthe fact that South Africa, for example, is a good source of tourists into \nZimbabwe. Such tourists from South Africa could be charged in Rands \nwithout referencing to the US$ pricing system \n \nThere is also great need to allow tourists easy access at border posts, \nespecially Beitbridge, by making a provision for a ‘green route’ for tourists \n66 \n \nseparate from the commercial route. This would remove the usual \nnightmares for tourists at border posts that discourages visitors. \n \nTrading Wage & Salary Freeze for Price Reduction \nAs already alluded, the Reserve Bank is of the considered view that the \nnational economy is not able to sustain any further increases in wages \nand salaries and that the welfare of consumers and employees should be \naddressed through the reduction of prices, disinflation, so that the current \nwages buy more – enhancement of the purchasing power of the current \nwages and salaries. We need to move away from the psychology or \nconcept of money illusion, which states that people think in terms of the \namount of money they have, rather than in terms of its value. We now \nneed to think in terms of value. This way even those not working would \nhave their welfare increased as they would be able to buy more from a \nUS$. \n \nTable 9 which shows the comparison of selected economic indicators \nbetween Zimbabwe and the region reveals that Zimbabwe’s average \nminimum wage for commercial and industrial sectors is much higher than \nthat of the other countries in the region. However the high cost of living \nin Zimbabwe negates the comparative advantage. This shows that the \nsolution to increase the welfare of workers does not depend on increasing \nwages and salaries as all the increments would be absorbed by \ncommensurate price increases. \n \nFurther it is imperative to note that Zimbabwe’s wage bill as a percentage \nof revenue is higher than all the regional countries despite the country \nhaving the lowest population with the exception of Botswana. \n67 \n \nAddressing Cost Drivers for Competitiveness \nCompetitiveness of the national economy is not achievable without \naddressing the national economy’s cost drivers. These cost drivers \ninclude, but not limited to, municipality tariffs, environmental \nmanagement fees, and some non-tariff barriers. Such fees and/or tariffs \nincrease the cost of doing business in Zimbabwe. \n \nIt is against this background that we applaud Cabinet for setting up the \nNational Competitiveness Commission mandated to critically interrogate \nthe national pricing structure in order to come up with a more competitive \nmodel of doing business in the country. \n \nThe Commission would therefore need to redouble their efforts to ensure \nthat the deceleration of prices which are in their sphere of influence is \nrealisable within a short space of time. Its initial efforts should focus on \nutility prices, especially electricity, water and licensing requirements. \nMost farmers for example, are saddled with electricity bills because the \ntariffs are not competitive especially on agricultural produce whose prices \nare not only low but sometimes even difficult to sell as merchants \nsubstitute local goods with imports, onions and tomatoes, for example. \nMining and other sectors are facing the same fate from these utility tariffs. \nAs enablers, the current tariffs are punitive for business and should \ntherefore be urgently addressed. \n \nLandlords would also need to adjust their rentals, especially in the high \ndensity areas where a room costs on average $70 per month. The same \nis true for basic commodities which go into consumer basket, such as \nbread, tea, cooking oil, etc. Businesses would need to review prices of \n68 \n \nsuch commodities. It is failure or bad faith by business to quickly review \nprices downwards that influences workers to demand higher wages and \nsalaries that commensurate with the high cost of living. \n \nAnother area of reform that needs serious attention is the parastatal \nreform programme with emphasis on the synchronisation of overheads, \ndelivery and revenues. Failure to synchronise these factors has tended to \nincrease the cost of doing business, poor service delivery across the \ncountry, and failure by some parastatals and local authorities to be up-to-\ndate with salary payments for their employees. Excruciating solutions that \ninvolve salary cuts to realign revenues and costs may be necessary in \nsome circumstances before the situation gets out of hand. \n \nSimilarly, bonuses should not be viewed as an entitlement but instead as \na performance related compensation and that employers, including \nGovernment, should put in place clear principles and, where necessary, \nnotices for the payment or non-payment of such compensation should be \neffectively and timely communicated to the affected beneficiaries\n69 \n \n \n \n \n \n \n \n \n \n \n \n \n \n70 \n \nAddressing the welfare of workers and consumers in general from a cost \nreduction point of view would also assist businesses in that their products \nwould become competitive against imports. This means that businesses \nwould not face closure due to lack of demand which would have shifted \nto imports and workers would not lose jobs. The shift in demand from \nlocal goods to imports is a price phenomenon and it is that local price level \nthat needs to be redressed and not the appreciation of the US$ which is \noutside the country’s control. \n \nAfter the fuel suppliers had reduced prices by around 10%, for example, \nconsumers were expecting the same to happen to almost all the prices \nbut to date nothing has happened except in few cases. \n \nRedefining the Poverty Datum Line \n \nThe major reason for the discrepancy between Zimbabwe’s minimum \nsalary scales and the rest of the region and other countries like China and \nIndia, is because of the manner in which the Poverty Datum Line (PDL) is \ncalculated in Zimbabwe. Best practice use PDL per person as opposed to \na family of six as is the case in Zimbabwe. Thus if the current PDL of \nUS$584 in Zimbabwe is divided by six (6) then the figure becomes \ncomparable with the rest of other countries at US$97.33. \n \nAccordingly the Reserve Bank is advocating for redefining PDL from a \nfamily basis to that of an individual basis for the purposes of mitigating \ndouble dipping and for easiness of comparison with the rest of the world. \nThis is essential for promoting competitiveness. \n \n71 \n \nAll the above competitive drivers would need great sacrifice from all and \nsundry. We all need to rebalance, to recalibrate, to resize or to resuscitate \nthe economy. \n \nAmendments to the Labour Act \nThe current process being undertaken by Government on the \namendments to the Labour Act should be expedited for the labour policy \nto be in sync with best practice which is necessary in order to improve \ncompetitiveness in the production of goods and services. \n \nThe current regulations which make it more expensive to retrench than \nto maintain an employee are not conducive to production neither are they \nconducive to even contemplate to increase employment. \n \nThe regulations are now applicable to about 40% of the economy which \nis formal and the bigger proportion of 60% informal sector not under the \nauspices of the Labour Act. \n \nEmpowerment Through Linkage Programmes \nAccording to the United Nations Centre of Trade and Development, \nUNCTAD, Report 2006, “Business Linkages are based on a commercial \nrationale, they enable a win-win situation for all stakeholders in the \nlinkage programme”. Business linkages would need to be built on \nmutually beneficial basis. According to the same UNCTAD report, \nbusiness linkages are one of the fastest and most efficient ways of \nupgrading enterprises, enhancing their competitiveness and allowing \nthem to access finance, technology, and specialised knowledge. \n \n72 \n \nIt is against this background that the Reserve Bank believes that business \nlinkages should vigorously be promoted across all sectors of the economy \nfor the empowerment of SMEs and increasing employment. This should \nalso be a solution to rebalance the economy. \n \nWe therefore call upon businesses to enhance their business linkage \nprogrammes with small to medium enterprises (SMEs) and individuals. \nThis would ensure that growth is balanced. Such schemes also minimise \ncredit risk from a banking perspective and promote the health for the \neconomy. \n \nIn agriculture, for example, such linkage programmes could be in the form \nof big retailers providing market access (on a quota basis) to producers \nof onions, tomatoes, carrots e.t.c as opposed to offloading all produce to \nmiddlemen. \n \nCONCLUSION \n \nThe message from this Monetary Policy Statement is that, as a nation, we \nall need to sacrifice in one way or another, accept the reality, and work \nvery hard to address the competitive, productive, compliance and \nconfidence fundamentals of our economy. There is no random success. \nWe all need to come up with pragmatic and carefully thought through \nsolutions to rebalance or resize the economy which is currently going \nthrough a myriad of both endogenous and exogenous challenges. \n \nThe policy measures and advice given in this statement are meant to \ndeliver warm winds of economic recovery to every corner of the nation. \n73 \n \nIn this regard, policy measures introduced should be viewed in the \nbroader context of economic policy measures that Government is putting \nin place to buttress ZimAsset. The Reserve Bank is making the economy \nthe foremost priority. I therefore call upon all businesses, banks, retailers \nand major utility providers, ZESA and local authorities, to revisit their \npricing systems to address national competitiveness. \n \nWe need to be guided by the philosophy that a strong economy is the \nwellspring of Zimbabwe’s national strength. There is great need to \nharness our God given resources to develop the country for current and \nfuture generations. \n \nMay God bless Zimbabwe. \n \n \nI thank you \n \n \n \n \nDr J P Mangudya \nGOVERNOR \n \nFebruary 2015", "source": "RBZ", "stratum": "cb_requests", "fetch_date": "2026-05-11", "url": "file:///RBZ/Monetary_Policy_Statements/mpsjan2015Zim.pdf"}
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