Zimbabwe has a Clown of a Central Bank Governor

By Levi Mhaka

Published December 29, 2007

On December 19, 2007, the Reserve Bank of Zimbabwe (RBZ) Governor, Czar Gideon Gono was live on both national radio and TV for an hour to demonetize the highest denomination of the local currency, the $200,000 bearer cheques and at the same time introduce the notes of bearer cheques - $250,000; $500,000 and $750,000.

The introduction of 3 new bearer notes does not need to have been given such a grandiose posturing by our central bank chief.

Welcome to the world of Czar Gideon Gono The term Czar is applied generally to a powerful leader or to a government administrator with wide-ranging powers. This was a title of rulers or emperors of Russia from the 16th century until the Russian Revolution in 1917 and was derived from the Roman title, Caesar.

The presence of the Czarist Governor on both national radio and TV had been advertised after every news bulletin during the whole day that he was to be interviewed live. Doing what he knows best – talking to himself, from the time he started at 9.07pm, he was introduced and the first question posed.

He then spoke for 40 minutes without interruption and without being interviewed. It could have been mistaken as an address to the nation – a responsibility reserved for the State President at the end of each year.

Lets us make comments to most of Czar Gono’s concerns in the banking sector:

1. Cash Barons – Czar Gono said that the cash shortage was being caused by so called “cash barons” and that the central bank had $65 trillion cash in circulation that was not being accounted for. A baron is one having great wealth, power, and influence in a specified sphere of activity. Why should it be illegal not to bank one’s cash?

The RBZ is failing to recognize the fact cash generators in an economy like retailers, public transporters, hospitality entities (hotels, restaurants, etc) and general traders must not be inconvenienced to do business by using the financial services sector. One does not bank his cash to spend the whole week queuing to use it after getting not more than $5 million per day in an economy with a little population of point of sale (POS) swipe machines. What constitutes a “cash baron”? We seem to be fond of throwing labels, criminalizing and disadvantaging all those who are eking out an honest living out of legitimate business activities.

There are 4 indicators to prove that the arrest of the so called cash baroness as reported by the Sunday Mail on December 23, 2007 was stage-managed to target businessman and farmer Jonathan Kadzura, a frontman for Czar Gono on various business interests, former Air Zimbabwe Board Vice Chairman and an Advisory Board member of the RBZ, whom he is believed he must have been used enough:

i. The events leading to the lady’s arrest do not make sense. The manner in which she was discovered as she was driving and later arrested is dubious;
ii. Her face was covered during the newspaper’s sub-editing to further show there were doubts about her;
iii. It does not take more than a day to trace where the money had come from because it had sequential serial numbers since these were brand new notes of the newly released $500,000 bearer cheques – there is no bank in Zimbabwe that would have risked itself to release such a large amount of cash to one person; and
iv. The Zimbabwean police is not known for doing Hollywood-style chase, arrest and criminal investigations under the glare of the public media. At what point was the Sunday Mail alerted and by who to be right there during an arrest and record all the exchanges between the police and the lady for publishing? Many times the Sunday Mail and the Herald are well known for not covering arrests until they appear in court. What should be published should be what the police would have prepared as docket for the prosecution which will be a public document at the court on the day of court of appearance.

2. Timing of the Release of New Notes – when the new higher denomination bearer cheques were released, it was 4 days before Christmas Day. The first 2 days (i.e. Thursday and Friday) of those 4 days, banks were giving people new and crispy $200,000 bearer cheques because they had in turn had received from the RBZ. What madness!

Banks were forced through an uncontested central bank decree (CBD) to work overtime including Saturday and Sunday at their own expense as if they contributed to the cash shortage in the first instance. Queues have not ended. Until after Christmas Day, people were working up very early to queue for cash and banks were opening till until 6pm incurring costs that were not of their own making but because of the failure by Czar Gono to have dealt with the so called ‘cash barons’ without affecting ordinary people and the financial services sector.

On December 23 and 24, 2007, those with corporate accounts were not allowed to withdraw cash. The so called RBZ surveillance teams were deployed in banks to ‘monitor’ the behaviour of banks in compliance with the Csar’s CBD, virtually taking over branch operational arrangements.

The size of central bank bureaucracy that is required to perform these quasi-fiscal responsibilities will be the size of a government.

Lines of authority of banks and operational discretion have suspended without notice. For obvious reasons, most families in the rural areas depend on the groceries and cash disbursements from those working in the urban areas. It is futile to those in rural areas as detached from the urbanites. This year citizens had a bleak festive period. $20 trillion is said to have been released yet it is enough to give 400,000 account holders $50 million only per day.
This action by the governor was after the country had gone through a cash shortage for 6 weeks and then the governor had responded by saying the central bank would not get involved in providing the obvious solution and would wait to see how the cash crisis resolved itself. He must been relieved of his duties by now.

Czar Gono claimed at the ZANU-PF congress that while the central bank had injected $67 trillion into the market, only $2 trillion could be accounted for by the close of business the previous week. With a maximum daily withdrawal of $50 million, only 1,340,000 people are able to get cash on each day on the condition that all those who receive the cash today will have to deposit all of it for the next lot of withdrawals the following day.

Alternatively, if we are to share the $67 trillion equally, each one of us will get $4,8 million, just enough to buy medium chips from a fast food outlet. Conservatively, we need $100 trillion to allow a mere 2 million bank account holders to withdraw the daily maximum $50 million.
This all excludes the corporate and other institutional cash requirements. Czar said there are 2,1 million active corporate and institutional accounts in Zimbabwe . Alone, they will require not less than $210 trillion through a maximum daily withdrawal of $100 million.

In South Africa , a bank account holder is allowed to withdraw a daily maximum of R3,000, enough to buy a six-months grocery for an above average family. The $50 million is enough to buy 2 litres cooking oil ($15 million), 2 litres Mazoe drink ($10 million), family size toothpaste ($20 million). For middle to high income earners in Zimbabwe , one will have to go and queue in a bank for the next one week to buy basic groceries.

In South Africa , the highest denomination is R200 which can buy 2 crates of beer while the new highest denomination in Zimbabwe is $750,000 which cannot buy a newspaper of $900,000. Our highest denomination is enough to buy a plastic carrier bag at $600,000.

We needed the highest denomination of $100 million and other bearer cheques denominated $50 million, $20 million, $10 million and $1 million. By issuing smaller denominations, we are in denial that inflation is very high. Cash in circulation and the various notes to make transactions convenient are not themselves inflationary.

3. Shelf Companies – a shelf company is a corporation that has had no business activity. It was created and put on the "shelf". This corporation is then later usually sold to someone who would want to save time involved in taking the steps to create a new corporation. If there is no business activity being conducted by the company, it is called a dormant company. Because the company has been bought by someone and a bank account opened, it can no longer be called a ‘shelf company’.

One cannot register with ZIMRA unless a bank account has been opened even if there is no trading being undertaken by the dormant company. The RBZ must be informed that a lot of investment and holding companies are not trading entities themselves. Investment companies are many times the special purposes vehicles (SPVs) that hold investment portfolios while holding companies have trading entities like TA Holdings.

4. Creating/Expanding the Tax Base – the RBZ governor is pursuing a responsibility of ZIMRA in creating or expanding the tax base. ZIMRA can embark on this exercise successfully without RBZ governor’s involvement. With the Registrar of Companies having been computerized, what is needed is for ZIMRA to collect all companies registered over the past 10 years ago and following them up for tax compliance. The tax authorities can then go for those registered over 5 years ago until they net those being registered now.

5. Withdrawal Limits – before Czar Gono, each bank would decide at operational level as to how much it can allow its customer to withdraw. Bigger amounts required a day or more advance booking. Each bank has products with different benefits – like current or savings and different classes of the two categories. There are building societies, commercial banks and the POSB. Czar Gono cannot expect them to offer the same kind of products and services.
There should be product differentiation and segmentation in the banking sector. He talks about high net worth (HNW) private banking services, especially found in the Belgravia area of Harare , as if the haven of illicit banking.

The appointment of Czar Gono has seen him standardized banking services and products and destroying competitiveness as if we under a Stalinist regime. Josef Stalin was of the then Soviet Union brooked no dissent from policies, of which he assumed the role of sole infallible interpreter. Stalinism includes an extensive use of propaganda to establish a personality cult around an absolute dictator, as well as extensive use of the secret police to maintain social submission and silence dissent.

6. International Award – on December 10, 2007, Czar Gono was reported to have won a European Marketing Research Centre (EMRC) (Africa Award) “for the role he is playing in instilling discipline in the financial sector and his efforts in turning around the country's economy”. A visit on the EMRC website (www.emrc.be) simply mentions the existence of awards. There are no criteria, the different award categories and the award nomination form. One is forced to see the use of money behind this dubious award to a central bank governor who has appropriated all the powers of the State President, first minister (Prime Minister) and Minister of Finance. He wishes he has arresting powers as well!

7. Appearance Before a Parliamentary Committee – Czar Gono said he was prepared to name those involved in illicit dealings involving cash and forex, but only before a parliamentary committee. He challenged the Budget, Finance and Economic Development Committee, Chaired by ZANU PF Guruve North MP David Butau to summon him to give evidence. This is typical clownish behaviour. He has failed to compile reasonable information for the police to deal with if there is enough evidence to prosecute. He then wants to make other people be seen as criminals under the cover of parliamentary privilege to avoid being sued. Following the refusal by Butau to have Czar Gono appear before the parliamentary committee, police have been reported to be looking for him over exchange control violations linked to one of the subsidiary companies of Dande Capital Holdings (Pvt) Ltd.

Czar is a proxy of the Tsholotsho faction. One can easily see the hand of a certain prominent political professor and the hand of Czar Gono in dealing with anyone who may be associated or linked to a ZANU PF faction allegedly around General Solomon Mujuru – Julius Makoni and James Mushore both of NMB Bank; William Nyemba of Trust Holdings; Herbert Murerwa who was relieved of his duties as a Minister of Finance; Ibbo Mandaza who lost the Mirror newspapers group to Gono, and later deliberately let it die; Ret. Colonel Samuel Muvuti who was relieved of duties at GMB; Sobhusa Gula-Ndebele who has been suspended as the AG over James Mushore’s issue; Simon Pazvakavambwa who was relieved of duties as the Permanent Secretary as the Agriculture Ministry.

Our Czarist central bank governor has become embroiled in political partisanship and factionalism because he wants to benefit out of the factional antagonism as a compromise candidate.

8. Banking Services Regulations – on December 23, 2007, the Sunday Mail reported that the RBZ has directed all employers to cease paying wages in cash, while banks are now expected to record serial numbers of notes given to a client during a withdrawal. There is also new regulation that says the minimum bank transfer (Real Time Gross Settlement - RTGS) will be $200 million and all bank transfers shall be accompanied by a tax invoice.

Other than a bank transfer for anything below $200 million, one will be expected to use
· cash (which is not readily available);
· cheques (which will require at least 4 days to clear and is only for those with current accounts) or
· VISA/Zimswitch POS swipe cards (which are in short supply in most trading places due to forex shortage and because of the shortages, one cannot get what is required in one shop. The ones are not always reliable because they rely on the Telone infrastructure).

This will kill online banking by a stroke of a pen. This will also inconvenience those who wish to lend a friend or relative some money and those who wish to finance specific domestic expenses. There is over assumption that whoever is transferring money, is doing for business. What if he/she is doing for personal, domestic or social reasons?

Recently, the Czar instituted new measures for banks to know their customers through rigorous “know your customer” (KYC) regulations. One wonders why these regulations are not enough. Why should new regulations are announced each time the Czar opens his mouth?
Czar Gono is driven by malice, insecurity, jealous and suspicion. The banking sector is represented through the Bankers Association of Zimbabwe (BAZ). He has cowed the BAZ like a destructive and arrogant movie character called ‘King Kong’. He has reduced the whole financials services sector (banks, building societies, merchant banks, discount houses, asset managers, micro-financiers and venture capitalists), into one big company and him being the Executive Chairman.

Czar Gono micro-manages banks to a point of running them and issuing directives. He even duplicates the role of external auditors in certifying banks’ financial results.

In psychology, a ‘control freak’ is a term for a person who attempts to impose excessive direction on others or on events, often associated with insecurity or a lack of trust. Frequently, a person labeled a "control freak" has a position of authority or superiority in a relationship; however, the person's obsessiveness extends beyond the acceptable range of control.

The amount of information and paperwork to be generated by all these numerous controls will be frustrating for the banking public who wish to do ordinary business with their own money.

9. National Survival Instinct and Currency Notes found in Neighbouring Countries – there are so many rands, pulas, dollars, pounds and Euros in Zimbabwe . The central bankers from South Africa , Botswana , USA , Britain and EU do not make concerns as to the availability of their currency notes in our country. Neither have they ever claimed that there is notes shortage because we have some of it here in Zimbabwe .

The existence of Zimbabwean notes in neighbouring countries is a sign that there is economic activity. For what is going on in the Zimbabwe economy, for the shortages that this economy is experiencing, for the level of inflation that we are now battering us, Zimbabweans have an instinct and initiatives to survive. It is simply politically suicidal not to address the root causes besetting the economy rather to go for symptoms.

Traders and salaried people are simply converting their hard earned cash into forex to lock value and then liquidate few dollars/rands of their savings when they need to make use of the money. No matter what the Czar can say, no one will want to see his earnings lose value because of the inflation dragon.

10. Forex Barons – the manufacturing capacity is so low not to warrant the level of foreign currency appetite we are experiencing in Zimbabwe . Czar Gono has frequent meetings with international agencies and NGOs to negotiate with them the exchange rate for the forex they hold. The rate is always at the level or above the prevailing ‘black’ market rate. The acquisitions by the central bank (agricultural mechanization equipment; farming inputs, motor vehicles for the RBZ, ruling party and State/national institutions/offices, etc) are made in local currency to those who will supply the forex at black market rates.

There are 4 exchange rates in Zimbabwe in forex dealing:
· government;
· Street (i.e. ‘cash to cash’);
· RTGS (i.e. forex cash to bank transfer of the local currency) and
· TT (offshore, telegraphic transfer i.e. local currency RTGS to foreign bank transfer).

The government receives forex from the RBZ it would have bought using RTGS forex exchange rate. The street and RTGS rates follow the TT rate whose biggest customer/buyer is the RBZ for its quasi-fiscal activities (QFAs) under the cover of free funds. The street rate is mostly for personal and domestic expenses like DFI fuel, traveler’s cheques, groceries in South Africa and Botswana while the RTGS and TT rates are largely for commercial activities like importing finished and unfinished products and fuel for reselling.

The costing for products and services in Zimbabwe is pegged to an average of the RTGS and TT exchange rates. Street forex dealers in Harare can easily tell that this week the RBZ is in the ‘market’ buying forex for ZESA and other essentials and the RBZ will be offering a higher rate.

There are a number of well known RBZ street forex dealers who have run away with the money, and no police report has been made to avoid exposure of what the RBZ is doing.

The main customers of the street forex dealers are those who buy for personal and domestic use and those who sell forex via the RTGS exchange rate. Therefore they will never be wiped because there is demand for it since one cannot get forex from the bank at whatever rate. To destroy the street forex market, banks should simply be allowed to buy and sell forex with very minimal control of the rates by the RBZ. The existing controls are making the street and ‘office’ markets thrive. A person with forex will obviously wants to maximise the returns and will sell it to the one paying by RTGS if it’s a big amount.

So, who is the principal forex baron in Zimbabwe if it is not Czar Gideon Gono?

By serious reflection, Shona TV dramas in Zimbabwe have had characters like the late Mutirowafanza, the late Mukadota, Gringo, the late Arimando and Arineshito. These characters kept and keep TV viewers well entertained. They entertain by jokes, antics, and tricks. Their words or actions provoke or are intended to provoke amusement and laughter.

The Czar Governor is such a clown whose antics must be stopped. How often is he in the public media talking about anything? He competes for front page newspaper space and TV prime time with the State President and more pressing national issues!

He has become such a threat to national security if national security is the condition of the nation being protected against danger, inconvenience or loss to the integrity of national institutions, public health and lives. Cash shortages can cause a social disturbance and loss of political support for the ruling party!