JANUARY 2015

MONETARY POLICY STATEMENT


Rebalancing the Economy
Through Competitiveness and Compliance


BY

DR. J. P. MANGUDYA
GOVERNOR
RESERVE BANK OF ZIMBABWE

CONTENTS

INTRODUCTION

GLOBAL ECONOMIC DEVELOPMENTS

BALANCE OF PAYMENTS DEVELOPMENTS

Trade Balance

Current, Capital and Financial Account Development

Overall Balance of Payments Position

DOMESTIC ECONOMIC DEVELOPMENTS

Domestic Output

Inflation

Deflation (Price Correction) not Deflation

Inflation Outlook

FINANCIAL SECTOR DEVELOPMENTS

Structure and Performance

Capitalisation

Sector Profitability

Financial Intermediation (Deposits & Loans)

Sectorial Distribution of Loans & Advances

Performance of Microfinance Sector

Financial Inclusion

Non-performing Loans

Financial Stability

Distressed Banks

Tetrad Investment Bank

Metbank

AfrAsia Bank Zimbabwe Limited

STATUS OF RBZ SUBSIDIARIES

Export Credit Guarantee Corporation (ECGC)

Homelink

Fidelity Printers and Refiners

Aurex

PROGRESS ON BANKING SECTOR REFORMS AND INITIATIVES

Amendments to Banking Act

Basel II Implementation

Resolution of Non-performing Loans under ZAMCO

Consumer Protection

Capitalisation of the Reserve Bank

Credit Reference Bureau (CRB)

Enhancement of the Guideline on Relationship with External Auditors

Small Denomination Coins, Bond Coins

POLICY MEASURES

CONFIDENCE AND PRODUCTION ENHANCEMENT MEASURES

Demonetisation of the Zimbabwe Dollar

Distribution of Bond Coins

Changing Rand Coins for Bond Coins

Bank Charges & Lending Margins

Lowering Cost of Access to Banking Services

US$200 Million Interbank Facility

Harnessing Diaspora Resources for Economic Recovery

Accelerated Gold Production Initiative

Enhanced Coal Production

Platinum Refinery Project

Rehabilitation of the Manufacturing Sector

LIBERALIZATION AND COMPLIANCE MEASURES

Increase in the Free Threshold on External Loans

Extension of Amnesty on Non-recoverable Export Receipts

Export Facilitation

Inward and Outward International Remittances

Business Partner Numbers

Import Documentation Requirements

Limit on Advance Payments for Imports

Use of Free Funds

Acquittal of Import Bills of Entry

Acquittal of Service Payments

Penalty Fee for Non-acquittal of Import Bills of Entry

Validation of Imports

Compliance Awareness

POLICY ADVICE

Tourism Development

Pricing of Tourism Services Using a two Tier System

Trading Wage Freeze for Price Reduction

Addressing Cost Drivers for Competitiveness

Redefining the Poverty Datum Line

Amendments to the Labour Act

Empowerment Through Linkage Programmes

Conclusion

TABLES
Table 1:
Global Economic Growth (%)

Table 2:
International Commodity Prices for 2014

Table 3:
International Commodity Prices for January 2015

Table 4:
Zimbabwe’s Mineral & Total Export Earnings: 2009-2014

Table 5:
Global Foreign Exchange Receipts & Payments

Table 6:
Core Capital Levels as at 31 December 2014

Table 7:
Gold Bought and Refined by Fidelity in 2014

Table 8:
Regional Comparison on Advance Payments

Table 9:
Selected Macroeconomic Indicators 2014 (US$)

FIGURES
Fig 1: Commodity Price Indices (2005=100)

Fig 2: Zimbabwe Inflation & ZAR/US Dollar Exchange Rate Profiles

Fig 3: Implied REER and Nominal Effective Exchange Rates for Zimbabwe (Jan 2009=100) 15
Fig 4: General Merchandise Trade (US$ Million)

Fig 5: Overall balance of Payments (US$ million)

Fig 6: Annual Inflation Profile (%)

Fig 7: M3 Annual Growth Rate and Level

Fig 8: Structure and Level of Domestic Credit

Fig 9: 2011 and 2014 FinScope Survey Results

Fig 10: Trends for Non-Performing Loans from 2009 to December 2014

Fig 11: Gold Production for 2013 and 2014 (kgs)

Fig 12: Fidelity ZimGold

INTRODUCTION

This Monetary Policy Statement is issued, in terms of Section 46 of the
Reserve Bank of Zimbabwe Act [Chapter 22:15] at a time the nation is in
need
of
solutions
to
address
the
intertwined
challenges
of
uncompetitiveness, low productivity and lack of confidence (or war of
negative perception) besetting the economy.

The major causes of uncompetitiveness of local products are the higher
costs of production emanating from high mark-ups to sustain high
overheads epitomised by high utility tariffs, finance charges and wages
and salaries which are higher than those obtaining in neighbouring
countries and beyond. In addition the continued appreciation of the US$
against the country’s major trading partners’ currencies has made imports
cheaper thereby making local goods uncompetitive.

The combination of the above uncompetitive factors has continued to put
pressure on the balance of payments position of the country as imports
of finished goods have become the order of the day leading to company
closures and job losses. Lack of competitiveness therefore needs to be
urgently addressed across all sectors of the economy.

Monetary Authorities’ response to the national challenge of lack of
competitiveness due to high mark ups has been to procure the small
denomination coins, bond coins, as change for the US$ paper money to
deal with the rounding up of prices by businesses. The introduction of
small denomination coins is beginning to have a positive impact on the
prices of goods and services. The appreciation of the US$, on the other

hand, is outside the influence of monetary policy and should therefore be
taken as a fait accompli. It can only be addressed through higher
productivity and enhancing competitiveness which I will address later in
this Statement.

Given the lack of competiveness and its negative effects on the economy,
we do not see any room for wage and salary increases within the national
economy. Instead, the prevailing circumstances call for a downward
adjustment in the prices of goods and services in order to promote
competitiveness and ultimately for the recovery of the economy. Further
wage and salary increases would only serve to choke the economy.

Thus, instead of addressing the welfare of consumers (including workers)
from the demand side of the equation i.e. by increasing wages and
salaries, I am advocating to address the uncompetitiveness challenge
from a supply side of the equation i.e. for the reduction in prices to
increase the purchasing power of the US$. Hence, apart from the inability
of the economy to carry additional demand burden or load, I am
convinced that the economy and consumers would benefit more from a
price reduction than from increasing wages and salaries for obvious
reasons, chief among them being money illusion. Lower prices would
induce more demand through the concept of price elasticity of demand
which is good for both consumers and businesses and leading to the
rebalancing of the economy.

The second challenge of low productivity is closely related to lack of
competitiveness. Low productivity is attributable to a combination of poor
work ethics (poor work attitudes and lack of discipline) and the use of

antiquated plant and machinery within the domestic economy due to lack
of capital or financial resources to replace the old equipment. This
challenge would need to be partly addressed by amending the Labour Act
in order to bring it in sync with regional and international best practice to
foster productivity. At the same time, mobilisation of financial resources
for the modernisation of plant and equipment is also critical. As Monetary
Authorities, we are doing our part in mobilising the required resources by
the economy to upgrade some of the obsolete equipment. In addition,
the sluggish performance of the utilities sector both in terms of cost and
supply, especially energy inefficiency, is having a negative impact on
productivity

The third challenge of lack of confidence reflects the war of negative
perception which increases country risk that has negative effects on
liquidity and causes despair and despondency amongst many people
within the country. Government is addressing this phenomenon by
improving the business investment climate to ensure that Zimbabwe is a
good investment destination and to promote the ease of doing business
in the country. The Reserve Bank is buttressing these Government
initiatives by engaging the Diasporans through various outreach
programmes to encourage the Diasporans to invest in their country like
what is happening throughout the world.

As already stated in my previous Monetary Policy Statement, the above
challenges that the economy is facing are not insurmountable. I see
Zimbabwe as an ‘awakening giant’, ready to embrace the ‘Africa Rising’
narrative. The awakening is achieved through rebalancing, recalibrating
or resizing of the economy which requires the nation to concentrate on

competitiveness and compliance boosting drivers under a positive motto
that ‘Zimbabwe is back’ in business.

In line with the objectives of the Zimbabwe Agenda for Sustainable SocioEconomic Transformation (ZimAsset), we have identified in this Monetary
Policy Statement key focus sectors for improving the external financial
position (i.e. foreign exchange generation to shore up the much needed
liquidity) of the country. These are mining, (gold, diamonds, platinum,
chrome and coal); tourism; horticulture, tobacco and the Diaspora.
Agriculture remains critical for food security and supplying inputs to the
manufacturing sector. The manufacturing sector’s central role, on the
other hand, should substantially be viewed as spearheading value addition
and beneficiation that is necessary for economic recovery.

GLOBAL ECONOMIC DEVELOPMENTS

Global economic activity remained subdued in 2014, as the world
economy experienced a slower growth rate of 3.3% in 2014 (same as in
2013) against the initially projected 3.7 %. Economic activity was weighed
down by the intensification of geo-political tensions between the Russian
Federation and Ukraine, as well as political instability in the Middle East
and North Africa.

Notwithstanding these downside risks, advanced economies grew from
1.4% in 2013 to an estimated 1.8 % in 2014, largely underpinned by a
rebound in economic activity in USA. In addition, supportive quantitative
easing, robust labour market reforms, revival in investment, and a
reduction in the pace of fiscal tightening, increased contributions from net
exports and the stabilization of domestic demand, spurred economic

recovery in the Euro-area. The recovery in advanced economies, albeit in
an uneven manner, was attributed to the expansion in aggregate demand.

In emerging markets and developing economies, activity is estimated to
have slowed down from 4.7 % in 2013 to 4.4 % in 2014. Notably, the
weakening of economic activity in China, from 7.8 % in 2013 to 7.4 % in
2014, combined with heightened political tension in Thailand, contributed
to the downside risks to recovery prospects in emerging market
economies.

Reflecting the deceleration of economic activity in China, one of the
world’s largest commodity consumers, international commodity prices
retreated in 2014 as shown in Tables 1,2 and 3 and Figure 1.

Table 1: Global Economic Growth (%)

Projection

Projection
World Output

Advanced Economies

US

Euro-Area

Japan

Emerging Market &
Developing Economies

China

India

Sub-Saharan Africa

Latin America & the
Caribbean

Source: World Economic Outlook Update, January, 2015

Against the background of declining international commodity prices,
economic growth in Sub-Saharan Africa, declined from 5.2% in 2013 to

4.8% in 2014. This notwithstanding, growth patterns in the sub-region
remained uneven. For instance, in South Africa, economic growth in 2014
was constrained by recurrent industrial tensions and delays in fixing
infrastructure gaps, including electricity constraints. In contrast, economic
activity remained resilient in Nigeria, despite poor security conditions and
a decline in oil production.

In addition, commodity dependent economies, particularly in Sub-Saharan
Africa, including Zimbabwe, have experienced reduced export revenues,
and deterioration in their balance of payments positions.

Table 2: International Commodity Prices for 2014
2013/2014
Gold
Platinum
Copper
Nickel
Crude Oil
US$/oz
US$/oz
US$/tonne
US$/tonne
US$/barrel

Average

January

February

March

April

May

June

July

August

September

October

November

December


Average

Change (%)
-10
-7
-6

-9
World Bank Commodity Price Data

Table 3: International Commodity Prices for January 2015
Period
Gold
Platinum
Copper
Nickel
Crude Oil

US$/ounce
US$/ounce
US$/tonne
US$/tonne
US$/barrel
2-Jan

9-Jan

16-Jan

*Average (16 Jan)

Source: World Bank Commodity Price Data

Going forward, global economic activity is expected to improve from 3.3%
in 2014 to 3.5% and 3.7% in 2015 and 2016, respectively. The rebound
in global activity is underpinned by expected re-acceleration of economic
activity in advanced economies (2.4%) and USA (3.6%), compared to
1.8% and 2.4%, respectively in 2013. Economic activity in Emerging
Markets and Developing Economies and Sub-Saharan Africa is, however,
projected to remain almost the same at 4.3% and 4.7% respectively in
2015. The decline in oil prices is expected to have a positive re-distribution
effect from oil exporting to oil importing countries.

Despite the growth impetus provided by the decline in oil prices, offsetting
effects from economic slow-down in oil producing countries as well as the
stagnation and low inflation in the Euro-area and Japan, global economic
growth is projected to grow by 3.5% and 3.7% in 2015 and 2016,
respectively. The ability of the Euro-zone economies to navigate around
the possible threat of a deflation and stagnation through quantitative
easing, is envisaged to shore up global economic growth.

Figure 1: Commodity Price Indices (2005 = 100)

Source: IMF Commodity Price System, 2014

BALANCE OF PAYMENTS DEVELOPMENTS

Global economic developments continue to have a strong bearing on the
country’s external sector financial position or the balance of payments
developments particularly in view of Zimbabwe’s strengthening business
and economic ties with the rest of the world. In particular, commodity
trade continues to be influenced by developments in external demand and
supply conditions that determine price trends. This is particularly so, as
mineral exports accounted for an average of 51% of total export earnings
between 2009 and 2014 as shown below in Table 4.

2014M01
2014M02
2014M03
2014M04
2014M05
2014M06
2014M07
2014M08
2014M09
2014M10
2014M11
2014M12
Food Price Index
Metal Price Index
Energy Price Index

Table 4: Zimbabwe’s Mineral & Total Export Earnings: 2009-2014

Average
Shares
Mineral Exports


Total Exports


Mineral Exports/Total Exports

Source: Zimstat and RBZ

The decline in metal prices experienced in 2014 undermined export
earnings for most mining houses, resulting in lower fiscal revenues for
Government, and further deterioration of the country’s balance of
payments position. This development has effectively undermined the
contribution made by commodities to the development process.

Importantly, the marked appreciation of the US dollar against Zimbabwe’s
major trading currencies further exacerbated Zimbabwe’s external sector
position. This development increased the uncompetitiveness of
Zimbabwe’s external financial position since the appreciation of the US
dollar makes Zimbabwe’s imports cheaper while simultaneously
undermining the competitiveness of the country’s exports.

Lack of export competitiveness and a relatively high import bill combined
with limited access to affordable offshore lines of credit and depressed
capital and financial inflows resulted in the continued precarious balance
of payments position thereby affecting the country’s ability to build foreign
exchange reserve buffers, critical to absorb exogenous shocks.

On a total inflow (receipts) and outflow (payments) of foreign exchange
basis as recorded by the Reserve Bank, the country received US$7.6 billion
and utilised US$8.9 billion in 2014 as shown in Table 5 below.

Table 5: Global Foreign Exchange Receipts & Payments
Descriptors
Year 2013
(US$ millions)
Year 2014
(US$ millions)
Global Foreign Currency Receipts (Inflows)
7,712.4
6,496.9
Global Foreign Currency Payments (Outflows)
8,887.1
8.706.2
Global Foreign Currency Net Position
(1,174.7)
(2,209.3)
Individual Diaspora Remittances
794.0
837.4
International Organisations Remittances
1,092.7
919.1
Major Exports: Gold
Platinum
Tobacco
Diamonds
Major Exports as %age of Total Exports

Total FCA Balances
4,449.0
5,122.0


Trade Balance
Over the period January to December 2014, the country’s merchandise
imports amounted to US$6.4 billion, which significantly surpassed
merchandise exports of US$3.1 billion, culminating in a trade deficit of
US$3.3 billion. The subdued export performance reflected, in part, the
retreat in international commodity prices, lack of competitiveness
attributable to infrastructure deficits, high utility costs and high cost of
capital and finance.

Imports continued to outpace exports as the country continues to lose
competitiveness due to the strengthening of the United States dollar
against the currencies of Zimbabwe’s major trading partners. Figures 2
and 3 below show the country’s implied Real Effective Exchange Rate

(REER) and Nominal Effective Exchange Rates (NEER), both of which have
been appreciating since July 2011.

Within the auspices of the multiple currency system, exchange rate
developments remain beyond the country’s control. As such, the ability of
the country to cushion itself from the vulnerabilities attributed to real
exchange rate developments remains a challenge on the back of limited
fiscal space.

Figure 2: Zimbabwe Inflation &ZAR/US Dollar Exchange Rate Profiles


Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
ZAR/US EXCHANGE RATE
INFLATION %
ZIM INFLATION RATE
ZAR/US Rate
Source RBZ

Figure 3: Implied REER and Nominal Effective Exchange Rates1for
Zimbabwe (January 2009=100)


The trade deficit narrowed by 14 % from US$3.9 billion in 2013 to US$3.3
billion in 2014, reflecting the positive effects of the decline in crude oil
prices and the policies put in place by the Reserve Bank for business to
utilize resources for bonafide transactions.

1 An increase in the REER and NEER represents depreciation of the same, as the US dollar nominal exchange
rates were indirectly quoted. Conversely, a declining trend in these exchange rate indices represents an
appreciation.

2009 Jan
Apr
Jul
Oct
2010 Jan
Apr
Jul
Oct
2011 Jan
Apr
Jul
Oct
2012 Jan
Apr
Jul
Oct
2013 Jan
Apr
Jul
Oct
2014 Jan
Apr
Jul
Oct
NEER
REER

Figure 4: General Merchandise Trade (US$ Million)

Source: Zimstat


Current, Capital and Financial Account Developments

The sizeable trade deficit realized in 2014, as well as outflows in the
income and services accounts, culminated in the incurrence of a current
account deficit estimated at 25% of GDP in 2014. Net inflows in current
transfers, though considerable, were outweighed by the deficit in goods,
services and income accounts.

In the absence of foreign reserve buffers, the current account has largely
been financed by inflows from the Diaspora, and debt creating short term
and long term offshore lines of credit to the private sector. The Central
Bank thus encourages acceleration of the on-going ease of doing business
reforms in order to create an investment climate that is attractive to all
forms of productive capital that support export growth.


-400
-200

Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Exports
Imports
Trade Balance

Overall Balance of Payments Position
Notwithstanding the huge current account deficit and subdued capital and
financial inflows, the overall balance of payments position is estimated to
have marginally improved from a deficit of US$366 million in 2013 to an
estimated deficit of US$351 million in 2014, as shown in Figure 5 below:

Figure 5: Overall Balance of Payments (US$ Million)

Source: Reserve Bank of Zimbabwe


DOMESTIC ECONOMIC DEVELOPMENTS

Domestic Output

Reflecting the effects of adverse external sector developments on the
domestic economic activity, economic growth is estimated to have
declined from 4.5% realised in 2013 to 3.1% in 2014. With the exception
of the strong performance in the agriculture sector, which grew by 23.4%
in 2014, performance in most of the sectors remained subdued. The
agriculture sector benefited from the favourable 2013/14 rainfall season


Current Account
Capital Account
Overall Balance

and support from Government and cooperating partners. This resulted in
more than anticipated performances by major crops like maize and
tobacco.

Challenges in manufacturing, mining and other sectors, however,
continue to weigh down the economy’s growth potential. These sectors
are estimated to have shrunk by -4.9% and -2.1% in 2014, respectively.

The decline in the manufacturing activity, reflected by the fall in capacity
utilisation from 40% in 2013 to an estimated 36% in 2014, emanated
from persistent challenges which include antiquated plant and machinery,
influx of cheap imports, high cost of production, and weak demand
associated with the prevailing liquidity constraints and imports.

The mining industry performance was set back by the general decline in
diamond exports, international commodity prices, frequent power
outages, obsolete equipment and inadequate funding for recapitalization,
among other challenges.

Going forward, the economy is projected to further grow by 3.2% in 2015,
driven mainly by services, mining and manufacturing sectors. Investments
in various infrastructural projects already being implemented in electricity,
transport and housing, under ZimAsset are expected to provide additional
growth impetus.

Inflation
Annual average inflation, which fell from 3.7% in 2012 to 1.6% in 2013,
declined further to -0.2% in 2014, reflecting the dampening of inflationary

pressures, on the back of cheaper imports, mainly from South Africa and
limited access to credit lines by key productive sectors of the economy.

During the final quarter of 2014, the economy registered an annual
inflation rate of -0.001% in October 2014, and -0. 8% in both November
and December 2014. The decline in annual inflation in the 4th quarter
2014 were driven by both food and non-food inflation. Annual non-food
inflation, which stood at 1.59% in October 2014, significantly fell to 0.17%
in November and further to 0.13% in December 2014.

Figure 6 below depicts that annual inflation has been on a downward
trend since the beginning of 2012.


Disinflation (Price Correction) not Deflation

The Reserve Bank’s considered view is that the reduction in the rate of
inflation in the national economy was and is a necessary process towards
correcting the high prices obtaining in the country. It is disinflation and
-6
-4
-2

Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
(%)
Source: ZIMSTAT, January 2015
Figure 6: Annual Inflation Profile (%)

not deflation. Instances of disinflation are not uncommon and are viewed
as normal to correct some of the macroeconomic fundamentals due to
market failure. The disinflation in Zimbabwe is therefore a good
development as it increases the consumers’ purchasing power.
Disinflation is different from a deflation phenomenon which is caused by
businesses lowering prices in a desperate attempt to get consumers to
buy their products.

In the case of Zimbabwe, businesses are lowering prices not because of
lower demand but because imports are coming into the country cheaper
due to the weakening of the major trading partners’ currencies against
the local unit of account, the US$. There has been a shift of demand from
local products to imports due to price factor which in itself is due to lack
of competitiveness.

Inflation Outlook
In view of the above, the country’s inflation developments are expected
to continue to be influenced by the changes in oil and food prices as well
as the Rand/US$ exchange rate dynamics. Broadly, inflation is expected
to remain in the negative territory for the greater part of 2015, reflecting
the effects of depressed international oil and food prices, weaker
currencies against the US$ and the positive effect of disinflation in the
economy.

FINANCIAL SECTOR DEVELOPMENTS
Structure and Performance
The banking sector has generally remained stable in spite of the

challenging operating environment. The challenges being faced by the
banking sector largely mirror the macro-economic constraints in the
economy. Notably, credit risk remains the most significant challenge
facing the banking sector, whilst liquidity constraints also compound the
smooth operation of some banking institutions.

Following the closure of Capital Bank Limited and Allied Bank Limited, the
country’s banking sector has gone down to 19 operating institutions,
comprising 14 commercial banks, one (1) merchant bank, three (3)
building societies and one (1) savings bank. In addition, there are 147
registered moneylending and credit-only microfinance institutions.

On 15 January 2015, the Reserve Bank issued the first deposit taking
microfinance institution licence to African Century Limited which has met
the stipulated minimum requirements. The institution will commence
deposit-taking microfinance business upon the successful completion of a
pre-opening inspection. The coming on board of deposit-taking
microfinance institutions is envisaged to enhance access to financial
services particularly by the lower income groups of our society, thereby
promoting a savings culture in the economy.

Capitalisation
On aggregate, the banking sector’s core capital increased from $790.4
million as at 31 December 2013 to $811.2 million as at 31 December 2014,
on the back of improved profitability. A total of 13 out of 19 operating
banking institutions were in compliance with the prescribed minimum core
capital requirements as at 31 December 2014. The banking institutions

which are not compliant with minimum capital requirements are instituting
various measures to ensure compliance. In this regard, most banking
institutions have since submitted plans indicating the preferred strategic
group in which they will operate effective December 2020 and the
accompanying recapitalisation plans which are currently being evaluated
by the Reserve Bank.

One banking institution has already surpassed the $100 million minimum
capital requirement for the Tier 1 strategic group which is effective in
2020, while 4 have capital levels above $50 million as indicated in Table
6 below.

Table 6: Core Capital Levels as at 31 December 2014
Institution
Core Capital
CBZ Bank
$109.81m
CABS
$92.82m
Stanbic
$79.73m
CBZ BS
$65.54m
BancABC
$63.33m
Standard Chartered
$61.90m
Steward
$43.92m
Barclays
$41.67m
NMB Bank

$37.01m
Ecobank
$36.89m
MBCA
$36.21m
FBC Bank
$31.84m
FBC BS
$29.54m
Metbank
$24.62m
ZB BS
$15.58m
POSB
$12.85m
Agribank
$12.37m
ZB Bank
$9.56m
Afrasia
$6.01m
Tetrad
($31.73m)


Going forward, boards and senior management of banking institutions are
expected to work in close collaboration with the shareholders in order to
meet the banks’ own interim capital growth targets. In this regard, there

is need for intermediate annual targets that banking institutions should
achieve.

Sector Profitability
The banking sector remained profitable, with an aggregate net profit of
$52.8 million for the year ended 31 December 2014, which is well above
the $3.4 million reported for the same period in 2013.

A total of 14 banks out of the 19 operating banking institutions recorded
profits for the year ended 31 December 2014. The losses recorded by the
other banking institutions are attributed to high levels of non- performing
loans, liquidity constraints and incapacity to generate sufficient revenue
to cover the high operating expenses.

In order to enhance their revenues, banks are instituting revenue
enhancing measures coupled with cost containing measures to bolster
their earnings capacity, and maximize profits.

Financial Intermediation (Deposits & Loans)

Despite the deceleration in economic activity and adverse external sector
developments, annual broad money (i.e. bank deposits excluding
interbank deposits) grew by 13.6% from US$3.9 billion in January 2014
to US$4,4 billion by December 2014. The growth in money supply during
the year, is partially attributed to the liquidity inflows related to the
tobacco selling season earlier in the year. The 2014 tobacco selling season
realised over US$600 million from sales of 216 million kilogrammes of the
crop.

As at 31 December 2014, banking sector deposits (including interbank
deposits) grew by 4% to $5.1 billion, whilst loans and advances were $4.0
billion, translating to a loan to deposits ratio of 78.9%.

Deposits have, however, remained short-term in nature hindering
meaningful financial intermediation. The situation is exacerbated by
limited inter-bank trading, general market illiquidity and limited lender of
last resort function of the Reserve Bank.

Figure 7 below shows the annual M3 growth, levels and structure of
deposits held by banks.

Figure 7: M3 Annual Growth Rate and Level


Sectoral Distribution of Loans & Advances
Total loans and advances increased from $3.7 billion as at 31 December
2013 to $4.0 billion as at 31 December 2014. The distribution of the
banking sector lending to the various sectors as at 31 December 2014 is


Millions
Demand
Over 30-days
Savings
Under 30-days
Growth

as indicated in Figures 8 below.
Figure 8: Structure and Level of Domestic Credit


Performance of Microfinance Sector
The Microfinance Institutions’ (MFIs’) performance as measured by
aggregate lending has largely remained subdued due to inadequate
funding. The sector’s total loans amounted to $151.8 million as at 30
September 2014 down from $164.2 million as at 31 December 2013.

Portfolio quality as measured by the Portfolio at Risk (PaR) (30 days)
improved from 21.6% as at 30 September 2013 to 12.1% as at 30
September 2014. The noted improvement in the PaR is attributable to
enhanced credit risk management systems in the sector. In addition, some
MFIs are increasingly making use of credit checks.

The microfinance sector’s aggregate loan portfolio remains skewed
towards consumption at the expense of productive sector funding.
Consumption lending which largely comprises salary based loans
Light and Heavy
Industry
25%
State
3%
Individuals
21%
Trade and Services
2%
Agriculture
18%
Construction and
Property
1%
Transport &
Distribution
16%
Financial Services
1%
Other
8%
Energy and
Minerals
5%

constituted 54.2% of total loans as at 30 September 2014.
The Reserve Bank has been working with the sector’s key stakeholders to
promote productive lending. The efforts have started bearing positive
fruits as witnessed by the increase in the proportion of productive lending
from 29.1% as at 31 December 2013 to 45.6% of total loans as at 30
September 2014.

Skills and capacity of microfinance institutions remain weak. The Reserve
Bank
is
working
with
microfinance
stakeholders
towards
the
establishment of capacity building programs tailored for the microfinance
industry. These efforts should result in the introduction of certification,
diploma and degree programs in microfinance in the very short-term.

There has been a notable increase in microfinance activities by
conventional banking institutions. Banks are permitted to engage in
microfinance business under the Microfinance Act [Chapter 24:29]. In line
with best practice, however, and in order to level the playing field, the
Reserve Bank enforces applicable microfinance regulations on banking
institutions’ microfinance portfolios.

Financial Inclusion
The microfinance sector plays a vital role in enhancing financial inclusion
levels through the provision of appropriate financial services and capacity
building, particularly among the low income groups.

Concerted efforts by MFIs to reach out to remote and outlying areas that
have not been adequately served by banking institutions as part of
broader financial inclusion initiatives, remains commendable. Towards this

end, there were 482 MFI branches serving 220,357 clients with 252,565
loan accounts throughout the country as at 30 September 2014.

From the Reserve Bank’s standpoint, it is heartening to note significant
improvements in the level of financial inclusion in the economy as
reflected by the results of the 2011 and 2014 FinScope surveys, shown in
Figure 9 below:


Source: FinMark Trust

Importantly, increased use of mobile financial services have significantly
improved the availability of financial products to the previously unbanked
segments of society. Within this context, providers of financial services
are urged to continue embracing technology so as to reach out to
marginalised communities.

In addition, the introduction of agency banking by some financial sector
players is also enhancing financial inclusion particularly through increased
efficiency and customer convenience.
Figure 9

Non-Performing Loans
Credit risk remained a key challenge as evidenced by the average nonperforming loans to total loans (NPL/TL) ratio of 16% as at 31 December
2014, compared to 20% as at 30 September 2014 as shown in Figure 10
below.


The decline in the NPL ratio noted over the quarter is largely attributable
to the closure of Interfin and Allied banks and general improvement in
loan quality in a few banks.

Financial Stability
The Reserve Bank is pleased to publish its maiden Financial Stability
Report (FSR) together with this Monetary Policy Statement.

The FSR evaluates key factors and recent developments in the country’s
banking and financial sectors, macroeconomic conditions and the global
economy which affect the health and prospects of the financial system.

NPLs/ Total Loans
Trend of NPL's from 2009 to December 2014
Figure 10

The report is a worthwhile exercise in identifying and monitoring key
financial trends and emerging risks as well as indicating the macroprudential supervision challenges impacting the financial sector. Going
forward, the report shall be produced on an annual basis.

Further, as part of enhancing its supervisory tool kit for promoting
financial sector stability, the Reserve Bank shall conduct Financial Stability
Stress Tests with effect from the third quarter of 2015. These stress tests
will complement the current micro-prudential stress testing undertaken by
banking institutions using own assumptions and scenarios. The financial
stability stress tests and banking institutions’ Internal Capital Adequacy
Assessment Programs shall be used to inform the determination of
economic capital to be held by each banking institution.

The Reserve Bank shall issue standardised assumptions after adequate
consultations with the banking sector to promote comparability and
ensure a shared understanding of the sources of vulnerabilities by both
supervisors and bankers.

Distressed Banks
During the last half of 2014, the Reserve Bank closed two banking
institutions, namely, Capital Bank Limited and Interfin Banking
Corporation. The Reserve Bank cancelled Allied Bank Limited’s banking
licence on 8 January 2015, following voluntary surrender of the licence by
the institution’s board of directors. The surrender of the licence is against
the background of unsuccessful recapitalization initiatives and resultant
failure by the bank to trade out of solvency and liquidity challenges. The
legal processes to liquidate the bank have commenced.

Resultantly, the number of distressed banks in the sector went down to
three. Metbank, Afrasia Bank Zimbabwe Limited and Tetrad Investment
Bank, continue to experience some liquidity and solvency challenges.
These banks are, however, of low systemic importance, with market
shares of 4.46%, 4.18% and 4.97% in terms of loans, assets and deposits
as at 31 December 2014.

The Reserve Bank has engaged these banking institutions’ boards and
shareholders with regards to the proposed turnaround strategies. As
Monetary Authorities we continue to closely monitor progress in the
implementation of the various plans. The Reserve Bank’s objective is to
ensure that the financial sector is free from distressed banks by 30 June
2015.

Tetrad Investment Bank
The scheme of arrangement, which the bank entered into with its
creditors to provide ample time to facilitate recapitalization, expired on 31
January 2015. The bank is now under provisional judicial management
with a close date of 5 April 2015.

Metbank
In an endeavour to address the current liquidity challenges at the bank,
Metbank management and shareholders have embarked on various fund
mobilisation strategies in order to pay out outstanding liabilities. To date,
most of the small depositors with balances of $10,000 or less have been
fully reimbursed.

Further, Metbank shareholders are currently negotiating with a foreign

prospective shareholder who is expected to infuse fresh capital injection
to compliment other business strategies the bank is pursuing to stabilize
and spur the bank to full recovery.

AfrAsia Bank Zimbabwe Limited
The bank is currently negotiating with potential investors with the
objective of taking up significant equity in the institution. It is envisaged
that this development will be key to the institution’s various measures to
ameliorate its funding constraints.

STATUS OF THE RESERVE BANK SUBSIDIARIES
Export Credit Guarantee Corporation

Export Credit Guarantee Corporation’s (ECGC) primary objective is to
promote growth and diversification of Zimbabwe’s export trade through
the provision of financial services that address the needs of exporters.

ECGC offers various products including the following:
i.
Credit insurance and guarantee services which enable exporters to
compete more effectively in export markets;
ii.
Export payments insurance policy;
iii.
Export Finance Guarantee;
iv.
General insurance;
v.
Invoice discounting for exporters;
vi.
Lines of credit cover;
vii.
Suppliers and buyers credit insurance cover;
viii.
Domestic credit insurance; and
ix.
Zimra bonds.

I am happy to advise that ECGC has been fully capitalised and will resume
its operations in March 2015. ECGC is an important player in the export
sector and will play a critical part in the growth of the Small and Medium
Scale Enterprises.

Homelink
Homelink’s role is to harness foreign currency from non-residents and
other holders of free funds by providing products and services that meet
investment and consumption needs of the Diasporans.

The actions of the company are driven by the vision to be the Leading
Global Partner in Financial & Investment Solutions for Diasporans.

The company is profit making and is on a growth path. It plans to grow
its balance sheet currently at $20 million to $100 million by December
2017. It is structured into four (4) business units, namely Proplink,
Easylink Money Transfer (Pvt) Ltd, Investlink and Masterlink Capital
Services (Pvt) Ltd.

Proplink is dedicated to housing and stands development. Houses and
stands are sold to the Diasporans and local customers mainly on
mortgage. For their convenience, clients also have an option to purchase
houses on the open market with Proplink providing financing.

Easylink Money Transfer (Pvt) Ltd is an agent of Western Union
International responsible for money transfer services. Customers receive
money sent from the Diaspora through the unit’s widely distributed
branches located in cities, towns and some outlying areas such as Gutu,

Chiredzi and Victoria Falls. Customers are also able to send money within
Zimbabwe through Easylink branches without the need to have a bank
account.

The wide geographical distribution comes as a relief to recipients who
used to travel long distances to towns to receive their money. This is in
line with the Central Bank’s thrust of ensuring financial inclusion to as
many people as possible.

Masterlink Capital Services (Pvt) Ltd addresses short term financing needs
of customers within and outside of Zimbabwe.

Investlink promotes the investment needs of the Diasporans. The unit
scans for investment opportunities in the country; these are then parcelled
to the Diasporans who will mobilize capital from outside of Zimbabwe
bringing Diasporan Direct Investment into various sectors of the economy.

Fidelity Printers and Refiners
Fidelity Printers and Refiners has continued to increase the volume of gold it
handled by 10% from 12.661 tonnes in 2013 to 13.899 tonnes in 2014 as
shown in Figure 11. It is projecting deliveries to increase by 7.1% in 2015 to
15 tonnes.

Figure 11: Gold Production for 2013 and 2014 (kgs)


Over the period 2012 to 2014, the country witnessed a decline in
deliveries from large scale gold producers to Fidelity Printers and Refiners
from 10.86 tonnes in 2012 to about 9.96 tonnes in 2014. A decline of
about 8.3%.

During the same period, Gold deliveries from small scale producers,
however, increased by 51.1% from 2.6 tonnes in 2012 to 3.9 tonnes in
2014.

Efforts to harness gold by the Ministry of Mines and Mining Development
through the Gold Mobilisation Committee from the small scale sector
including artisanal miners are starting to bear fruit. Measures by this
Committee to ensure increased production by the sector will see more
gold deliveries to Fidelity Printers and Refiners.


Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

Gold Bought and Refined by Fidelity in 2014
Table 7


Quantity/kg
Large scale
Small scale
Total
January
784.28
142.51
926.79
February
761.58
169.77
931.35
March
802.52
237.97
1040.49
April
827.08
212.28
1039.36
May
790.21
230.32
1020.53
June
780.08
239.4
1019.48
July

344.5
1248.5
August
868.03
414.04
1282.07
September
915.93
421.24
1337.17
October
838.22
430.19
1268.41
November
784.54
525.65
1310.19
December
905.51
569.97
1475.48
Total
9961.99
3937.85
13899.84

Aurex (Private) Limited
This subsidiary shall be resuscitated in March this year for the purposes
of diamond cutting and polishing over and above manufacturing of
jewellery. Its revival which is in line with the objectives of ZimAsset of
beneficiation of minerals, is quite timely given Government policy.

PROGRESS ON BANKING SECTOR REFORMS AND INITIATIVES

Amendments to Banking Act
The amendments to Banking Act were approved by Cabinet. The
amendments are designed to strengthen the supervisory and regulatory
framework. The major provisions include corporate governance, troubled
bank resolution, resolution of NPLs, credit referencing system, registration
of bank holding companies and consumer protection.

With effect from 2 January 2015, the Infrastructure Development Bank of

Zimbabwe (IDBZ) and Small & Medium Enterprises Development
Corporation (SEDCO) were brought under the supervisory purview of the
Reserve Bank of Zimbabwe through amendments to the Banking Act,
[Chapter 24:20]. This means that the two institutions will now be required
to comply with the Reserve Bank’s regulatory requirements.

Basel II Implementation
The Reserve Bank is reviewing a number of proposed revisions to Basel
II framework which are under consideration by the Basel Committee on
Banking Supervision (BCBS) and community of bank supervisors on the
global arena. In particular, the proposed revisions to the Standardised
Approach for credit risk seek to strengthen the existing regulatory capital
standard in several ways. These include:
a) reduced reliance on external credit ratings;
b) enhanced granularity and risk sensitivity;
c) updated risk weight calibrations;
d) more comparability with the internal ratings-based (IRB) approach
with respect to the definition and treatment of similar exposures; and
e) better clarity on the application of the standards.

These developments will significantly affect the design of the Basel II
framework that will be implemented by banks in Zimbabwe. The Reserve
Bank adapted the Standardised Approach for credit risk for the local
market.

The Basel Committee is also reviewing the Operational and Market risk
standardised approach frameworks to incorporate lessons from the global
financial crisis. The Committee is going to substitute gross income as a

proxy of operational risk with an income statement based measure of size,
while market risk revisions are, inter alia, focused on clarification of the
separation of the trading and banking book.

In this regard, banking institutions are hereby required to continue parallel
running the old framework and Basel II framework until the current
consultations are finalised. The requisite policy positions will thus be
communicated to the market in due course.

Meanwhile, banking institutions are required to submit their ICAAP
documents by 31 March 2015 in line with the requirements in Circular No.
3-2014/BSD: Supervisory Expectations for Internal Capital Adequacy
Process.

Resolution of Non-Performing Loans under ZAMCO
Further to my Maiden Monetary Policy regarding the establishment of the
Zimbabwe Asset Management Corporation (ZAMCO), an independent
asset management company, to resolve the scourge of NPLs, I am pleased
to advise that the company is now operational, with the requisite
governance structures. The Corporation is modelled along similar asset
management companies formed in other countries such as in South Korea
(Korea Asset Management Corporation), Nigeria (Asset Management
Corporation of Nigeria), Indonesia (Indonesian Bank Restructuring
Agency) and Malaysia (Danaharta).

An autonomous eight member board was appointed and has met more
than four times since its formation. A fully fledged secretariat is in place
and currently seized with putting in place structures, systems, policies and

procedures.

The Reserve Bank is committed to ensuring that ZAMCO’s systems and
processes are in line with international best practice. In that regard, I am
pleased to advise that ZAMCO received technical assistance from IMF in
December 2014.

ZAMCO’s strategy for funding the acquisition of NPLs will comprise a
number of options including Government funding through long term debt
instruments already approved by Government as enunciated in the 2015
National Budget Statement. To date, ZAMCO has acquired NPLs
amounting to $65 million using other financing mechanisms provided for
in its funding strategy.

ZAMCO will acquire NPLs that meet its eligibility criteria. The initial
acquisition phase will focus on NPLs that are fully secured and which are
not insiders. This NPLs acquisition approach is meant to prevent creating
moral hazard in the banking sector. This will also avoid ZAMCO being
seen as pardoning past bad lending decisions.

As part of the preparatory work the Reserve Bank in conjunction with
ZAMCO carried out a market-wide exercise in December 2014 to ascertain
the level of NPLs that meet the eligibility criteria. Banking institutions will,
by 31 March 2015, be advised of NPLs in their respective loan portfolios
that meet ZAMCO’s eligibility criteria.

Market wide acquisition of the NPLs will be conducted on a phased
approach basis once legal due diligence and independent valuation

processes on eligible NPLs and their respective underlying collateral are
undertaken and completed. The phased acquisitions of NPLs from banks
will commence once ZAMCO has finalized its operational modalities which
will be communicated to all banking institutions.

Consumer Protection
The country, through the Ministry of Finance and Economic Development,
is receiving World Bank technical assistance in consumer protection and
financial literacy.

Meanwhile, the Reserve Bank has requested the Ministries of Primary &
Secondary Education, and Higher & Tertiary Education; and tertiary
institutions to consider incorporating programs into their curricula
earmarked at improving financial literacy levels in the country.

Amendments will be effected to the Banking Act to include consumer
protection provisions prohibiting unfair, deceptive and predatory lending
practices. Any such banking practices will attract stiff monetary penalties.

Capitalisation of the Reserve Bank

I am pleased to advise that Government has capitalised the Reserve Bank
to the tune of US$ 100 million using long dated debt instruments. This
important milestone shall go a long way in building confidence within the
economy and in providing the necessary conditions towards the
resumption of the Bank’s Lender of Last Resort function.

This important step in the capitalisation of the central bank now needs to
be supported by the passing of the Reserve Bank Debt Assumption Bill by
Parliament. The prayers of the Reserve Bank are for Parliament to pass
the Bill, which is in its second reading, in order to cleanse the Bank’s
balance sheet and to bring normalcy in the financial sector.

Credit Reference Bureau

The Reserve Bank is pleased to advise that a Credit Registry Department
has been established as a unit in the Bank Supervision division. The unit
will coordinate the collection of credit information from all banking
institutions and microfinance institutions and maintain the databank for
the credit registry.

A number of Credit Reference Bureau (CRB) project processes and
activities are scheduled for execution over the next 12 months to ensure
that the CRB is successfully rolled out. In the meantime, the requisite
amendments to the Banking Act have been approved by Cabinet to
provide for adequate legislation to cover operations of the credit registry
and appropriate regulations for the licensing and operation of private
credit reference bureaus.

The Reserve Bank shall engage all the data providers in the sector, such
as banks and MFIs, through workshops to build enough capacity
particularly on the preliminary steps such as the data clean-up exercise
and usage of credit information and reports.

The Reserve Bank shall, in collaboration with data providers as well as the
Credit Providers Association and private credit bureaus, work on the
development of a standard data submission template to enable data
providers to submit data in a standardised format.

Going forward, the Reserve Bank shall also conduct education and
sensitization campaigns in order to promote an understanding of the
benefits accruing from the establishment of CRB.

Enhancement of the Guidelines on Relationship with External Auditors

The developments in the local banking sector over the last few years as
well as the Global Financial Crisis which started in the USA in 2007 have
revealed weaknesses in risk management, control and governance
processes at banks. In addition, bank supervisors noted the need to
improve the quality of external audits of banks and strengthen
communication between supervisory authorities and external auditors of
banking institutions.

External auditors of banks play a pivotal role in promoting financial
stability when they deliver quality bank audits which foster market
confidence in banks’ financial statements. In an endeavour to provide a
frame of reference to promote effective independent oversight of the
banking sector by external auditors of banks, the Reserve Bank in
collaboration with the Institute of Chartered Accountants of Zimbabwe is
developing a revised Guideline on the Relationship between Supervisors
and
External
Auditors.
The
supervisory
expectations
and
recommendations contained therein also provide guidance to assist audit

committees in the governance and oversight of the external audit
function. The enhanced framework shall be issued to the market in
February 2015.

Small Denomination Coins, Bond Coins

The small denomination coins that the Reserve Bank of Zimbabwe
introduced into the national economy on 18 December 2014 in
denominations of 1c, 5c, 10c and 25c to circulate freely side by side with
the US$, Rand, etc are called Bond Coins. The 50c denomination shall be
introduced by 31 March 2015. The coins are legal tender issued in terms
of Section 44 of the Reserve Bank of Zimbabwe Act [Chapter 22:15]. They
are called bond coins to reflect the fact that these coins are backed,
anchored, cemented or bonded to a US$ facility that is giving the coins
the strength of being at par or one to one with the US cents.

The coins are meant to boost competitiveness through instilling or
promoting a proper pricing system for goods and services in the country
under the multiple currency system. Competitiveness is basically a price
phenomenon. A phenomenon caused by the negative effects of rounding
up of prices by businesses on the grounds that there were no small
denomination coins to correspond and strengthen the US$ pricing system
in the country. For instance, due to lack of change the general minimum
price of a sweet in the country is 5c whilst a 500ml bottle of water at 50c
is more expensive than the cost insurance and freight (c.i.f) price of a litre
(1litre) of diesel. This is ridiculous.

In view of the above few examples, it is clear the coins are necessary in
any economy for providing change and to ensure that money is divisible.
Consumers benefit with a low denomination coin as it is proven worldwide
that businesses would raise prices without the penny or cent. Coins are
therefore essential to eliminate the ‘rounding tax’ that reduces consumers’
purchasing power.

A system of rounding up prices leads to uncompetitiveness of local
products and a shift of demand to imports. Rounding up of prices is
regressive and hurts those least able to afford because they make small
cash purchases. The coins are therefore pro-consumers (and pro-poor)
and a good panacea to the challenge of lack of competitiveness.
Consumers should therefore rise and shine and demand change for them
to enhance their purchasing power. Consumers should not accept forced
sales.

The Reserve Bank is satisfied with the uptake of the coins and the impact
that they have had so far on prices of goods and services. Companies
such as Delta, Econet, Innscor, Mahommed Mussa, to mention a few have
started to reduce their prices and have undertaken to continue to review
the prices as a result of the availability of change.

POLICY MEASURES
In order to provide pragmatic solutions to the economic challenges
besetting the national economy and to rebalance or recalibrate it in order
to realise the vision of an ‘awakening giant’ which is consistent with
ZimAsset, the Reserve Bank is putting in place the following measures
which are in two parts; namely confidence and production enhancement;

and liberalisation and monitoring of foreign payments in line with best
practice.

CONFIDENCE AND PRODUCTION ENHANCEMENT
Demonetization of the Zimbabwe Dollar
In line with the policy pronouncement made by the Minister of Finance
and Economic Development in both the 2014 Budget Statement and the
Mid-Term Budget Statement the Reserve Bank shall be demonetizing the
Z$ balances by 30 June 2015. It is envisaged that US$20 million shall be
used for this purpose. All genuine or normal bank accounts, other than
loan accounts, as at 31 December 2008 would be paid an equal flat
amount of US$5 per account. The then prevailing United Nations (UN)
exchange rate would be used to convert Z$ balances that were as a result
of arbitrage opportunities “burning” and for Z$ cash to be received from
the walk-in banking public.

The Reserve Bank shall soon publicise the modus operandi of the
demonetisation process.

The significance of this policy measure is to bring to finality to this long
outstanding Government obligation to the banking public and to formally
pronounce the demise of the local currency. This is critical to buttress
Government’s commitment to the multiple currency system which
Government is committed to preserve up until the following economic
fundamentals have reached acceptable and sustainable levels:
i.
Minimum foreign exchange reserves equivalent to one (1)
year of import cover;
ii.
Government budget;

iii.
Interest rates;
iv.
Level of domestic business confidence (business sentiment);
v.
Inflation rate;
vi.
State of (and confidence in) the financial sector;
vii.
Consumer confidence;
viii.
Ability of wages to keep up with prices; and
ix.
Health of the job market.

The reality of the national economy is that all the above economic
fundamentals or indicators are weak to even contemplate the return of
the local currency.

Distribution of Bond Coins
Currently Bond coins are issued by the Reserve Bank through banks for
their onward distribution to the public. This system has its own challenges
which have led to some parts of the country not being able to get access
to the coins. In order to improve the distribution channel, with immediate
effect, all Easy Link Money Transfer Agent outlets shall supplement banks
in making the coins available to the public without charging commission
or withdrawal fees.

The Reserve Bank shall also be launching a Consumer Rise and Shine
awareness campaign for the promotion of bond coins in close
collaboration with the Consumer Council of Zimbabwe.

Changing Rand Coins for Bond Coins
In addition to distributing bond coins, Easy Link Money Transfer Agent
outlets shall, with immediate effect, accept to change Rand coins for Bond

coins at the prevailing exchange rate of the Rand to the US$. This policy
measure in intended to ensure that the public get fair value for their Rand
coins unlike the current situation where consumers are being short
changed.

Bank Charges and Lending Margins

The Reserve Bank is pleased to observe that a number of local financial
institutions have adjusted interest rates downwards to levels below 10%
per annum for their performing customers in the productive sectors of the
economy. Such development is greatly appreciated and should be
intensified.
The Reserve Bank would like to encourage those that are on the wrong
side of history and still charging interest rates of 4% above the cost of
funds per annum to conduct a self-introspective exercise of their risk
management philosophy. Facility fees or arrangement fees of above 2.5%
are high and interest rates of 4% above the costs of funds per annum for
productive sectors of the economy are not sustainable as they are a good
breeding ground for non-performing loans which the Reserve Bank is
trying to rein in. Financial institutions in this category are therefore
expected to compliment the gesture extended to them by Monetary
Authorities under ZAMCO and to reflect the benefits to the financial sector
of the establishment of the Credit Reference Bureau. It is also critical for
banks to note that quality low profits are much better than high
unrealisable profits.

Compliance by banks to the above indicative pricing would translate into
the lowering of finance costs that are debilitating businesses in Zimbabwe

leading to some company closures. Reduction in the cost of doing
business through addressing finance costs would result in businesses
reducing their prices which is necessary for resuscitating and stimulating
the economy.

Lowering Cost of Access to Banking Services
The Reserve Bank has observed that in a number of jurisdictions such as
South Africa, India and Canada, conscientious efforts and collaborative
arrangements between monetary authorities and banking institutions
have allowed for the operation of low cost accounts to make banking more
accessible to the public and, specifically, to increase banking reach to all
communities. In South Africa, for example, the low income transacting
account is called Mzansi Account.

The Reserve Bank is pleased to note that some local banks are already
providing low cost bank accounts to the banking public in Zimbabwe. In
order to widen such initiatives and promote financial inclusion, the
Reserve Bank and the Bankers Association of Zimbabwe (BAZ) have
resolved that banks, without low cost accounts, should at least provide
the banking public with basic banking services at low or no cost with the
following minimum features:

i. Account opening deposit of $5;
ii. Depositors to earn some interest on the balance in their account;
iii. No balance statement fees;
iv. Average account balance of $300; and
v. Copy of national Identity Card (ID) suffice for account opening.

US$200 Million Interbank Facility
The interbank facility supported by the African Export-Import Bank
(Afreximbank) under the Afreximbank Trade Debt Backed Securities
(AFTRADES) is now operational. This is a great financial milestone.

The Reserve Bank would like to express its great appreciation to
Afreximbank for its commitment to turn around the fortunes of the
Zimbabwe financial sector by structuring and underwriting this facility.

The facility would be managed by the Reserve Bank as an agent bank for
Afreximbank for the purposes of managing the surplus and deficit
participants’ requirements under AFTRADES. The initial borrowers under
AFTRADES have already been assessed and approved by Afreximbank.
Lending to these approved banks would be strictly against acceptable
collateral.

The surplus banks’ risk under AFTRADES would be transferred offshore to
Afreximbank.

The Reserve Bank is pleased with this interbank market facility which is
going to address the circulation of liquidity or funds within the local
financial sector. The facility shall also be used as a precursor program for
the lender of last resort function by the Reserve Bank.

Harnessing Diaspora Resources for Economic Recovery
The Reserve Bank estimates that Diaspora remittances into the country
currently stand at around US$1.7 billion and gravitating towards US$2
billion (translating to above 50% of exports) per year, with around 50%

(US$840 million in 2014 and US$790 million in 2013) coming through local
formal banking channels. This sector is too important to ignore.

To this end, Government and the Reserve Bank are putting in place
measures to promote investment from the Diasporans, over and above
remittances. Through Homelink’s newly set up business unit, Investlink,
the Reserve Bank is spearheading investments needs of the Diasporans
through integration with economic activities in the country. The
Diasporans will syndicate, form consortiums and pool resources for
investment in sectors like;

Energy solutions through mini-hydro power projects.

Tourism sector development through the Theme Parks
recently announced by the Tourism Minister.

Agricultural sector particularly irrigation and horticulture for
the export markets as a way of harnessing foreign currency.

Various manufacturing subsectors, including small scale and
large scale mining where the Diasporans, as Zimbabwean
ambassadors, are expected to exploit provisions of the
Indigenization Policy and partner with foreigners in these
sectors.

Industry in general through the Zimbabwe Investment
Authority (ZIA), as well as

Trading on the Zimbabwe Stock Exchange (ZSE).

The prevalence of high interest rates obtaining in the country presents
yet another opportunity for the Diasporans to invest in their country and
obtain investments rates higher than in their countries of temporary
residence.

Other countries’ experience with their Diasporans have shown that the
Diaspora is a key sector in economic development. A number of African
countries such as Ethiopia, Rwanda, Nigeria, Kenya, Egypt to mention a
few, have immensely benefited from Diaspora resources just the way
other countries like India, China, Israel, etc have benefited.

Accelerated Gold Production Initiative
In the medium term i.e. in the next 5 years, gold will be driving the
economy’s mineral export revenue. Diamonds with further exploration
are also expected to maintain their strong contribution to the mineral
export revenue although declines witnessed recently on alluvial
production calls for swift responses in the country’s vast diamond fields.

The view of the Reserve Bank is that gold production must be accelerated.
The Reserve Bank as the primary market for all gold produced locally
through Fidelity Printers and Refiners would want to see a market and
policy driven growth in gold production to buttress the Ministry of Mines
and Mining Development’s gold mobilisation programme.

Accordingly, the Reserve Bank has mobilised an initial amount of US$50
million that will be managed by Fidelity Printers and Refiners to accelerate
gold production in Zimbabwe. This fund will finance Fidelity’s own mining
projects and also support viable gold projects.

The Accelerated Gold Production Initiative’s vision is to increase gold
production to 30 tons per year by 2020, i.e. revenue of around US$1.5
billion at current prices. This target is achievable as in 1999, the country
produced its highest ever gold tonnage at 27 tons at a time when artisanal

production was very minimum at around 5%. Thirty percent (30%) of the
gold the country’s gold production is now coming from the artisanal and
small scale producers.

Gold, like diamonds, has also contributed the most leakages that the
country has ever experienced especially though Beitbridge border post.
Measures to curb leakages are currently being implemented in full force
through the gold mobilisation programme.

Fidelity Printers and Refiners shall enter into an agreement with ZMDC for
the establishment of a special purpose vehicle to exploit gold under
Fidelity’s ZimGold as shown in Figure 12 below. This vehicle will focus on
harnessing low hanging gold resources with particular emphasis on
alluvial and prolific reef deposits supported by bulk open pit mining and
on old underperforming assets as a preferred mining method to enhance
gold deliveries. ZimGold will structure its operation such as to provide for
contract gold mining and own gold mining. It will also acquire interest in
brownfields projects and venture capital gold structures to boost
production.

Enhanced Coal Production
The Reserve Bank has also arranged an US$18 million facility to be used
by Hwange Colliery for the purchase of equipment that they need for
enhancing coal production. This is necessary to enable Hwange Colliery
to be able to supply the requisite coal needed for the generation of
electricity by the Zimbabwe Power Company (ZPC) mainly at Hwange
Thermal Power Station. Some of the coal would be for export.

Platinum Refinery Project
Platinum exports in mate form at around US$45 million per month (or
around US$540 million per year) are quite impressive. This makes the
construction of a platinum refinery an important development that
requires to be accorded a national project status to ensure that all the
platinum is beneficiated in Zimbabwe. The Reserve Bank shall continue to
monitor developments under this project as it is an essential source of
export revenue to the country.

Rehabilitation of the Manufacturing Sector
The Reserve Bank, in close liaison with the Ministry of Industry and
Commerce and the Industrial Development Corporation, is desirous to find
solutions to address the current predicament of the manufacturing sector.
The replacement of obsolete equipment in this sector would need to be
done on a gradual basis starting with low hanging integrated subsectors.
To this end, the Reserve Bank shall during the course of the year, assist
in mobilising resources for expanding and restructuring the Distressed
Industries and Marginalised Areas Fund (DMAF) to cater for the medium
finance requirements of the manufacturing sector.

In addition, the Reserve Bank shall in collaboration with banks and
through ZAMCO, identify specific cases that need resuscitation through
financial restructuring and/or financial engineering like in the case of
Lobels, Archer Clothing, Matabeleland Blankets, etc. Cairns would be yet
another example that needs financial restructuring.

The Reserve Bank is convinced that the above restructuring models, if
well managed and carefully thought through, on a case by case basis,

would assist to breathe new life in industry in addition to the positive
impact of foreign direct investment into this sector.

LIBERALIZATION AND COMPLIANCE MEASURES

The liberalization of current account transactions and the adoption of the
multicurrency system in February 2009, culminated in the removal of
restrictions on cross border payments. This Exchange Control
liberalization framework was adopted in compliance with the SADC`s
Protocol on Exchange Controls, which seeks to ensure removal of trade
restrictions among member countries.

Consistent with the SADC Protocol on Exchange Controls, the Reserve
Bank believes that it is necessary to further liberalize exchange control
regulations whilst at the same time complying with best practice in order
to mitigate incidences of externalization through transfer pricing which
has been prevalent following import liberalization. Accordingly the
Reserve Bank is further liberalizing exchange control regulations and
institute the following measures;

Increase in the Free Threshold on External Loans & Foreign Underwriting

Under the current framework, companies are allowed to access offshore
lines of credit of up to USD7.5 million without prior approval by the
External Loans and Exchange Control Review Committee while those
facilities above this threshold requires prior approval. In order to continue
to remove administrative burden in accessing funding required for
developmental projects, the threshold of contracting external loans and

foreign underwriting of facilities without prior Exchange Control approval
has, with immediate effect, increased to US$10 million. The current
practice of notifying Exchange Control through Authorised Dealers
remains in place.

In order to enhance monitoring and accurate reporting of offshore loans,
all loans contracted and those approved by Exchange Control shall be
granted a validity period by which drawdowns are expected to have been
made. In the event that the validity period lapses and no drawdown would
have been made, the borrower, where required, shall resubmit the loan
agreement to Exchange Control for consideration and issuance of a
current authority.

Extension of Amnesty on Non-Recoverable Export Receipts

As at 31 December 2014, a total of USD68.7 million (63%) had been
exceptionally acquitted from a total of USD108 million that was declared
non-recoverable under absolute amnesty on non-recoverable overdue
export receipts.

In order to accommodate major exporters with non-recoverable export
proceeds that are eligible for absolute amnesty, the period for submission
of applications for Absolute Amnesty has been extended to 31 March
2015. Authorised Dealers are required to compliment the generous
extension granted by the Reserve Bank by building adequate capacity to
ensure that all applications eligible for amnesty are cleared within this
period to avoid unnecessary red flagging and fines.

Export Facilitation

The Reserve Bank is desirous to ensure that export documentation is
expediously processed by relevant Government agencies. On its part the
Reserve Bank through Exchange Control shall ensure that CD1 Forms are
processed within a day. Exports permits, where required, should similarly
be issued on a similar basis to enhance competitiveness and removal of
logjam in production.

Inward and Outward International Remittances

The Reserve Bank has noted that international remittances continue to
play a critical role in bridging the country’s financing gap and providing
the much needed liquidity in the economy. Total remittances from the
Diaspora amounted to $840 million in 2014, compared to US$790 million
realized in 2013.

In order to ensure that the country continues to benefit from international
remittances inflows, the Reserve Bank has reviewed the current Exchange
Control framework for international remittances and shall introduce an
enhanced and integrated framework with effect from 1 April 2015.

Under the new framework, Zimbabwean registered money transfer
operators and bureaux de change shall be designated as Limited
Authorised Dealers and shall now be allowed to conduct both inward and
outward money transfers. The new Exchange Control framework for
international person-to-person remittances shall be administered through
the following three-tier system.

i
Tier one (1) shall be locally incorporated money transfer
operators (MTOs) partnering with approved international
money transfer organizations (MTOs) to carry out both
inward and outward international remittances, as well as
buy and sell foreign exchange on a spot basis.
ii Tier two (2) shall be locally incorporated money transfer
operators (MTOs) acting alone, or operating own systems
to carry out both inward and outward international
remittances, as well as buy and sell foreign exchange on a
spot basis.
iii Tier three (3) shall be bureaux de change who shall only
buy and sell foreign currency on a spot basis.

In order to enhance monitoring and accounting of international
remittances as well as mitigating against money laundering and terrorist
financing, the Reserve Bank of Zimbabwe shall employ a robust
compliance monitoring framework including electronic surveillance and
reporting or such electronic platform that the central bank may designate
for the purpose. All licensed dealers shall be required to participate and
contribute to the establishment of the integrated and centralized payment
gateway system.

The Reserve Bank of Zimbabwe shall give details of the new exchange
control regulatory framework and operational guidelines by 28 February
2015.

Business Partner Numbers
The Zimbabwe Revenue Authority (ZIMRA) Business Partner Numbers
(BPNs) shall be used by Exchange Control for ease of identifying and
monitoring import payments. All corporate importers should therefore
with immediate effect include their BPNs on all import documentation
when processing payments through their Authorised Dealers.

Import Documentation Requirements
For cross border payments, all importers shall be required to submit
current invoices, i.e. not more than 14 days, to their Authorized Dealers,
before any payment can be processed, irrespective of the amount
involved. The invoice must clearly indicate;

i.
Consignor and consignee details;
ii.
Value and nature of goods being paid for;
iii.
Terms of payment, that is, credit terms or whether advance
payments;
iv.
Delivery period; and
v. Declaration by the importer stating that the same application
has not been submitted through another bank.

Government shall expedite the issuance of import permits, where
required, for the importation of raw materials for manufacturing goods as
such products are necessary to substitute imports.

Limit on Advance Payment for Imports
In line with best practice and in compliance with the country’s
membership of the Financial Action Task Force (FATF) on Anti-Money

Laundering and Counter Financing of Terrorism (AML/CFT), it is
imperative that the country mitigates red flag indicators that are routinely
used to identify trade-based money laundering activities which include:

i.
Significant discrepancies between the description of the
commodity on the bill of lading and the invoice;
ii.
Significant discrepancies between the description of the
commodity on the bill of lading (or invoice) and actual goods
shipped;
iii.
The size of shipment appears inconsistent with the scale of the
exporter’s or importer’s regular business activities;
iv.
The shipment dies not make economic sense;
v.
The transaction involves the use of repeatedly amended invoices.

In view of the above and in order to minimise illicit financial flows under
the guise of payment for imports and in line with other countries’ practice
as shown in Table 8 below, the use of the advance payment method for
imports shall, with immediate effect, be limited to US$100 000, or its
equivalent, per transaction for corporates, and 30% of invoice value as
down payment for capital goods. This measure shall not apply to special
circumstances, e.g. fuel, electricity, etc., which shall be treated differently
by Authorised Dealers as shall be communicated to them by the Reserve
Bank.

In line with the absolute Exchange Control amnesty granted last year, the
Reserve Bank would like to advise of the continuity of the amnesty on
instances where there were no imports being sourced that the funds
externalised should be repatriated back to Zimbabwe

Table 8: Regional Comparison on Advance Payments
Country
Current Practice
South Africa
33% of invoice value
Mozambique
US$50 000
Zambia
US$100 000
Zimbabwe
No Limit

Business is encouraged to also use other secure methods of payment that
include documentary collection, open account, letters of credit and or
consignment sales. Exceptions shall be treated on a case by case basis
by Authorised Dealers under a framework to be advised by Exchange
Control.

Use of Free Funds
The Reserve Bank is seriously concerned by the abuse of individual or
personal accounts to externalize business earnings under the pretext of
‘free funds’ for family upkeep, medical, etc, thereby circumventing or
evading taxes. This practice of promoting illicit financial flows is
counterproductive and should be stopped. The Reserve Bank has no
appetite to put impediments on the conduct of free funds accounts but
we cannot also remain naïve at the wanton abuse of the liberalised facility
by a few nationalities.

Accordingly, the Reserve Bank would like to remind the banking public to
adhere to good principles in conducting transactions in their free funds
accounts and for banks to continuously exercise and/or conduct Customer
Due Diligence (CDD) or to adhere to the Know Your Customer (KYC)
principles at all times.

Acquittal of Import Bills of Entry
All foreign payments for goods by corporates are required to be acquitted
in CEBAS within 90 days from the date of payment or at any duration
approved by Exchange Control, upon submission of the relevant ZIMRA
Import Bills of Entry.

All cross border payments for individuals and corporates shall continue to
be captured in CEBAS in order to fully comply with the recording and
accounting for imports.

Acquittal of Service Payments
Payments in respect of services shall be acquitted in CEBAS upon
submission of a Certificate of Completion and Declaration Form confirming
that the service was rendered.

As Monetary Authorities, we urge all local entities entering into service
contracts to try and include a skills training component as much as
possible and contract local companies wherever possible.

Penalty Fee for Non-Acquittal of Import Bills of Entry
For the period February 2009 to 30 June 2014, the value of the
accumulated outstanding Import Bills of Entry amounted to around
US$5.8 billion. In a bid to ensure that importers clear such outstanding
advance payments and enforce compliance, on 1 September 2014,
Exchange Control granted a 90 day amnesty for importers to acquit their
Import Bills of Entry. The amnesty expired on 31 December 2014. The
outstanding bills that have not been acquitted as at 31 January 2015 stood
at US$1.8 billion.

Non-acquittal of foreign payments, with effect from 1 January 2015, are
attracting an administrative penalty fee of 1% on the total un-acquitted
payments. This penalty is necessary as some businesses lacked
seriousness in the use and accounting for financial resources. Despite the
liberalised exchange control environment and the generous amnesty,
some businesses started to panic only when penalty fee was instituted.
That wanton abuse of systems and procedures is poor corporate
governance which should be avoided.

In order for the Reserve Bank to continue to play a more facilitative role
in economic recovery and to take into account of the representation by
industry and commerce without nullifying the penalties already charged
to offenders, the RBZ is with immediate effect, giving absolute amnesty
on all import bills of entry not acquitted prior to 31 December 2013. In
doing this, the Reserve Bank is trading amnesty for compliance. Going
forward RBZ is adopting a zero tolerance on export and import
documentation requirements.

Validation of Imports
In addition to off-site validations of import transactions, Exchange Control
shall carry out random ex-post physical on-site import validation of
imports to verify whether the country received true and fair value from its
national resources.

Compliance Awareness

The Reserve Bank has noted the need to conduct public awareness
campaign on compliance with best practices on foreign payments. In this

regard, compliance workshops for stakeholders will be held in April 2015.
The stakeholders to be included are law enforcement agencies, regulatory
bodies, industry and commerce and civil society.

POLICY ADVICE
Tourism Development
Tourism is one of the fastest growing industries in the world. According
to the United Nations World Tourism Organisation (UNWTO), the sector
ranks fourth after energy and fuels in terms of global exports. In
Zimbabwe, tourism has emerged as a major driver of economic and social
development through generating foreign earnings, creating incomes,
stimulating domestic consumption, and creating employment in both rural
and urban areas. Its current contribution to national income is just below
US$1 billion

Tourism should be considered as a low hanging sector for the special
economic zones concept. The logical starting point would need to be
Victoria Falls where the country is endowed with the seventh wonder of
the world, the Victoria Falls, (Mosi- Oa- Tunya). We now need policy
measures to harvest from this natural resource and have a vision of
making Victoria Falls as the ‘Tourist Hub of Africa’.

This vision which dovetails well with the Ministry of Tourism and
Hospitality’s vision of a US$5 billion tourism sector by 2020. This sector
has a potential of growing very fast and requires less effort than the real
sectors of the economy.

The initial priority to realise the above dream would be to complete the
master plan of the Victoria Falls and to provide it with the necessary
designation of a special economic zone with facilities such as international
business centre, offshore international banking that provides safe haven
to all investors, thematic parks, cable cars, e.t.c. Benefits that would
accrue to the economy from such developments could be tremendous,
from employment, foreign exchange generation, e.t.c.

Because of its importance to economic development, the pricing of the
tourism services plays a critical role in stimulating domestic tourism and
attracting foreign tourists.

Pricing of Tourism Services Using a Two Tier System
During the period prior to the introduction of the multi-currency in 2009,
there was a two tier pricing system of tourism products. Under this
system, local tourists were charged in local currency and foreigners in
foreign currency. Effectively, this translated to different prices being
charged to the local and foreign tourists.

After the introduction of the multi-currency system, Zimbabwe moved
towards a unified pricing system where locals and foreigners would be
charged the same price. The only exemption to this system were National
Parks and Nationals Museum who continued to charge higher prices to
foreigners than what is charged to locals.

The unified system of charging tourism products resulted in higher prices
to both the local and foreign tourist as prices of Zimbabwe tourism
products are higher than regional prices. Furthermore, some would be

local tourists are failing to visit tourist facilities in Zimbabwe due to higher
prices, hence stifling domestic tourism which should be highly
encouraged.

In a bid to promote local individual and family visits, the Reserve Bank is
of the view that local tourist facilities should re-introduce the two tier
pricing system. This measure will promote domestic tourism.

Domestic tourism is a major component of any country’s tourism industry
as it provides a sustainable base for the local industry when there is a
down turn in international tourist arrivals. Reference can be made to
countries such as South Africa where tourism growth is underpinned by a
vibrant domestic market. However, in Zimbabwe, the majority of the
domestic tourists are mainly people on business and conferencing, whose
consumption of other tourist products is limited.

Similarly, tourists from within the Southern African Development
Community (SADC) could also be accorded a price similar to the domestic
tourists and authority to pay for their stay in Zimbabwe in any currency
authorised under the multiple currency system without the need to
convert to US$s. This would make tourism competitive especially given
the fact that South Africa, for example, is a good source of tourists into
Zimbabwe. Such tourists from South Africa could be charged in Rands
without referencing to the US$ pricing system

There is also great need to allow tourists easy access at border posts,
especially Beitbridge, by making a provision for a ‘green route’ for tourists

separate from the commercial route. This would remove the usual
nightmares for tourists at border posts that discourages visitors.

Trading Wage & Salary Freeze for Price Reduction
As already alluded, the Reserve Bank is of the considered view that the
national economy is not able to sustain any further increases in wages
and salaries and that the welfare of consumers and employees should be
addressed through the reduction of prices, disinflation, so that the current
wages buy more – enhancement of the purchasing power of the current
wages and salaries. We need to move away from the psychology or
concept of money illusion, which states that people think in terms of the
amount of money they have, rather than in terms of its value. We now
need to think in terms of value. This way even those not working would
have their welfare increased as they would be able to buy more from a
US$.

Table 9 which shows the comparison of selected economic indicators
between Zimbabwe and the region reveals that Zimbabwe’s average
minimum wage for commercial and industrial sectors is much higher than
that of the other countries in the region. However the high cost of living
in Zimbabwe negates the comparative advantage. This shows that the
solution to increase the welfare of workers does not depend on increasing
wages and salaries as all the increments would be absorbed by
commensurate price increases.

Further it is imperative to note that Zimbabwe’s wage bill as a percentage
of revenue is higher than all the regional countries despite the country
having the lowest population with the exception of Botswana.

Addressing Cost Drivers for Competitiveness
Competitiveness of the national economy is not achievable without
addressing the national economy’s cost drivers. These cost drivers
include, but not limited to, municipality tariffs, environmental
management fees, and some non-tariff barriers. Such fees and/or tariffs
increase the cost of doing business in Zimbabwe.

It is against this background that we applaud Cabinet for setting up the
National Competitiveness Commission mandated to critically interrogate
the national pricing structure in order to come up with a more competitive
model of doing business in the country.

The Commission would therefore need to redouble their efforts to ensure
that the deceleration of prices which are in their sphere of influence is
realisable within a short space of time. Its initial efforts should focus on
utility prices, especially electricity, water and licensing requirements.
Most farmers for example, are saddled with electricity bills because the
tariffs are not competitive especially on agricultural produce whose prices
are not only low but sometimes even difficult to sell as merchants
substitute local goods with imports, onions and tomatoes, for example.
Mining and other sectors are facing the same fate from these utility tariffs.
As enablers, the current tariffs are punitive for business and should
therefore be urgently addressed.

Landlords would also need to adjust their rentals, especially in the high
density areas where a room costs on average $70 per month. The same
is true for basic commodities which go into consumer basket, such as
bread, tea, cooking oil, etc. Businesses would need to review prices of

such commodities. It is failure or bad faith by business to quickly review
prices downwards that influences workers to demand higher wages and
salaries that commensurate with the high cost of living.

Another area of reform that needs serious attention is the parastatal
reform programme with emphasis on the synchronisation of overheads,
delivery and revenues. Failure to synchronise these factors has tended to
increase the cost of doing business, poor service delivery across the
country, and failure by some parastatals and local authorities to be up-todate with salary payments for their employees. Excruciating solutions that
involve salary cuts to realign revenues and costs may be necessary in
some circumstances before the situation gets out of hand.

Similarly, bonuses should not be viewed as an entitlement but instead as
a performance related compensation and that employers, including
Government, should put in place clear principles and, where necessary,
notices for the payment or non-payment of such compensation should be
effectively and timely communicated to the affected beneficiaries

Addressing the welfare of workers and consumers in general from a cost
reduction point of view would also assist businesses in that their products
would become competitive against imports. This means that businesses
would not face closure due to lack of demand which would have shifted
to imports and workers would not lose jobs. The shift in demand from
local goods to imports is a price phenomenon and it is that local price level
that needs to be redressed and not the appreciation of the US$ which is
outside the country’s control.

After the fuel suppliers had reduced prices by around 10%, for example,
consumers were expecting the same to happen to almost all the prices
but to date nothing has happened except in few cases.

Redefining the Poverty Datum Line

The major reason for the discrepancy between Zimbabwe’s minimum
salary scales and the rest of the region and other countries like China and
India, is because of the manner in which the Poverty Datum Line (PDL) is
calculated in Zimbabwe. Best practice use PDL per person as opposed to
a family of six as is the case in Zimbabwe. Thus if the current PDL of
US$584 in Zimbabwe is divided by six (6) then the figure becomes
comparable with the rest of other countries at US$97.33.

Accordingly the Reserve Bank is advocating for redefining PDL from a
family basis to that of an individual basis for the purposes of mitigating
double dipping and for easiness of comparison with the rest of the world.
This is essential for promoting competitiveness.

All the above competitive drivers would need great sacrifice from all and
sundry. We all need to rebalance, to recalibrate, to resize or to resuscitate
the economy.

Amendments to the Labour Act
The current process being undertaken by Government on the
amendments to the Labour Act should be expedited for the labour policy
to be in sync with best practice which is necessary in order to improve
competitiveness in the production of goods and services.

The current regulations which make it more expensive to retrench than
to maintain an employee are not conducive to production neither are they
conducive to even contemplate to increase employment.

The regulations are now applicable to about 40% of the economy which
is formal and the bigger proportion of 60% informal sector not under the
auspices of the Labour Act.

Empowerment Through Linkage Programmes
According to the United Nations Centre of Trade and Development,
UNCTAD, Report 2006, “Business Linkages are based on a commercial
rationale, they enable a win-win situation for all stakeholders in the
linkage programme”. Business linkages would need to be built on
mutually beneficial basis. According to the same UNCTAD report,
business linkages are one of the fastest and most efficient ways of
upgrading enterprises, enhancing their competitiveness and allowing
them to access finance, technology, and specialised knowledge.

It is against this background that the Reserve Bank believes that business
linkages should vigorously be promoted across all sectors of the economy
for the empowerment of SMEs and increasing employment. This should
also be a solution to rebalance the economy.

We therefore call upon businesses to enhance their business linkage
programmes with small to medium enterprises (SMEs) and individuals.
This would ensure that growth is balanced. Such schemes also minimise
credit risk from a banking perspective and promote the health for the
economy.

In agriculture, for example, such linkage programmes could be in the form
of big retailers providing market access (on a quota basis) to producers
of onions, tomatoes, carrots e.t.c as opposed to offloading all produce to
middlemen.

CONCLUSION

The message from this Monetary Policy Statement is that, as a nation, we
all need to sacrifice in one way or another, accept the reality, and work
very hard to address the competitive, productive, compliance and
confidence fundamentals of our economy. There is no random success.
We all need to come up with pragmatic and carefully thought through
solutions to rebalance or resize the economy which is currently going
through a myriad of both endogenous and exogenous challenges.

The policy measures and advice given in this statement are meant to
deliver warm winds of economic recovery to every corner of the nation.

In this regard, policy measures introduced should be viewed in the
broader context of economic policy measures that Government is putting
in place to buttress ZimAsset. The Reserve Bank is making the economy
the foremost priority. I therefore call upon all businesses, banks, retailers
and major utility providers, ZESA and local authorities, to revisit their
pricing systems to address national competitiveness.

We need to be guided by the philosophy that a strong economy is the
wellspring of Zimbabwe’s national strength. There is great need to
harness our God given resources to develop the country for current and
future generations.

May God bless Zimbabwe.


I thank you


Dr J P Mangudya
GOVERNOR

February 2015