Zimbabwe Review

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Posts Tagged ‘exchange rate’

Gono: If one man cannot “kill” an economy, neither can one man “save” it

Posted by CM on October 15, 2009

Reserve Bank Of Zimbabwe Gideon Gono’s power and influence have waned in the wake of the inclusive government that has brought in MDC officials into important economic portfolios. Gono may still hold on to his title and position, but there is little doubt that his power has diminished considerably.

The once unchallengeable Gono has now found himself in the new and unfamiliar role of having all his decisions and opinions second-guessed and often derided. The man who the Zimbabwean media once portrayed as a miracle worker who could walk on water now struggles to defend the legacy of his bygone hey days.

Gono’s defence of his many controversial actions of recent years as central banker during the country’s worst period of hyper-inflation is essentially that no matter how bad things were, if it were not for his efforts they would have been far worse. He feels hurt and disappointed that Zimbabweans are not grateful to him for saving them from a much worse fate then they experienced during the tough times whose worst months were in 2008.

Here is an interesting example of his thinking about this, from a recent interview:

…Gono, who presided over the collapse of the local currency, insisted he was not to blame for “killing” the nation’s economy…He again rejected calls for his resignation after President Robert Mugabe’s unilateral decision to appoint him to a new five-year term last year — one of the major disputes facing the eight-month-old unity government.

“The immorality and irrationality of the whole argument is that ‘Gono must go because he printed money and he killed this economy. That’s a white lie because no single individual can harm or kill an economy,” he said.

Gono also stands accused of siphoning off state money into secret accounts in Asia and Europe, a charge he denies.

“Whatever I did had authorisation from the government of the day,” said Gono, a former commercial banker. He described his job as “a plumber mending burst pipes. I prevented this country from descending into chaos like Somalia.

No doubt Gono has been misunderstood in many ways, although it is far from clear in which ones. But  it is also probably true that by haughtily and flauntingly wielding as much power over the economy as he was clearly allowed to do for a while, as well as through the media over-exposure he seemed to so love, he may well have brought on to himself the genesis of his present public relations troubles.

Poor embattled Gono is no doubt quite correct to argue that he could not have single-handedly “killed” the Zimbabwean economy. Whether he indeed prevented it from desceding into the chaos of Somalia is subject to debate and will likely never be resolved.

But I found an interesting insight into Gono’s mindset. It is that he denies an individual can kill an economy, but then seems to go on to claim that an individual can save it, and that this heroic one-man deed is his real legacy to Zimbabwe. There seems a contradiction in Gono’s words in what it is possible for one man to do to/for an economy then!

I wonder if this mix of immodesty and refusal to take responsibility for anything that went wrong under one’s watch while ascribing to oneself superhuman positive achievements are not part of the attitude that have contributed both to Gono’s meteoric rise as well as his dramatic fall. I think there are lots of lessons in there about the deadly cocktail of overarching ego mixed with almost unfettered power. They can quickly take you up, but they can just as quickly bring you down.

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Gideon Gono’s star starting to fade

Posted by CM on December 30, 2007

by Chido Makunike

The last few weeks have not been good for Gideon Gono, governor of the Reserve Bank of Zimbabwe.

Gono featuredly prominently at the ZANU-PF congress at which President Mugabe somehow arranged yet another ruling party endorsement as its sole candidate in the elections scheduled for March 2008. We saw images of Gono grinning broadly, seemingly basking in the glow of Mugabe’s approval. He got tongues wagging with a tough speech in which he accused un-named high ranking government officials of being behind many of the nefarious “black market” activities that led to phenomena like the current perplexing shortage of Zim dollar currency notes.

Gono has never made secret of his personal closeness to Mugabe, which reports have traced to his being the president’s banker, dating from the days when Gono was chief executive of the Commercial Bank of Zimbabwe. Gono parlayed his revival of that once floundering bank back into solvency into a reputation as a “turn around expert.” It is that image he carefully cultivated over some years that eventually landed him the RBZ top job with much fanfare in 2003.

His closeness to Mugabe made him automatically an object of suspicion to many. But others hoped that he could use it to make Mugabe “see sense” about measures needed to right the economy’s many wrongs in a way the president light not have been prepared to do with previous economic advisors.

There was a circus around Gono’s taking on the job of central banker. The media was roped into hailing him as a conquering hero who had come to slay the dragon of high inflation, the country’s then first experience of local currency shortages and all manner of other economic ills.

If the media seemed to adore him, he clearly loved the media attention just as much. His “monetary review statements” were broadcast live, and his every word was treated as gospel. In the Gono-euphoria that erupted, cautions that the country’s deepening economic problems could not be separated from governance, political and diplomatic issues were swept aside. Gono promised to “turn around” the economy in short order, confidently making inflation-lowering and other targets which the country has come nowhere near to achieving, and vowing “failure is not an option.”

Four years after all the hype surrounding his appointment and all the high hopes in his tenure by many, the December 23 2007 main headline in the Zimbabwe Standard was a harsh summation of how far Gono has fallen in public esteem. It screamed, “Gono labelled ‘No. 1 saboteur.’

Citing the thousands of Zimbabweans who had to spend the end of year holiday season in long queues for cash from their bank accounts, the story quoted Elton Mangoma, an opposition party official, as saying, “Gono is clearly the biggest saboteur of Zimbabwe’s economy. He is simply playing politics with a serious national crisis that needs immediate attention from a central bank governor who takes the people’s suffering seriously.”

The MDC, the Zimbabwe Congress of Trade Unions and economists, all said the cash crisis was ample evidence that the RBZ had failed in its mandate to provide liquidity, the story continued. The critics said it was “very cruel” of Gono to plunge the ordinary people into the crisis in a miscalculated move “to fix” people whose identity he knew.

Critics said blaming cash barons was a diversionary tactic designed to mask the incompetence of the central bank. “There is no money from the so-called barons because if the money was there, the parallel market would be booming,” said Dr Daniel Ndlela, head of an economic consultancy firm. “This fellow (Gono) is not only heartless, but he does not understand who he is punishing. The people in the queues are not barons.”

The Standard’s story continued:

Mangoma added: “The people are not failing to access their cash because of the cash barons but because of Gono’s policies which have eroded people’s confidence in the banking system in this country. No reasonable person would put their money into a bank when they know they will fail to access it the following day.”

Ndlela said Zimbabweans could be in for more suffering “as long as we have a poet” for a central banker. “He has totally failed. If he had a bit of professionalism and dignity he should have resigned a long time ago,” he said.

This is unprecedented harsh public criticism for Gono. Until recently, he had somehow been able to straddle the awkward twin roles of being an intimate insider of a floundering, unpopular government and yet also able to cast himself as a “man of the people” folk hero. That bubble seems to have burst in a way that some cynics may say was inevitable.

Defending himself in The Herald in an interview which was gently but still unusually critical in the tone of the questions asked by the state’s primary propaganda newspaper, Gono said “The cash shortages that we see are a mere symptom of much deeper and greater fundamental misalignments in our economy than the ability or inability of the central bank to provide adequate cash.” In this regard, it was unfortunate that all the blame had been heaped on RBZ, the newspaper quoted Gono as saying.

Went on Gono in the interview, “We are back to economic fundamentals which we must tackle head on… It’s about sanctions whose debilitating effects on the economy and on the ordinary lives of our people must be a matter for which we must all speak with one voice as Zimbabweans to see that these sanctions are lifted. It’s about the productivity of … every form of economic activity in the country. We must raise the bar of productivity to underpin our commercial transactions.”

“It’s also about economic and pricing distortions, which we must deal with decisively. It’s about economic patriotism. It’s about discipline. It’s about building a corrupt-free economy. It’s about international relations. So don’t take a simplistic view of the queues and simplistically place 100 percent responsibility on the central bank or the Governor, however easily tempting or fashionable it might be.”

“That’s my interpretation of the cash queue. In the absence of a disciplined approach to our economic affairs, to corruption, hard work and economic patriotism, the winter of discontent with cash queues will not go away. “

Everything Gono says here is true, of course. But it was all just as true four years ago when he somewhat over-confidently boasted “failure is not an option” amidst warnings that the country’s problems were deeper than could be addressed by monetary measures. For instance, the lifting of sanctions and issues of international relations are beyond the purview of Gono and the RBZ. Yet they are critical components to Zimbabwe’s economic fortunes, and to Gono’s own success as RBZ governor.

All these points had been repeatedly made by many long before Gono came onto the scene as central banker. Some who had made similar points to those Gono is now making were accused of being traitors to the country and forced to resign their positions for publicly stating unpalatable truths. The hope had been that Gono’s reputation as a “favoured son” who enjoyed the particular attention of Mugabe’s ear would give him more leverage than others before him had.

While Gono has clearly been the most powerful central banker yet, with unprecedented latitude to try all sorts of economic experiments, he has met the ultimate brick wall: that there will be no solution to the country’s hyper-inflation or its cash, fuel and other shortages without going back to production, diplomatic, political and other basics which the ruling authorities have shown no inclination to do over the years.

In a way Gono is a victim of his own initial hype and over-promising of what he could achieve in the prevailing political environment. In taking the RBZ job, he gambled that he could influence Mugabe and the politicians to take measures they had resisted before, or alternatively, that he could use his wide-ranging powers to bring about economic improvements even without reform of the rest of the system of governance. The increasing criticism from all sectors of the media and the public suggests many people believe that he has lost his gamble.

Without giving details, in the Herald interview he promises to solve the immediate cash problems in the next several days. But this would seem to contradict his point in the same interview about how the cash queues will not go away without the country addressing a comprehensive raft of other issues than just how much currency the RBZ releases into circulation. Certainly his credibility is at its lowest ebb, even if he still enjoys the fickle Mugabe’s support, which I am not sure anyone knows for certain.

So what next for Gono?

Hyperinflation and the Zim dollar’s depreciation continue unabated, so two major reasons for the current cash shortage will still be in place no matter what he does to assuage the public’s anger about the shortages. The low farming/industrial productivity and international diplomatic isolation issues will likely continue for all sorts of reasons that are way beyond Gono’s ability to do anything about.

With his repeated “failure is not an option” mantra, resignation is not an easy option. I wonder if it is even an option available to him at all. In return for his unprecedented power, prominence and latitude of action as RBZ governor, he may have had to make personal concessions which may not make it possible for him to walk away unless Mugabe now wishes him to go. He may be too deep into the system as the author of many unorthodox interventions to attempt to stop the economy’s slide in the last four years that being seen to abandon the Mugabe ship would not be looked at kindly at all!

Could Mugabe, on reading the public mood of rising disaffection with Gono, be ready to sack him, in a way giving Gono the easiest way out of a continually sinking ship?

This is not unthinkable for a crafty Mugabe who is a master at finding and nailing scapegoats for problems that are ultimately his responsibility. But it is probably unlikely.

Whatever his faults, Gono has indeed worked very hard at a series of unconventional interventions to try to tame Zimbabwe’s economic melt down. Gono has also very carefully always made a sometimes almost slavish loyalty to Mugabe clear.

Unless Mugabe is now ready to go “conventional” in regards to economic management and international relations, he needs someone like Gono who is tireless at trying unconventional measures, no matter how half-baked some of them may be. In an economic environment even worse than when Gono became RBZ governor, it is hard to imagine Mugabe finding anyone as bold and hard-working at trying new things as Gono has proven himself to be. A more conventional economist at the RBZ would recommend to Mugabe the same conventional political and economic measures that Mugabe has found so unpalatable over the years.

Gono will therefore likely continue at the helm of the RBZ and the economy beyond his current term, but with no more illusions on anyone’s part of a dramatic “economic turnaround” on the horizon. Out of frustration at having failed to achieve it, as well as having lost the public and media adulation he wants enjoyed, he may become an increasingly bitter and capricious economic tsar. In the manner of his boss Mugabe in the political sphere, Gono may continue to be “in power” to issue warnings, threats and decrees to various sectors of the economy, but make little difference to the country’s economic slide.

Gono as RBZ governor rose to dizzy heights in public affection on the alluring but dangerous, fleeting back of a masterfully conducted public relations campaign and charm offensive. The only way to have kept that unrealistic momentum was for him to have then produced the kind of economic results which were not possible under an environment in which his boss continued to make statements and decisions that neutralised Gono’s efforts.

Those decisions are often influenced more by short-term populism and patronage considerations than what is in the best interests of the country. And so farms and implements are given to the political elite than to those best able to use them, with the attendant results on productivity, and ultimately, on inflation and the value of the Zim dollar. It is a waste of time to deal with the economic symptoms without addressing the political root causes.

Ditto for the current cash crisis. It is a waste of time to scapegoat a “cash baroness” who is simply a messenger of well connected and protected political players who are the real black marketeers. Gono says he knows most of them, but appears not to want to rock the political boat by naming them. That may be understandable, but the point is that being politically hamstrung like this makes nonsense of his economic efforts, dooming them to failure. Apart from nailing even the highly placed politicians and others who are “fueling” the black market, there is also the fact that only measures that make such a black market un-necessary will eliminate the problem, even if those measures go against Mugabe’s own brand of ideological orthodoxy.

Gono continues to run from pillar to post, trying this and that cosmetic measure to deal with the symptoms of deeper problems he increasingly shows signs of accepting are beyond the ambit of the RBZ to address. The carefully scripted story of his dramatic professional and public-image rise make for gripping melodrama, but his current floundering is also sadly predictable and depressing given the unchangingly negative political environment in which he chose to try to make a lasting positive impact as RBZ governor.

                               
 

Posted in People | Tagged: , , , , , , | 3 Comments »

Harare’s million dollar beer

Posted by CM on December 12, 2007

by Michael Clemens

What’s it like to live in a country whose economy has been shattered by its own leaders? Here’s how a beer purchase in Zimbabwe looks these days:

That’s $1 million Zimbabwe dollars, in four chunky packs of Z$500 notes–collectively, the price of a single beer purchased at a bar in Harare on November 24th. When the beer was quaffed, at the “official” (read: “fantasy”) exchange rate, that was about US$33. At the “black” market exchange rate, that was just under US$1. Today, just twelve days later, it’s only worth around twenty five US cents. Such an economic Twilight Zone forces anyone running a business with the smallest international component to choose between illegality and immediate closure.

Things have gotten so bad that, in a stunning development, enterprising employees of the Reserve Bank of Zimbabwe are selling Zim dollars at the unofficial rate inside the central bank itself to top up their scant wages.

The reason Zimbabwe has the highest inflation on earth is that the regime of President Robert Mugabe is recklessly printing money to finance its expenditures. High inflation has been shown to markedly increase poverty because nominal wages never quite seem to keep up with galloping prices. But why should mass poverty concern Mr. Mugabe, whose chauffeur whisks him around in a Rolls Royce convertible?

Most poverty on earth is so complex that its roots are difficult to trace. In Zimbabwe, the source of the recent surge in poverty is crystal clear. One can only hope that the death-grip Mr. Mugabe holds on his country will soon wither. Until then, Todd Moss and Stewart Patrick have some ideas on how to prepare for the aftermath.

Center for Global Development

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UK Sunday Times ties itself into a knot over Mugabe

Posted by CM on November 11, 2007

In the hysterical style we have now become accustomed to from sections of the British press, the UK Sunday Times of November 11 screamed “Barclays bankrolls Mugabe’s brutal regime.”

Excerpts:

Barclays is bankrolling President Robert Mugabe’s corrupt regime in Zimbabwe by providing substantial loans to cronies given land seized from white farmers.

The British bank lent £750m to the country’s new landowning elite in the first half of this year, mostly through a government scheme to boost farm productivity.

Many of the farms now funded by Barclays were forcibly taken by mobs organised by Mugabe’s Zanu-PF party. They were distributed to leading figures in the regime, even though the policy was intended to give farms to landless black Zimbabweans. The beneficiaries included Mugabe himself, who is said to have three estates.

Despite worldwide condemnation, Barclays, which faced criticism for operating in South Africa during the apartheid years, has remained one of only a handful of banks with extensive operations in Zimbabwe. It has recently been opening new branches in the country.

Barclays is required to finance the loans under Aspef (Agricultural Sector Productivity Enhancement Facility) as part of a set of conditions laid down by the Zimbabwean government which permit it to operate in the country, where it made £34m in profit last year. Its £750m Aspef loans are an increase of 17% on the previous year.

A spokeswoman for Barclays said the bank had operated in Zimbabwe since 1912 and had 1,000 employees and a network of 20 branches serving 150,000 retail, business and corporate customers in the country.

Now, we all know Mugabe is not your most cuddly world leader, for all sorts of reasons. We also know that the mere mention of his name makes the British press apoplectic with rage, for all sorts of reasons. But this story is a classic example of how papers like The Times simply can no longer be taken seriously when reporting about anything to do with Mugabe.

Oddly enough, it was someone writing a brief response in The Times’ own readers’ forum who provided the factual details and context which the paper should have done to make its story more credible:

Barclays does not deserve this criticism.

I believe the article grossly overstates the amount advanced to farmers. Most likely the figure of £750m was derived based on the unrealistic Zimbabwean official exchange rate. Barclays Zimbabwe does not have the capacity to fund a loan book of that size. (And most likely, nor does the country’s agricultural sector currently have the capacity to utilise that kind of money! CM)

Besides, agricultural loans are not funded by Barclays, but by the Reserve Bank of Zimbabwe (RBZ). Barclays, like any other commercial bank operating within Zimbabwe, is disbursing ASPEF loans to farmers on behalf of the RBZ. Banks in Zimbabwe are reluctant to fund agricultural operations as the risk of default is perceived as high.
(Generally all over Africa and in many places beyond, agricultural lending, especially to inexperienced part-time farmers with little collateral, is not something banks rush out to do! CM)

We should also note that Barclays Zimbabwe operations are largely funded by deposits mobilised from the local market, not offshore credit facilities as implied by this article. (Barclays has found Zimbabwe a tough but obviously lucrative banking environment, which is no doubt why it continues to open new branches, with profits earned in the country, not those of British investors, banking customers or taxpayers. CM)

Mike, Harare, Zimbabwe

Times reader “Mike” was too polite to say so, but it was kind of mischievous of the paper not to tell us if its fantastic pound sterling figures were converted from Zim dollars. If so, as is likely to be the case, what exchange rate did they use? If they used the Zimbabwean government’s low, widely ridiculed and ignored rates (approx.Z$62,000 = £1), then one could see how they could come up with the incredible figure of 34 million pounds sterling as Barclays’ Zimbabwe profit for just one year. Based on what would be truly fantastic returns, the British ought to be encouraging the bank, and others, to be increasing their investments in Zimbabwe, not scaling them back!

But if the conversion from Zim dollar to pound sterling were done at the rapidly changing “parallel market” rate that almost everybody uses (today it is at Z$3,200,000 = 1£) then The Times figures would look much less formidable and impressive, by at least 50 fold!

Just on the basis of leaving out this huge and important exchange rate discrepancy, the Times story’s figures are largely nonsensical as a reflection of doing business in Zimbabwe.

So, Times, we know you can’t stand Mugabe. A lot of people in Zimbabwe share your feelings. But it is nauseating when a paper of your stature has to appear so desperate to attack Mugabe on the thinnest grounds that it must write non-stories such as this. Apart from the exchange elements I have limited my comments to, there is nothing in the story that has not been known or written about thousands of times over the years now. I am puzzled at the attempt to hype this recycled information to appear as if it is new.

And it took The Times three reporters to write this non-story!

When there are so many solid grounds on which to criticise Mugabe, it is a measure of The Times’ standards of Mugabe-bashing desperation that it should feel the need to sink this low.

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