China and South Africa are the preferred destinations of choice for business in Zimbabwe, with $2 billion externalised from the country finding refuge in banking institutions and other areas, sources in the Reserve Bank of Zimbabwe (RBZ) have revealed.
But China has taken the lion’s share, with 70 percent of the funds going to Zimbabwe’s “Look East” friend, to the detriment of the country’s economy and growth.
Yesterday, RBZ governor John Mangudya lamented the bleeding the cash-strapped economy was experiencing, announcing measures to stop the leakages.
“Bank statistics show that last year, a total of $684m was remitted outside Zimbabwe or externalised by individuals under the auspices of free funds for dubious and unwarranted purposes that include remittance of donations to oneself, offshore investments, externalisation of export sales proceeds by corporates through individual accounts leading to pervasive tax evasion and externalisation. This rampant export of liquidity is not sustainable,” he said.
Mangudya announced stringent measures which include capping cash withdrawals without one-day prior notice to $10 000, restrictions on offshore investment and suspending free funds to tackle illicit money flows and capital flight remittances after nearly $2bn evaporated from the economy through externalisation last year.
But economist John Robertson said the bank was just dealing with the symptoms and not the causes. He blamed senior government officials, members of the military and high-ranking private sector captains of industry for the rampant externalisation.
“Externalisation is at a peak because government has destroyed agriculture and industry,” he said. “Huge amounts of money are going out of the country as companies source products which under normal circumstances should have been produced locally but because of the death of agriculture and manufacturing, people are forced to go outside our borders to secure those very same products.”
Economist Godfrey Kanyenze applauded the bank for the move saying it would result in more resources being retained in the country and improve liquidity.
“Resources of Zimbabwe are being exported to other countries to develop their economies, at the expense of locals,” he said. “We need to close such leakages and ensure money is retained in the country.”
In the past, big business used to go to Angola and Democratic Republic of Congo to access US dollars, but this has since changed as big business found Zimbabwe was a porous economy where foreign currency could be externalised easily, Kanyenze said.
“We need to tighten our porous borders while at the same time create positive incentives for locals to invest in the country, rather than externalising funds,” he said.
“The environment is inimical to doing business and as a country we need to accelerate our doing business report and work on the negatives that the country is facing. We must improve the lack of confidence in the economy which is forcing people to look for opportunities outside our borders.”
Zimbabwe is battling a liquidity crunch that has been worsened by growing weakness in the currencies of major trading partners, South Africa’s rand and China’s yuan.
While manufacturing has declined by 80 percent resulting in reduced domestic revenues, half of the money making its way into the local economy is being remitted by Zimbabweans working abroad. Diasporans living and working in countries such as South Africa, the UK and the US sent nearly $1bn back home last year, accounting for nearly half of foreign inflows into the economy. But most of the money finds its way out of the economy through externalisation.
“The current scenario in Zimbabwe defies economic logic,” Mangudya said in his Monetary Policy Statement for 2016.
Remittances by Zimbabweans in the diaspora amounted to $935m last year, he said, “which is about 48 percent of total remittances, which were about $2bn”.
Robertson said the government must look closely at their Chinese friends whom he said were behind the high externalisation rate.
“The Chinese do not want to trade in yuan but prefer US dollars which they send back to China. A large portion of funds in the country are going this route.”However, he said the RBZ should not blame other nationals for its woes without looking inward.
“Government ministers, military officers, and every senior government official have children attending tertiary institutions in South Africa.
“As a result, they access millions from their accounts on the claim that they are sending money to their children for their tuition and accommodation.
“Some are even running businesses in South Africa,” he said.
But he said the RBZ move was positive in that it would result in more cash in the economy.