FOREX CRISIS: As Zimbabwe’s govt again looks for scapegoats, business groups must find their voice, and learn from the past

Zimbabwe dollarised in 2009, and has struggled to reintroduce its currency since (pic: Tsvangirayi Mukwazhi)

Some time in 2007, after Robert Mugabe had a flash of economic brilliance and decreed that all prices be cut in half, business leaders fell at his feet and apologised for his ruinous policies.

Inflation was at world-record levels and that was government’s genius plan to tame it.

Mugabe ordered the arrest of over 5000 businesspeople. This included the CEO of the country’s biggest supermarket chain, OK Zimbabwe.  

So, there was panic in the business ranks.

At a State House meeting between Mugabe and the Confederation of Zimbabwe Industries (CZI), businesspeople had dared do the unthinkable; they told Mugabe that high prices were driven by high costs, and not their mischief. Mugabe blew his top; he told them to “stop playing games” and trying to oust him from power.

He threatened even more arrests. So the businesspeople said sorry.

“We apologise for letting you down as there exists a glaring gap between your goals and our performance as an economy,” they grovelled in a letter they later presented to him at State House.

And they grovelled some more: “From the time of the struggle for Independence to today, you have, Your Excellency, consistently pursued very clear over-arching national goals.”

None of their groveling made the Mugabe administration see sense.

Phelekezela Mphoko, who was Vice President until the 2017 coup, once complained that “some blue-chip companies that are performing well are not willing to help the party in its fundraising activities yet they are the direct beneficiaries of its policies”.

This has always been how the ZANU PF government prefers business; servile and weak.

Zimbabwe prices
Previous fights between business and govt left shops bare (AP Photo/Tsvangirayi Mukwazhi)

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The right voice

In 2021, can Zimbabwean business find its voice? Can government itself be persuaded that there are better ways than using a hammer? Both sides need to, and they must do so urgently, and skillfully.

There are signs that, again, government is about to reel out its old scapegoat – “unscrupulous businessmen” – and to go on the offensive.

This week, police announced that they wanted to arrest Shingi Chibanguza, CEO of ZSE-listed CFI, because one of its subsidiaries, Farm & City, was pricing goods at an unofficial exchange rate. Two other directors were arrested after officers from the RBZ’s Financial Intelligence Unit went undercover in a Farm & City store.

On Monday, business executives met Reserve Bank of Zimbabwe governor John Mangudya to discuss the growing exchange rate crisis.

In a statement ahead of that meeting, CZI had warned that the currency was “in peril”, and that this was all down to RBZ. Arrests would not end the crisis, they warned.

Said the CZI: “The psychological scars of the hyperinflationary period still run deep within the psyche of economic agents in Zimbabwe. We see an almost religious reverence for foreign exchange with economic agents going to extraordinary lengths to procure foreign exchange in order to preserve value.”

Because there is little trust in the local currency, anyone paid in Zimbabwe dollars – from grain farmers to the contractors working on government projects – is taking that money to buy forex.

“We have had to pay for a massive harvest to farmers in a currency that they do not want,” says CZI.

Who’s to blame? Not us

What has weakened confidence in the Zimdollar? It is government’s fear of letting go of the market, RBZ’s broken promises on controlling the auction rate, and its failure to cap money supply. It is not the businesspeople. In fact, any action to arrest people will only make it worse, CZI cautioned.

“As long as the parallel market premium is so high, it is not possible to prevent participation on it; only more subtle methods will be adopted in response to aggressive methods of arrests and prosecution,” says the group.

“The greatest risk facing the economy right now is an inappropriate policy response to the rising parallel market premium. Clamping down on informal foreign exchange trading in the absence of a viable formal market will have catastrophic consequences for the economy.”

Zimbabwean businesses have been long accused of lacking spine. They can even be criticised for often slinking away into silence when the policy advice they gave – such as dropping subsidies and championing currency reforms – went sideways.

Nobody rational expects them to be slogan-chanting radicals, or to be arrogant know-it-alls. Government is even more skilled in these areas. The least expected of business now is a firm frankness in dealing with a government that loves scapegoating.

An October 11 meeting involving government, the central bank an business spread the blame, and obligation to act, around. For their part, government and the RBZ undertook to “support the foreign exchange auction” and to tighten monetary policy through the reduction of money supply and increasing interest rates. Business – banks, manufacturers and retailers committed to discipline.

As to be expected, the statement issued by the central bank afterwards did not detail the finger-pointing that took place in the meeting’s heated moments.

Following that meeting, CZI reacted to arrests and threats, saying: “When policies fail we should not arrest people, we should correct the policies for efficacy.”

CZI, in its recent remarks, shows us that it can strike a good balance of silk and steel in dealings with the government. By all means, be diplomatic if that keeps lines of communication open. But the facts of government policy failure must be laid bare.

If big business does not quickly find a strong, firm voice, the CFI arrests may be the start of a new campaign, which may end up with some business executives in jail, and the rest of them at the feet of the country’s president, grovelling.