An International Relations Dilemma
Zimbabwe is an international relations dilemma. For the past twenty years, it has divided international opinion, each side firmly convinced that they were doing the right thing.
Western countries slapped targeted sanctions or restrictive measures upon leading figures of the political establishment and some state-related corporate entities. They cited human rights violations, flawed elections and tyrannical rule as grounds for the sanctions. The Mugabe regime had since a constitutional referendum in February 2000, allowed a land reform programme in which commercial land was violently seized from the white farmers. The conduct of elections was also marred by state-sponsored violence and allegations of rigging.
Most African countries on the other hand, stood with the Mugabe regime, calling on the West to remove the sanctions. The Mugabe regime managed to persuade peers on the continent that the sanctions regime was really punishment for its audacious exercise to take the land from the white farmers for redistribution to the masses. It argued that it was being punished for attacking the institution of private property.
This was, in reality, a bilateral fight between Zimbabwe and its former colonial overlord, Britain, Mugabe argued. Predictably, the Mugabe regime took full advantage of the sanctions regime, blaming it for Zimbabwe’s economic troubles. That the delinquency which had driven the country into the abyss had started long before the West imposed those sanctions was ignored. Zimbabwe, had in fact, fallen into arrears over its loans from the IMF in 1999.
There appeared to be a window of convergence in the wake of the coup that toppled Mugabe in November 2017. The coup itself was never condemned. Everyone around the world pretended that what had happened was not a coup. They were happy to call it a “military-assisted transition”. Formerly critical Western countries appeared to warm up to the new man at the helm, Emmerson Mnangagwa, believing that he was both pragmatic and reform-oriented.
For the first time in twenty years, the Zimbabwean government appeared to enjoy international goodwill. Many people wished it well. Nevertheless, some Zimbabweans were not persuaded that there was any new in the regime. They watched in despair as some in the West went on a dalliance with the Mnangagwa regime, which called itself the New Dispensation.
It did not take long, however, before old scars opened up again, exposing fresh wounds. The reform wheels of the Mnangagwa regime lacked grease. There was little appetite for electoral and political reforms. The chasm between Western and African countries over Zimbabwe re-emerged over the elections. While Western observers condemned the elections as failing to meet the mark, African observers approved them. African leaders were quick to send their congratulatory messages, well before the electoral dispute was resolved.
It is against this background that the stark contrast between the EU and SADC approach to Zimbabwe in recent weeks can be understood. SADC issued a statement of support to the Zimbabwean regime. SADC leaders essentially ignored the allegations of state-sponsored human rights violations, notwithstanding the abundant evidence in the public domain. They had listened to one side and never sought a response from the opposition and NGOs which ZANU PF accused. SADC called for the removal of sanctions.
On the other hand, the EU has essentially retained the sanctions regime. It consists of travel bans against Mugabe and his wife, Grace and an arms embargo against the Zimbabwe Defence Industries. There is a suspended list of named individuals, who include Vice President Constantine Chiwenga, Minister Perence Shiri and ZDF Commander, General Valerio Sibanda.
Earlier, the EU Parliament had raised the tempo, adopting a resolution which gave the impression that more names would be added to the list. However, the EU Council simply maintained the sanctions regime as it was, neither adding nor removing names.
ZANU PF appeared relieved by the EU’s approach, which was seen as a reprieve. This is because ZANU PF had feared the worst in wake of the bad international publicity which followed the high-handed state response to the demonstrations in January. Britain, which many perceived to have thrown its weight behind the regime during the former ambassador’s tenure, was highly critical following the brutal crackdown.
The Minister for Africa, Harriet Baldwin had indicated a new approach towards sanctions in a hearing before a parliamentary committee at Westminster. She had stated “… with regard to sanctions … I think that since the recent developments there might be a case for widening it to include further individuals.” In the end, with no new names added to the list, the retention of the sanctions regime was better.
The EU approach to Zimbabwe has been described as “a case study in policy failure and the limits of global influence” by international relations scholar, Joe Devanny. In a comprehensive article on seventeen years’ of the EU’s restrictive measures, Devanny argues that they have “provided a tough lesson in the limits of the EU’s influence and global reach.” “Put simply,” writes Devanny in the Mail & Guardian, “the EU is nursing a failed Zimbabwe policy in the absence of better alternatives.”
Apart from signalling moral disapproval of the Mugabe regime, it has achieved little by way of incentivising behaviour in Harare. This is why Devanny argues that there is need for the EU to think beyond restrictive measures and “re-explore more imaginative options to pursue in parallel”.
Without actually doing anything to change behaviour, the EU’s restrictive measures have been a gift to the Mugabe regime, and its successor, it being a regular point of reference when they want to shift blame for economic failure. Writing in 2005, I argued that the however well-intended, the sanctions regime would be used by the Mugabe regime to further its own political interests.
Writing 14 years later, Devanny echoes a similar view “After all, the measures have long since become a red herring, useless for changing the regime’s behaviour and even counter-productive. For years, Mugabe confronted the measures (and their US counterparts) as something like a free gift, which he re-packaged to deft rhetorical effect, hammering home the narrative of ‘Western sanctions’ — a narrative to which many are receptive, including, it seemed recently, President Cyril Ramaphosa.”
Indeed, the support that ZANU PF has received from African governments is based on this notion of victimhood. Mugabe took full advantage of it and Mnangagwa is reading from the same script.
African governments, particularly the ANC government in South Africa, are batting for ZANU PF not merely on account of a long-held comradeship dating back to the liberation war days when it fought alongside the old ZAPU. They are doing so out of self-interest. Of critical significance in this regard is that the ANC has a pending land reform programme.
The notion that Zimbabwe is being punished for its land reform programme and therefore, serves as an example to South Africa, Namibia and others is not insignificant in this context. Therefore, when President Ramaphosa and his party and government rail against sanctions in Zimbabwe, they are doing it in defence of their own interests too, a sort of pre-emptive strike.
The visit by President Ramaphosa in March will be a show of solidarity but also a defence of self-interest as his government prepares to embark on a land reform process which is likely to draw international attention and headlines.
One lesson from the SADC reaction to the Zimbabwe situation where it virtually ignored the state-sponsored human rights violations and backed a government that carried out a brutal crackdown upon its people using the military for the second time within six months is that the ordinary people can find no salvation from the regional body. SADC has proved itself to be a network of cooperation for leaders against their people and is not interested in the protection of rights and freedoms of the people. One response to this for the people, through civil society and alternative parties is to create their own networks of cooperation.
The “retirement” of the Generals
President Mnangagwa announced the retirement of 4 top generals, all of them re-assigned to the diplomatic service. Naturally, it has raised speculation as to what it means.
One theory is that Mnangagwa is merely taking advantage of the absence of his Vice President, Constantino Chiwenga, a former military general to make significant changes in the security sector and consolidate his power. The move comes at a time when Chiwenga is currently infirm and away in India. Should he return to his role, Mnangagwa would have reconstituted the top echelons of the military to his liking, without having had to consult his deputy who has more intimate links with the military. In short, Mnangagwa is using the opportunity to create his own military command.
Another closely related theory is that Mnangagwa is getting rid of potential threats within the military. The diplomatic service is a quiet zone and no one with immediate political ambitions wants to be sent away to a foreign mission. It is physically far away from home and the political community. If you are a general, a foreign posting is too far away from your source of power in the military. It is often said that coups beget coups and those who have had a taste for power through a coup are likely to do it again. Likewise, those who harbour ill-will after the last coup might seek revenge. Therefore, to prevent another coup, Mnangagwa had to take pre-emptive measures.
A third theory is that far from being a purge, the “retirement” of the generals, is simply a game of musical chairs. The system is very adept at creating smoke and mirrors. Those new to how the system operates might easily be fooled when an unsavoury person is removed from his position. They will receive a serious shock, however, when they see the replacement who might be worse, or when they see the same person re-appearing elsewhere in the system, albeit in another role. They don’t retire, no, they merely circulate within the system. A few examples will illustrate this phenomenon.
In 2002, the then Brigadier Douglas Nyikayaramba was “retired” to the Electoral Supervisory Commission, the elections body at the time, where he held title as the Chief Elections Officer. He presided over the elections held thereafter, particularly the farcical 2008 elections. As Chief Elections Officer, he was effectively the military hand at the highest level of the elections body. Afterwards, Nyikayaramba returned to the army, where he received promotion. He is one of those being “retired” to the diplomatic service but there is no guarantee he will not return in future.
The current commander of the Zimbabwe National Army is Lieutenant-General Edzai Chimonyo. He was, until the November coup that toppled Mugabe, the Zimbabwean Ambassador to Tanzania. He was brought back to head the army when Mnangagwa took over. The fact that he had been sent to diplomatic service was no barrier to him returning to the helm of the army.
The current director general of the Central Intelligence Organisation, is Isaac Moyo. He was, until the November 2017 coup, the Zimbabwean ambassador to South Africa. He was also brought back from diplomatic service by Mnangagwa to lead the spy organisation, confirming again that they circulate within the system.
This therefore, is a familiar story. The “retirement” of the generals is just part of an elaborate game. They are still very much part of the establishment. Some may have become an inconvenience, killings for the moment but it does not mean they are being driven out of the system. This could be so in the case of Major General Sanyatwe, who headed the military unit implicated in the killing of civilians in the demonstrations shortly after the elections last year.
Sanyatwe’s performance at the Motlanthe Commission of Inquiry was remarkably bizarre and while he may have been useful to Mnangagwa’s ambitions in November 2017 and August 2018, for the moment he has probably become inconvenient. He has therefore been shifted to another part of the system but the important thing is he is still part of the system. He will just be a away from the scene of action.
The Governor of the Reserve Bank of Zimbabwe, the central bank, announced the new Monetary Policy Statement (MPS) on 20th February 2019. The most significant highlight was the announcement regarding the country’s currency policy, for long a highly controversial issue.
In essence, Zimbabwe has a “new” currency which the government calls the RTGS Dollar. The name of the currency has surprised many Zimbabweans. But the issue goes well beyond concerns over the name. The concept itself as currency is an enigmatic choice. Most of us lay persons have no idea what RTGS means. So I did a little research:
As most know, RTGS is an acronym for Real Time Gross Settlement. It is a payment system. A payment system is a set of rules, standards and procedures which facilitate the transfer of funds between payers and recipients. In a payment system, there is a settlement agent, whose role is to ensure that funds are transferred between different parties to a payment.
The settlement agent helps to reduce the risk of failing to make the payment. This role is best held by a central bank, which is supported by the state and therefore removes the risk of not settling. Under this system, banks open accounts with the central bank, which then facilitates payments between them. RTGS is therefore one of these payment systems operated by the central bank. A bank’s account at the central bank is used to transfer money in “real time” to another bank on the same system. This is done in real time or instantly. This facilitates easy, irrevocable (final) and risk-free settlement. In most countries the RTGS is used to facilitate high value transactions.
There are different payment systems across countries, although many apply internationally. Visa and MasterCard which issue debit and credit cards also provide payment systems. One payment that would be most familiar to Zimbabweans is ZimSwitch, which connects automated teller machines of different banks across the country enabling customers to withdraw cash or make payments for goods and services.
In essence, our government is framing a currency out of something that is universally known as a payment system. But just how new is the RTGS Dollar?
The fact of the matter is that what is being packaged as new is not new at all. Most Zimbabweans have become familiar with the term as a result of years of working the parallel currency market. Zimbabweans have over the years bought or sold currency using hard cash or their electronic balances (RTGS). They have always known physical cash yields more profit than electronic cash. The phenomenon of “burning money” when money changers made huge profits (and in some cases huge losses) was facilitated, in part, through RTGS transfers.
The government uses the RTGS payment system to credit balances to its employees’ accounts at the banks. Even when it ran out of money, it discovered that it could simply use this facility to create new money. The problem manifested when the employee went to the bank to collect his money. The balance was on the books, but the bank had no hard cash to pay out. The bond note was brought in as a stop-gap measure, hence the pretence that it was at par with the USD, but that fiction had very short legs which tired very quickly.
Furthermore, last October, the government introduced a new currency policy which demanded a separation of Foreign Currency Nostro accounts from RTGS Nostro accounts. This in itself was an acknowledgement of the existence of the “RTGS Dollar”. So no, there is nothing new in the idea of the RTGS Dollar. Towards the end of last year, reports indicated that the value of RTGS balances was in excess of $10 billion.
What is new about the RTGS Dollar is that its value is no longer fixed at par with the USD, but it is not floating in accordance with market forces. In other words, the value of the RTGS Dollar will vary depending on the forces of demand and supply.
The new policy of liberalising the currency market is something that some people had called for in light of their criticism that the fiction of the 1:1 between RTGS/Bond Note and the USD was untenable and unsustainable. The Government itself was heavily criticised for its inconsistency, because it had policies which undermined its policy that the pseudo-currencies were equal to the USD. Indeed, in some cases it demanded payments in foreign currency, which showed a lack of confidence in its own pseudo-currencies.
In any event, the parallel market was already flourishing and it was unrelenting. The more the government insisted on the fallacy of the 1:1 exchange rate, the more the parallel market grew and strengthened. No rational person would have sold his USD at the 1:1 exchange rate. Most resorted to the parallel market where it was selling at 3.5. Here at the #BSR our view was that the government would once again be forced to follow the parallel market just like it had done in 2009 when it dollarized. It is not surprising that the government has followed the market and liberalised the exchange rate policy.
The government’s problem is that it was not honest with the people. It created a fiction in 2016 when it introduced the bond note and told Zimbabweans that it was equal to the USD when it was plain that this was impossible. It is true that all fiat money is based on a fiction, whose success depends on the extent to which it is believed by a significant number of people. The greater the number of people who believe in the fiction, the more successful it is.
The USD is successful partly because it commands trust across a significant number of people around the world. But its success is not perpetual. Great currencies have risen, flourished and gone extinct over the course of history. When the government created the bond note in 2016, and said it was equal to the USD, it was a fiction that was very hard to believe.
But something happened while everyone was focussing on the bond note. The fiction of parity with the USD later extended to the RTGS Dollar, i.e. the electronic balances held at the banks. The government created false dollars, whose payment could not be met upon demand. It’s like giving someone notes from a game of monopoly and that person goes to the bank to present them in return for real dollars.
This is why dollarization, whatever its virtues was an impossible task for this government. If they dollarized at the rate of 1:1, where would it get the USD10 billion to cover these RTGS balances? Zimbabwe’s is less than USD5 billion. The second problem is that the government had told stories that it could not support. Over the last few years, the government told the nation that AFREXIM Bank based in Cairo, had provided a facility to guarantee convertibility of bond notes (and RTGS) into USD. But USD10 billion? The nation has never seen any of these so-called facilities notwithstanding the fact that the Constitution of Zimbabwe requires such facilities to be published.
So right now the immediate problem on most people’s minds is what happens to their savings, wages, pensions and financial obligations? A responsible policy-maker would have prepared a Frequently Asked Questions (FAQs) section in the new MPS. It would have anticipated questions that were most likely to arise and given answers. This would have helped clarify matters relating to an issue that directly affects ordinary people. What happens where one’s wages were paid in foreign currency now that the RBZ says all transactions must be settled in RTGS Dollars? What happens where a customer had $10000 in his account on the basis that the exchange rate was 1:1 and now the RBZ says the starting exchange rate is 1:2.5?
There are many more questions, which people are asking which the RBZ could have pre-empted with careful planning and articulation. This is usually easier done when a policy-maker consults widely, because they get these questions through consultation and prepare answers in advance. Lack of policy clarity is bad or business. No wonder businesses such as South African Airways immediately issued a notice regarding ticketing arrangements, pending further clarity from the RBZ.
Forex Retention Scheme
The forex retention scheme for exporters has some curious features which run contrary to the notion of liberalisation of the currency policy. The government is still compulsorily acquiring large chunks of export receipts. Gold producers will have to give up 45% of their export proceeds, and retain 55% in foreign currency. Tobacco growers are the worst hit. A tobacco farmer is allowed to retain just 30% of export proceeds, leaving 70% in the hands of the government. Curiously, by contrast, a tobacco merchant (middleman) retains 80% of export proceeds – a massive 50% difference with the grower. The policy rewards the middleman ahead of the grower. It privileges capital over labour. It is better to be a middleman than a primary producer.
This is curious given the role of the primary producer. Some might say the remainder for the farmer will be at the prevailing market rate so there is no problem. But that assumes that the official “market rate” will be consistent with the parallel market rates, if the latter survive. In any event, if that logic works why not treat growers and merchants similarly? Others argue that tobacco merchants are given preferential treatment because they source inputs for the farmers, but that hardly explains the magnitude of the difference in treatment.
Not only is the export retention scheme contrary to the idea of liberalisation but it is also an disincentive to growers, but the government could be killing the goose that lays the golden eggs. No wonder small-scale gold producers end up circumventing the official government buyers, selling to middlemen instead. In the end, these punitive measures hurt the government, which loses revenues.
Another apparent contradiction is that while the government insists on the maintenance of a multi-currency regime, it still issues a command that all transactions must be denominated in the RTGS Dollar. It is not immediately clear why the government insists on the fiction of multi-currency while at the same time commanding that only one currency must be used.
Likewise, the government is commanding that exporters must use all their foreign currency receipts within 30 days or risk having them converted (essentially compulsorily acquired) at the prevailing market rates. So not only is the government confiscating foreign currency receipts, it is also telling business what to do with their property within a very short space of time. This leads to short-termism in business planning, with is not helpful. In any event, it has implications on the constitutional right to private property.
Finally, the idea of foreign currency allocation and the forex allocation committee is itself not in sync with the idea of liberalising the currency market. Merchants in those importing businesses will be riding on the sweat of tobacco farmers and small-scale gold producers whose export proceeds are compulsorily acquired by the government. Besides, there is a lot of rent-seeking and corruption in the opaque foreign currency allocation system.
However, the biggest issue will arise over the demand for physical cash. The RTGS Dollar is a virtual currency (electronic). The only local equivalent of physical cash is the bond note, which according to the MPS, will now be part of a set that is called RTGS Dollars.
Late Friday it emerged that Mnangagwa has used the Presidential Powers (Temporary Measures) Act to amend the Reserve Bank of Zimbabwe At and the Exchange Control Act, yet another executive measure to amend primary legislation, which should ideally be a task for parliament. The lw is clear that only Parliament can amend primary legislation and this practice of amending primary legislation via presidential decree is undemocratic. In any event, these statutory instruments give the RBZ the power to create electronic money, and specifically RTGS Dollar, which is now specified as legal tender.
In practice, as we have seen, the RTGS has always been de facto tender – the RBZ itself even commanded banks to create RTGS Nostro accounts, separate from USD Foreign Currency accounts. Why were they designating RTGS Nostro accounts if the RTGS was not legal tender? Are they accepting that they were committing an illegality all along?
The new statutory instruments state that the RTGS balances will be converted at the rate of 1:1 to the USD, but thereafter, they will be valued at the prevailing market rate. Since, the RBZ says the starting prevailing rate is 1:2.5, this means all balances immediately become devalued to that extent from the effective date. Where you could exchange 1 RTGS Dollar for 1 USD, you will need 2.5 RTGS to get 1 USD. This is the immediate impact on the ordinary person. There will be time for further analysis of these statutory instruments. Suffice to say there has been a hasty, if untidy attempt to legalise the new currency policy.
Nevertheless, it can be agreed that in effect, bond notes will act as the physical representation of the bond note. But needless to say, they won’t be enough to meet demand. There is far too much of the RTGS Dollars to be satisfied by the bond notes. This is why the government will eventually meet this demand for physical cash by resorting to the printing machine. It can be said that if the RTGS Dollar is not already the Zimbabwe Dollar by another name, it is certainly a precursor to the new local currency. In fact, the likelihood is that the physical currency is already printed and soon the RTGS Dollar will give way to whatever name they are going to assign it.
The BSR has covered three critical issues:
The EU and SADC responses to the crisis in Zimbabwe – the EU appears unsure as to how to deal with Zimbabwe. The sanctions regime is merely a mark of disapproval but it is hard to understand the effect of keeping a retired couple under travel bans while sparing those who have been active in the crackdown upon citizens. As Devanny has argued, the EU policy on Zimbabwe for seventeen years has shown a lack of imagination and if anything, ZANU PF has taken full advantage of it to further its own political interests. SADC on the other hand, in particular, South Africa, is fighting its own war, with Zimbabwe as a proxy, because it has a looming battle over land reform which will probably place it in conflict with the Western countries. They are fighting a war before it has begun.
The military generals have been put out to pasture, but they are still part of the system. The system does not discard, it simply places its members in circulation. They have been sent away before and they have returned in other capacities. It is too early to write them off as long as they remain within the system.
The currency issue is critical. Much will depend on how the market reacts. It’s too early to judge but with the government’s appetite for sending, and the demand for physical cash, printed money will be in circulation sooner rather than later. Has the government learnt why we ended up without a currency? Have those fundamentals been resolved yet? There is every chance that we will back where we were, unless those fundamentals are attended to. As always, the real market is with the people. The success of the RTGS Dollar depends on how much the fiction is believed by the market.