RepublicofZimbabwe

BekezelaNcube
KhetiweRichards
JoshuaYau

Basicinformationaboutthecountry
TheRepublicofZimbabwewasestablishedasanindependentcountryin1980.
Zimbabwehadlongsincebeenamajortobaccoproducer,andwaspoisedtobeabreadbasket
forthesurroundingsouthernAfricancountries.Howeveranumberofchallengesplaguedthe
countryandcausedadownturnintheeconomy.Forexample,intheearlymillennium,a
droughtandtheforcedseizureofalmostallwhiteownedcommercialfarms,withthestated
aimofbenefitinglandlessblackZimbabweans,ledtosharpfallsinproductionandprecipitated
thecollapseoftheagriculturebasedeconomy.Since,thecountryhasenduredrampant
inflationandcriticalfoodandfuelshortages.
ZimbabweishometotheVictoriaFalls,oneofthenaturalwondersoftheworld,thestone
enclosuresofGreatZimbabweremnantsofapastempireandtoherdsofelephantandother
gameroamingvaststretchesofwilderness.
Population
ThepopulationofZimbabweispredominantlyAfrican,withShona71%,Ndebele16%,other
Africans11%,white1%,mixedandAsian1%[iv].OftheAfricanpopulation,Zimbabweansare
madeupoftwomajorlanguagegroups,whicharesubdividedintoseveralethnicgroups.The
Mashona(Shonaspeakers),havelivedintheareathelongestandarethemajoritylanguage
group.TheMatabele(Sindebelespeakers),centeredinthesouthwestaroundBulawayo,arrived
withinthelast150years.AnoffshootoftheSouthAfricanZulugroup,theymaintainedcontrol
overtheMashonauntilthewhiteoccupationofRhodesiain1890.Morethanhalfofwhite
Zimbabweans,primarilyofEnglishorigin,arrivedinZimbabweafterWorldWarII.Afrikaners
fromSouthAfricaandotherEuropeanminorities,includingPortuguesefromMozambique,also
arepresent.Additionalpopulationdatacanbefoundintable1.
Table1:ZimbabwePopulationData
Data

Source=UN[iii]

Source=CIAWFB[ii]

Source=BBCNews[i]

Population

13.34million

11.39million

13.5million

PopulationGwth
Rate

1%(2006)

1.53%(2009est)

UrbanPopulation

36%(2006)

AgeStructure

38.0%014yrs,
58%1560yrs,

43.9%014years,
52.2%1564years,

4%60+yrs

3.9%65years+
(2009est.)

LifeExpectancy

M:44yrs,F:43
yrs(2006)

M:46.4yrs,F:45.2yrs M:44yrs,F:43yrs
(2009est.)

EthnicGroups

African98%(Shona
82%,Ndebele14%,
other2%),mixedand
Asian1%,whiteless
than1%

Government
TheBritishdeclaredZimbabwe(thencalledSouthernRhodesia)aBritishcolonyin1890.
DisappointedbythesofteningoftheBritishtotheAfricancitizens,theWhitesinSouthern
RhodesiadeclaredunilateralindependencefromGreatBritainin1965undertheruleofPrime
MinisterIanSmith(underthenameRhodesia).Guerrillauprising,UNsanctions,andsupport
fromneighboringcountriesledtofreeelectionsin1979,aconstitutionwrittenDec211979,
andindependence(renamedZimbabwe)onApril181980.RobertMugabe,thenation'sfirst
primeminister,hasbeenthecountry'sonlyruler(aspresidentsince1987)andhasdominated
thecountry'spoliticalsystemsinceindependence.
Recently,Mugabesleadershiprolehasbeenchallenged.Themostrecentnationalelections
wereheldonMarch29,2008andZANUPFlostparliamentarymajorityforthefirsttimesince
independence.TheoppositionwasMovementforDemocraticChange(MDC)underthe
leadershipofMr.Tsvangirai.ThoughMr.Tsvangiraiwasthedocumentedvotewinner,arunoff
wasrequestedandgrantedbyMDC.Mr.TsvangirailaterpulledoutoftherunoffandMr.
MugabewasdeclaredthewinnerinJune.
Despitelosingtheelection,Mr.TsvangiraiwasabletosecurethepositionofPrimeMinister
throughtheInclusiveGovernmentagreement.
MajorIndustries
Zimbabwesmostimportantindustriesaremining,manufacturing,andagriculture.Zimbabwe
wastheworld'sthirteenthlargestproducerofgoldin1997,whichisthecountry'sbiggest
mineralexport[vii].ManufacturinginZimbabwe,focusedontextileandsugarproduction,at
onetimewasoneofthelargest,mostdiversified,andintegratedmanufacturingsectorsinsub
3

SaharanAfrica[vii],partlyduetoimportsubstitutionpoliciesimplementedafterthe1965
declarationofindependence.Theeconomyisalsodependentonagriculturalproductssuchas
tobacco,cottonandsugarcane.Thecountrystourismindustryhassufferedasaresultofthe
economicandpoliticalconditions.Seetable2belowforafulllistofmajorindustriesofthe
country
Table2:ZimbabweMajorIndustries
Data

Source=CIAWFB[ii]

Source=USDeptofState[iv]

MajorIndustries

Mining

Mining

Steel

Manufacturing

Woodproducts

Publicadministration,

Cement

Commerce

Chemicals

Transportand
communication.

Fertilizer
Clothingandfootwear
Foodstuffs
Beverages

MacroeconomicData

Zimbabweseconomyhasstruggledsince2000.Shortagesofbasicgoodssuchasfueland
breadareoftenreported.ThenegativeeffectsofHIV/AIDSexacerbatetheseproblems.
Thecrisisisseentobeasaresultofacombinationoffactors[v]:Inappropriateeconomic
policies,themaintenanceofafixedexchangerate,andincreasedregulationsandgovernment
intervention.Thesefactorscanbecharacterizedbythefollowingspecificexamplesthathave
damagedtheZimbabweeconomy[ii]
Its19982002involvementinthewarintheDemocraticRepublicoftheCongodrained
hundredsofmillionsofdollarsfromtheeconomy.

Thegovernment'slandreformprogramhasbadlydamagedthecommercialfarmingsector,the
traditionalsourceofexportsandforeignexchangeandtheproviderof400,000jobs,turning
Zimbabweintoanetimporteroffoodproducts.
TheReserveBankofZimbabweroutinelyprintsmoneytofundthebudgetdeficit,causingthe
officialannualinflationratetorisefrom32%in1998,to133%in2004,585%in2005,passed
1000%in2006,and26000%inNovember2007,andto11.2millionpercentin2008.
Meanwhile,theofficialexchangeratefellfromapproximately1(revalued)Zimbabweandollar
perUSdollarin2003to30,000perUSdollarinSeptember2007.
BadlyneededsupportfromtheIMFhasbeensuspendedbecauseofthegovernment'sarrears
onpastloansandthegovernment'sunwillingnesstoenactreformsthatwouldstabilizethe
economy.Theseconditionshavemadeconductingbusinessverydifficult,resultinginahuge
dropineconomicactivityaswellaschronicshortagesofforeignexchange.SeeTableXforkey
macroeconomicfiguresandTable3forhistoricalinflation.
Table3:KeyMacroeconomicMeasures
GDP(PPP)

$1.59billion

Inflation

(2008est.)
GDP(RealExchRate) $4.59billion1

(2008est.)
LaborForce

(2008est.)
GDPrealgrowth
rate

12.6%

4.03million
(2008est.)

UnemploymentRate 80%

(2008est.)

GDPpercapita(PPP) $200

11.2million%

(2005est.)
PublicDebt

(2008est.)

241.2%ofGDP2
(2008est.)

1
Hyperinflation and the plunging value of the Zimbabwean dollar makes Zimbabwe's GDP at the official
exchange rate a highly inaccurate statistic
2

Zimbabwe is ranked #1 on the CIA World Factbook in public debt owed

5

GDPpersector

agriculture:18.1%,
industry:22.6%,
services:59.3%

Budget

Revenues:$153,700
Expend:$179.300
(2008est.)

(2008est.)
Source:CIAWorldFactbook[ii]
Table4:InflationRate(ConsumerPrices)from20032008
Year

InflationRate

Rank

%Change

DateofInformation

2003

134.50

2002est

2004

384.70

186.02

2003est

2005

133.00

222

65.43

2004est

2006

266.80

224

100.60

2005est

2007

976.40

223

265.97

2006est

2008

12563.00

224

1,186.67

2007est

Source:CIAWorldFactbook[ii]

CurrentConditions&RecentDevelopments
ZimbabweCurrencyOfficiallyDeadApril202009
Givenhyperinflation,ZimbabwehasabandonedtheZimbabwedollarandofficiallycommenced
traininginforeigncurrency(USD,ZAR,BWP,orGBPareacceptedcurrenciesatthistime).The
Zimbabwedollarisdead.Itisnolongerbeingprintedandnotlikelytobeusedforayearat
least,saidtheEconomicPlanningMinisterEltonMangoma,quotedintheZimbabwean
Magazine3.
IMFArticleIVConsultationStatementMarch262009

3
http://www.thezimbabwean.co.uk/
6

TheIMFvisitedZimbabweduringtheperiodMarch924,2009toconductedanArticleIV
consultation.HighlightsfromconcludingstatementsbyVitaliyKaramenko,MissionChieffor
Zimbabwearebelow[viii]:
ThemissionwelcomestheauthoritiescommitmentunderSTERPtoeliminatequasifiscal
activitiesandimplementcashbudgetingin2009
Asteepdeclineineconomicactivityandpublicservicescontributedtoasignificant
deteriorationinthehumanitariansituationin2008
Theofficialadoptionofhardcurrenciesfortransactionshasstrengthenedthecredibilityofthe
governmentscommitmenttofiscaldisciplineandhasalreadyhelpedstophyperinflation
EffectiveoversightoftheRBZneedstobeestablished
Thoughthemeetingwaspositive,theIMFstillhaslimitedinvolvement.AsstatedbyVitaliy
Karamenko,[viii],IMFstaffstandsreadytocontinuetoassisttheauthoritiesthroughpolicy
advice.TechnicalandfinancialassistancefromtheIMFwilldependonestablishingatrack
recordofsoundpolicyimplementation,donorsupport,andaresolutionofoverduefinancial
obligationstoofficialcreditors,includingtheIMF.
StockMarketResumesTradingafter3monthhaltFebruary192009
AccordingtoaFeb192008Bloombergarticle4,theZimbabwestockexchangeresumedtrading
afterbeingclosedforthreemonths.Afteropening,priceswerelistedinUSdollarsgiventhe
declineinthelocalcurrency.
LowFoodHarvestsMay2008
TheFoodandAgricultureOrganization(FAO)andtheUNWorldFoodProgram(WFP)
conductedanassessmentinMay2009,whichconfirmedthatharvestswerelowerthanthe
previousyear[vi].Accordingtothestudy,thiswasattributedtoperennialshortages,late
deliveryofinputs,andunfavorableweatherconditions.Asaresult,Zimbabweremainedin
needoffoodimportstocoverthedeficitestimatedat1.2milliontons.
Trade

ZimbabweiswellpositionedgeographicallytoencouragetradeinthesouthernAfricaregion.
Inadditionthereareeightairports,tworailwaycompanies,twonearbyports(Beiraand

4
http://www.bloomberg.com/apps/news?pid=20601116&refer=Africa&sid=a2M6kWnKSfo0
7

Durban)[ix].Despitethispotential,thetradebalancehasbeennegativeforsometime.Likely
duetotheeconomicissuesdiscussedabove.
Table5:ZimbabwesGlobalTrade20002006(USMillions)

2000

2001

2002

2003

2004

2005

2006

TotalExports

1760.5

1282.6

2107.7

3420.5

1740.5

958.6 1308.3

Imports

1803.4

1574.9

2379.9

2196.8

1730.6

893.9 1728.6

TradeBalance

42.9

292.3

272.2

1223.7

9.9

64.7

420.3

Source:COMESACountryProfile[ix]

Table6:ZimbabwesGlobalTrade20002006

Source:COMESACountryProfile[ix]

BankingSystem
AsofJanuary252009thebankingsectorinconsistedof28bankinginstitutions[x]thatare
supervisedbytheReserveBankofZimbabwe(RBZ).SeeTableXbelowforbreakdownoftype
ofinstitutions.

Table7:ZimbabweFinancialInstitutions
FinancialInstitution

Count

CommercialBanks

15

MerchantBanks

FinanceHouses

DiscountHouses

BuildingSocieties

Total

28

Source:ReserveBankofZimbabweMoneySupplyJan09[x]
TheReserveBankhasbeendocumentedasrecognizingthegreedandrecklessnessthathas
characterizedthebankingsectoroflate.Illegalandunethicalactivitieswerecommonplaceata
numberofinstitutions,suchasissuanceofunfundedandfraudulentlydrawnbankchecks.
Theseactivitiesmadethecashshortagesituationmuchworseandfueledtherecordbreaking
inflation.Someofthespecificflawsinthebankingsectorarelistedbelow[x].
Shiftfromcorebankingbusinesstospeculativetransactions
Abuseofbankholdingcompanystructurestoevaderegulation
Poorcorporategovernance,riskmanagementpracticesandinsiderdealing
Rapidlocalandregionalexpansionwithnoproperinternalcontrols,andadequatecapacity
Disregardofprudentiallawsandregulations.
Inresponse,thereservebankenhancedsupervisoryprocessesthroughthefollowing
guidelines.

10


Depositsandlendingratesremainedrelativelyconstantforthepastweek,withtheexception
ofthemerchantbanklendingrateandthreemonthdepositrates,whichfellfrom21,500%and
235%to20,500%and200%respectively.SeeImagebelowfordetails.

Seetheappendixfortables4and11,takenfromtheRBZAnnualReport,formoredetailed
informationonfinancialinstitutions.
Ina2005report,theIMFwrote:
Zimbabwehasalltheelementsofamoderndevelopedfinancialsector,includinglifeand
generalinsurance,publicandprivatepensionfundsandactivecapitalmarketsincludingthe
ZimbabweStockExchangeandtwelvestockbrokers.[xi]
ThelatestIMFArticleIVreportforZimbabwepublishedin2005[xii]notesthatthecountrys
financialsystemhasshownremarkableresilienceinthefaceofthemacroeconomic
difficulties.Despitea2004bankingcrisisthatsawtheclosureofanumberofinsolvent
institutions,thestabilityofthebankingsystemwasthreatened:atthetime,the5largestbanks
held65%ofdeposits.Asaresult,theFundnotes:
Withtheexitofweakinstitutions,thesectorisnowlargelypopulatedbybankswithhigh
capitaladequacyratios,littleforeignexchangerisk,andveryshorttermmaturitiesforboth
assetsandliabilitiestocopewithfluctuatinginterestrates.Staffnotedthatthebankingsystem
appearedgenerallysound,supervisionbroadlyadequate,withstresstestsindicatingthatthe
systemisresilienttosignificantshocks,includingcredit,interestrate,andforeignexchange
risks.
Banks,wrotetheIMF,furtherdecreasedtheirriskbymovingtheirassetcompositionfrom
loans(to25%oftotalassets)toshorttermsecurities,i.e.TreasuryBills.Table8showsthe
indicatorsoffinancialsoundnessintheZimbabweansystem.
11


Table8:ZimbabweFinancialSoundnessIndicators(in%)

Source:IMFArticleIV(2005)
TheCentralBankprovidesdatatotheSADCBankersAssociationonbankbalancesheets,with
themostrecentprovidedfor2006.However,asnotedbytheIMF,thedatahavefallenin
qualitysince2004.Table9showsbankassetsversusGDPwhileTable10reproducesthe
selectedunderlyingdataprovidedtoSADCandnotesthediscrepancies[xiii].

12

Table9:ZimbabweBankAssetsandGDP

Source:SADCBankersAssociation
Table10a:ZimbabweCentralBankAssetsandLiabilities(ZWDmm)

13

Table10b:ZimbabweDepositBankAssetsandLiabilities(ZWDmm)

Source:SADCBankersAssociation

14

Table10c:ZimbabweOtherDepositInstitutionsAssetsandLiabilities(ZWDmm)

Source:SADCBankersAssociation

15

Theresilienceofthebankingsectorcomes,however,withsomecosts.Theseincludelimited
financingfortherealeconomy,highcostsforthesmallnumberofcreditworthyborrowers,
andthediscouragementofsavingsduetonegativerealinterestrates.

Foreignvs.DomesticOwnership
Foreignownershipofprivatebanksislimitedto35%.ForcompanieslistedontheZimbabwe
StockExchangeamaximumof40%foreignownershipisallowed,withnosingleforeign
shareholdingowningmorethan10%.
AsofendMarch2005,foreignownedbankstogetherenjoyedupto45%shareofbanking
sectorassetsasshowninTable6.
DepositInsurance[xiii]
DepositinsuranceinZimbabweexistsinlimitedform.Payoutsaremandatedonlyintheevent
ofabanksliquidation,anddepositorsarelargelyunawareofitsexistence.Thustheinsurance
fundcannotperformitsgoalofassistingsmallerbankstocompeteforconsumerdeposits
againstthosebanksperceivedtobetoobigtofail.Infact,inthe2bankfailuresinwhichthe
DPBwasinvolvedthrough2005,themajorityofdepositorsfailedtomakeclaims.
TheDepositProtectionBoard(DPB)wasestablishedinJuly2003despitetheabsenceofthe
basicpreconditionsfordepositinsurance.Ithasthereforeplayedaminimalroleinpastbank
resolutions.TheDPBischairedbythegovernoroftheRBZ,andtwodeputygovernorsarealso
exofficioboardmembers,whiletheotherthreeboardmembersareappointedbythe
governor.AstheIMFwrites:
ThisdominanceoftheDPBbytheRBZraisespotentialconflictofinterestissues,asfiduciary
responsibilitytominimizecoststotheDPBcould,insomecircumstances,conflictwithRBZ
objectives.[xi]
AlllicenseddeposittakinginstitutionsarerequiredtojointheDPB(preventingadverse
selection),andtheBoardusespartialcoveragetominimizemoralhazard.Coveragewas
increasedfromZ$200,000(aboutUS$20)toZ$5million(aboutUS$500)inApril2005.
ThehyperinflationaryenvironmentmakesitchallengingfortheDPBtokeepitscoverage
meaningfulwhileenablingittoaccumulateadequatefunds.Theerosionbyinflationofthereal
valueoftheinsuredlimit,andtherequirementthatdepositorsexecuteclaimsbeforeanotary,
canresultincoststothedepositorofmorethanthevalueofthedepositatrisk.

16

AsofDecember2004,thefundwasworthZ$42billion(2%ofthetotaldepositsofthelargest
bank).ByendMay2005,thefundhadgrowntoZ$79billion,butitsexposureincreased
significantlytoaboutZ$246billionbecauseofhighercoveragelevelsinstitutedinApril2005.
Table11:OwnershipofZimbabweBanks

17

18

CreditspreadshavewidenedinZimbabweinthemacroeconomiccrisis,whilethereallending
ratehasrisensomewhat(seeTable12andTable13)[xv]

Table12:InterestRateSpread

Source:Mixmarket
Table13:NominalandRealLendingRates

19


Source:IMF(2005)
3.Insurancecompaniesandotherfinancialinstitutions
Insurance
TheInsuranceandPensionFundsindustryareacriticalpieceofZimbabwesdevelopmental
institutions.Aspartofthe2009Budgetpolicymeasure,asofFeb2009,insuranceandpension
fundshavetheabilitytotransactineitherlocalorforeigncurrencygiventhedevaluationofthe
localcurrently.Theassetrequirementsareprescribedasfollows[xii]:
Longterminsurancecompanieswillhold7.5%oftheirforeigncurrencyassetsinPrescribed
Assetsdenominatedinforeignexchange,whilstshortterminsurancecompanieswillhold5%.
Pensionfunds,alsocollectingtheircontributionsinforeignexchange,willbeobligedtohold
10%oftheirforeignexchangeassetsinPrescribedAssetsdenominatedinforeignexchange.
Similartothebankingindustry,therehasalsobeeninadequateoversightoftheinsuranceand
pensionsectors,whichhasleadtoillegaltransitions,indiscipline,anddisregardofrulesand
regulations.Inaddition,therearenoprescribededucationalcredentialsforstockbroker
registration,whichexacerbatestheissue.Studieshaveshownthatmostpensionfundsand
insurancecompaniesarenotcomplyingwiththeminimumprescribedassetrequirementsof
35%and30%respectively[xii].

20

ThefollowingthreeinsurancecompaniesarelistedontheZimbabweStockExchange5:
NicozDiamondNationalInsuranceCompanyofZimbabwe(NICOZ)
OldMutualPublicLiabilityCompany(OLDMUTUAL)
ZimnatLionInsuranceCompanyLimited(ZIMNAT)

OtherFinancialInstitutions
Inadditiontothe28bankinginstitutions,therewere17licensedAssetManagement
Companies,75operatingmicrofinanceinstitutions,downfrom180in2007[x],and52
CooperativesSocietiesandCreditUnions[xiv].
AssetManagement
WithinthecommunityofAssetManagementCompanies(AMCs)inZimbabwe,manyplayersin
thesectorarenotconductingmeaningfulassetmanagementbusiness.Thesectorremains
overgrazeddespitetheclosureof14failedAMCsintheperiod2004to2006.Asoftheendof
2008,onlyfiveoutof17AMCsaccountformorethan80%oftotalfundsundermanagement
[x].Amongthosestillinoperation,someoperationwithinadequatecapitalreservesandsome
areevenknowntoparticipateinillegalactivitiesinordertocoveroperatingcosts.
TheRBZMonetaryAuthorityhaswarnedthesecompaniestoconcentrateontheircore
business,howevermanyrefuse.Asaresult,theMonetaryAuthoritydecreedthatasofMarch
12009,allMACthatareundercapitalized(lessthanUSD2.5million)willbeclosedwithno
optionforcuratorship[x].Further,allAMCsengaginginillegalactivitiesinviolationofthe
AssetManagementAct[Chapter24:26]48andwillbelikewiseclosedimmediatelywithno
optionforcuratorship[x].
Microfinance6

5
http://www.africanselect.com/scripts/cgiip.wsc/tradeone/html/company_list.r?picountryid=1305&pcsort=Industry#Insurance
6

http://www.microcapital.org, April 7 2009 Article titled Microcapital Story

21

MicrofinanceInstitutions(MFIs)inZimbabwehavebeenaskedtorevisittheiroperationaland
financingstrategiestoimprovegrowthofthecountrysmicrofinancesector.Thegoalistohave
MFIrefocustheirbusinessandtospecificallyidentifyappropriateoptionsforrecapitalization.
TorecapitalizeMFIs,theZimbabweAssociationofMicrofinanceInstitutions(ZAMFI)7lobbied
forthesettingupofanationalfundforMFIsintheregion.InturntheMFIswouldbe
responsibleforidentifyingclientswhoneedtobeservedandworkonmodalitiesforplanto
offerhousingloans.CapitalandviabilityconcernshavebeenissuesplaguingtheZimbabwean
microfinancesectorovertherecentpastandhaveforcedasignificantnumberofMFIsin
Zimbabwetoceaseoperationsandsurrendertheirlicenses.Aspera2008halfyearmonetary
policystatement,outofacumulative309registeredinstitutionsonly150MFIsinZimbabwe
wereoperational.A2008reportbyAllAfrica.comquotedanindustryofficialascitingthe
escalatingcostofborrowingandhyperinflationaryenvironmentasreasonswhymoneylenders
andMFIsinZimbabwestruggletosurvive.Thus,MFIsintheregionchargehighinterestrates
andthiseithertendstowardoffpotentialborrowersorincreasesbaddebtasborrowersfind
theloans,whicharerequiredbylawtobeinlocalcurrency,tobeincreasinglydifficulttorepay.
AnotherfactorcontributingtothechallengesfacedbyMFIsinZimbabweisthenewminimum
capitalrequirementsenforcedinthecountry,effectiveAugust2008.Underthisrequirement,
allmoneylendinginstitutionsinZimbabweneedtoholdaminimumcapitalofUSD5000.Many
MFIsinZimbabweareexpectedtoceaseoperationsfollowingtheenforcementofthisnew
requirement.
PrivateEquity
ThereisasmallprivateequityindustryinZimbabwe.Theyareprimarilyforeigncompaniesthat
wereestablishedbeforetheeconomiccrisis.TwocompaniesareActis(http://www.act.is)and
TakuraVentures.

7
An organization that advocates for MFIs in Zimbabwe and to help integrate the microfinance sector into
the countrys financial system
22

4.Centralbankanditsroleintheeconomy
TheReserveBankofZimbabwe(RBZortheBank)enjoysonlylimitedautonomy.TheBank
answerstotheMinisterofFinance,whohasthepowertogivegeneraldirectionsonallpolicy
issuesanddeterminesthebudgetoftheBank.ThePresidentappointstheGovernorandhis
threeDeputiesforatermoffiveyears,witha2termlimit.TheBoardismadeupofthe
Governor,threeDeputyGovernorsandnofewerthanfiveandnomorethansevenDirectors,
whoareappointedbythePresidentinconsultationwiththeMinister.

TheRBZ:
isthesoleissuerofcurrencyandbankertotheGovernment
isadvisortotheGovernmentonallfinancialandeconomicmatters
handlesaccountsofgovernmentdepartmentsandmakesshorttermadvancestogovernment
managesgovernmentdebt,actsasregistrarofgovernmentstockandconductstheTreasurybill
tenders.

TheBanksmaininstrumentsofmonetarypolicyare:
Reserverequirements
OpenMarketOperations(OMO)
Overnightrate
RepurchaseAgreements(REPOS)
Liquidityratiosalsoapply.

ReserveRequirements
RequiredreservesfordepositoryinstitutionsareshowninTable14.

Table14:StatutoryReserveRequirementforZimbabweBanks(%)

23


Source:Munoz,IMFWorkingPaper,(2007)[xvii]

TheRBZsetstheminimumTier1capitalratioat5%andtheminimumcapitaladequacyratioat
10%.Requirementsforbaddebtprovisionsrangefrom1%forthehighestqualityloansto
100%forthoselabeledLoss.Aminimumliquidityratioisrequiredwhereliquidassetsmust
equalorexceed10%ofliabilitiestothepublic.

OpenMarketOperations
Openmarketoperations(OMO)involvingmainlyGovernmentTreasurybillsascollateral
securityisthemaintoolforliquiditymanagement.TheRBZintroducedOMOTreasurybillsto
managethemoneysupplywhicharedistinctfromordinaryTreasurybillsforfunding
Government.ThematurityofOMOTreasurybillsrangesfrom91daysto1year.TheBankalso
introduced1yearCPIindexedTreasurybills,withbiannualcouponpayments.

OvernightRate
TheBanksovernightratesprimarilyserveasapreemptivetoolforfightinginflation
expectationsintheeconomy.Todiscouragebanksfromaccumulatingexcessendofday
surpluses,theRBZintroduced2yearcompulsorySpecialTreasurybillswithapunitiveinterest
rate.
24


RepurchaseAgreements
Inpractice,theseareseldomusedtoinfluencemonetarypolicy

TheRBZalsomanagesZimbabwesexchangeratepolicy.Thecountryhasarationedmultiple
exchangeregime(3"official"rates).Mosttransactionstakeplaceatthemainauctionruling
ratebutthereareforeignexchangecontrolsoncurrentaccounttransactions(andhencean
activeparallelexchangemarket).
Asecondaryrateisusedforinwardremittancesandasurrenderexchangerate(thathasbeen
eliminated)forexportremittances.Tocompensatefortheovervaluedexchangerate,subsidies
andotherincentivesarepaidtogold,tobaccoandcottonexporters.

TheRBZsellsforeignexchangethreetimesaweek(US$100millionpermonthforthemain
auctionandUS$2millionpermonthforSMEsandindividuals).TheIMF2005report
summarizestheprocess:
Authorizeddealerssubmitdetailedbidsonbehalfofcustomers,includingtransaction
informationsuchasintendeduseofforeignexchangeandapprovalnumberbytheRBZ.AnRBZ
committeescansthebidsandeliminatesthosethatarefornonprioritypurposes.Therestof
thebidsareadmittedtothetendersystemandallocatedforeignexchangeonthebasisof
price.Themainrateattheauctionisheavilymanagedinthesensethatalthoughbidsare
submitted,anincreasingnumberarenotmetwhichwouldnotbethecaseinatrueauction.

MonetaryPolicy

Source:RBZWeeklyEconomicHighlights,Jan2009
25


DuringthemonthofSeptember2008Reservemoneyclosedat$78870millionsreflectingan
increaseof165,697.6%.LargelycontributingtotheincreaseinReservemoneywereincreases
incurrencyissuedof$72,771.8million;requiredreserves,$17365048.7million;other
deposits,$987929.5millionsandexcessreserves,$324,424.3million.

Source:RBZWeeklyEconomicHighlights,Jan2009

InterestRates
Asaresultoftheliquidconditionsonthemoneymarket,moneymarketinterestrateshave
remainedgenerallydepressed.
Table15:InterestRates
TreasuryBill

Interbank

Overnight
Secured

Overnight
Unsecured

CommercialAvg
Lending

n/q

6500%

7500%

14375%

Rate365day
340%

Source:RBZMonthlyReviewJune2008
SeeTable3intheappendix,takenfromtheReserveBankofZimbabweAnnualReport,for
detailedinterestratesfrom1994through2007.

Table16summarizesthehistoryofZimbabwesexchangeandinflationrates(onalogarithmic
scale).

26


Table16a:ExchangeRates
SARand
(ZAR)

Botswana
Pula(BWP)

USDollar
(USD)

Japanese
Yen(JPY)

UKSterling
(GBP)

Euro(EUR)

29.76

35.72

266.64

2.68

395.12

349.18

Source:ReserveBankofZimbabwe,asof4/17/2009

27

Table16b:ZimbabweCurrencyHistory
FirstDollar:introducedin1980toreplacetheRhodesiandollaratpar.TheUSdollarexchange
ratewasZWD1:USD1.47
SecondDollar:redenominationoftheFirstDollaron1August2006attherateof1revalued
dollar=1000olddollars
ThirdDollar(ZWR):redenominationoftheSecondDollaron30July2008attherateof1
revalueddollar=10billionolddollars
FrequentcashshortagesandtheworthlessZimbabweandollar,leadtotheeffective
legalizationofforeigncurrencyasvalidtenderon13September2008.Thisisachievedviaa
specialprogramtoofficiallylicenseanumberofretailerstoacceptforeignmoney.Thisreflects
awidespreadpracticebyretailerstorefuseZimbabweancurrencyandrequestUSdollarsor
SouthAfricanrandsinstead.Asof29January2009allZimbabweansaretobeallowedto
conductbusinessinanycurrency.
FourthDollar(ZWL):OnFebruary2,2009,theRBZannouncesthatafurther12zerosaretobe
takenoffthecurrency.Theredenominationrateissetat1revalueddollar=1trillionold
dollars.TheThirddollaristoremainlegaltenderuntil30June2009.

28

5.GovernmentBondMarket
GovernmentSecurities:Treasurybillsareissuedformaturitiesof91,182,365,and728days
andtreasurybondswith2and3yearmaturities.Attheendof2005,a5yearinflationindexed
bondwaslaunched.Theprimarymarketoperatesviaamultiplepricesysteminwhichboth
competitiveandnoncompetitivebidsareaccepted.Thereisnosetissuancecalendar[xx].
Noncentralgovernmentissuance:Privatesectorcorporationsdonotissuedebtinthe
Zimbabweanbondmarket[xx].
SecondaryMarket:Shorttermgovernmentsecuritiesaretradedoverthecounter(OTC),and
banksandotherprimarymarketdealersactivelytradethese.Tradesaresettledonthebasisof
T+2[xx].
GovernmentdomesticdebtcontinuedonanupwardtrendduringtheweekofJan232009,
closingat$59sextillion,withoutstandingTreasuryBillsaccountingfor94%ofthisamount8

StockMarket:

TheZimbabweStockExchangeisasmallbutactivestockexchangeinAfrica.Itwasestablished
in1896andhasbeenopentoforeigninvestmentsince1993.Ithasaboutadozenmembers
andover65listedsecurities.Therearetwoindices,theZimbabweIndustrialIndexandthe
ZimbabweMiningIndex[v].
TheZSEisanactivememberoftheSADC'sStockExchangeCommittee(SADCSEC)which
includesBotswana,SouthAfrica,Mauritius,Zambia,LesothoandNamibia.

8
RBZ Weekly Economic Highlights, week ending Jan 2009
29

Companiesmaynotallowmorethan40%oftheirownership(tradedafter1993)tobeforeign,
andnosingleoverseasshareholdercanpossessmorethan10%.Thosebringinginfunds
througharegisteredcommercialbankmaynowrepatriatetheirincomeandsaleproceedsfree
ofcharge,buttaxesof15%ondividendsand10%oncapitalgainsareleviedonindividuals.
AcompanywishingtoapplyforalistingontheZimbabweStockExchangemustconformtothe
listingrulesandregulationsoftheListingCommitteeoftheExchange.Theseinclude:
Aminimumrequirementofonemillionshareswithavalueofnotlessthan$500000
Aminimumof30%oftheissuedequitycapitalbeingofferedtothepublic
CompliancewiththerequirementsoftheExchangebythecompany'sMemorandumand
ArticlesofAssociation(regardlessofwhetherthisisalegalrequirement)
Theexistenceofaspreadofshareholderswideenoughtojustifythelisting(aminimumof
approximately300shareholders)
Provisionofthename,historyanddescriptionofthecompany'sinterestsandactivities
Areportbythecompany'sauditorsforthelastfivefinancialyears
Forecastearningsanddividends
Detailsofsharecapitalstructure,loancapitalandborrowingpowers
ZSEhasapproximatelyadozenmembersandmorethan65listedsecurities9.
MajorCompanies

TopInvestors

ABCHoldingsLimited

AfricanDistillersLimited

APEXCorporationofZimbabweLimited

BarclaysBankofZimbabweLimited

BarbicanHoldingsLimited

BICCCafcaLimited

ZimbabweAlloysLimited

ZimbabweFinancialHoldingsLimited

ZimbabweReinsuranceCompanyLimited

ZimnatLlionInsuranceCompanyLtd

ZimbabweNewspapers(1980)Limited

MhanguraCopperMinesLimited

9
http://finance.mapsofworld.com/stock-market/zimbabwe-stock-exchange.html
30

MeiklesAfricaLimited

ZimbabweSunLimited

Murray&RobertsLimited

MedtechHoldingsLimited

BritishAmericanTobaccoZimbabweHoldingsLtd

ASTRAHoldingsLimited

BinduraNickelCorporationLimited

BorderTimbersLimited

Upuntil2008,theZSEwasoutperformingexchangesintheSouthAfricanregion.Giventhe
inflationissue,thereturnsontheZSEweremoretrustedthanbankreturnsandinvestorswere
flockingtoputtheirmoneyintheZSE.Effectively,itwasoneplacewherelocalassetshadbeen
abletoprovidereturnsaheadofinflation.
However,inNovember2008theZSEwasclosedaftertheRBZaccusedtradersofusing
fraudulentchecks.WhenitreopenedinFebruary2009,tradeswereconductedexclusivelyin
USdollars.InApril2009,theZSEsawitsbestperformance,intermsofgains,sincereopening.
Inthatweek,theIndustrialIndexgainedby24.31percenttocloseat13,201.63pointswhilst
theMiningIndexgained23.57percenttocloseat6,081.56points.
AccordingtotheRBZJune2009MonthlyReview,attheendofJune,theindustrialindexwasat
38,069792,109,133.20miningindexwasat45,067,538,391,404.00.

Source:RBZWeeklyEconomicHighlights,Jan232009

31

Sources
[i]

BBCNews:http://news.bbc.co.uk/1/hi/world/africa/country_profiles/1064589.stm

[ii] CIAWorldFactBook:https://www.cia.gov/library/publications/theworld
factbook/print/zi.html
[iii]

UNData:http://data.un.org/CountryProfile.aspx?crName=Zimbabwe

[iv]

USDepartmentofStatehttp://www.state.gov/r/pa/ei/bgn/5479.htm

[v]

MBendi:http://www.mbendi.com/land/af/zi/p0005.htm#20

[vi]

WorldBank:http://www.worldbank.org/

[vii] NationsEncyclopedia:
http://www.nationsencyclopedia.com/economies/Africa/Zimbabwe.html
[viii] IMFNews:http://www.imf.org/external/np/tr/2009/tr032509a.htm
[ix]

COMESACountryProfile:documentonwebcafe

[x]

RoyalBankofZimbabweMoneySupplyReportJan2009:documentonwebcafe

[xi] InternationalMonetaryFund,Zimbabwe:SelectedIssuesandStatisticalAppendix,IMF
Country
ReportNo.05/359,October2005
[xii] InternationalMonetaryFund,Zimbabwe:2005ArticleIVConsultationStaffReport;
Public
InformationNoticeontheExecutiveBoardDiscussion;andStatementbytheAuthoritiesof
Zimbabwe,IMFCountryReportNo.05/360,October2005
[xiii] SADCBankers,CommitteeofCentralGovernorsinSADCC.MemberCentralBanks,
Zimbabwe,September2008
Availableat:
http://www.sadcbankers.org/SADC/SADC.nsf/LADV/2FAB28CBD8C6B32F4225754500496D75/$
File/Zimbabwe.pdf
[xiv] MicrofinanceGatewayZimbabweReportSept2004:documentonwebcafe
[xv]

TheMixMarket.Availableat:
32

http://www.mixmarket.org/en/environment/environment.show.profile.asp?CountryID=ZW
[xvi] MinistryofFinanceBudgetStatement2009
[xvii] Munoz,Sonia,CentralBankQuasiFiscalLossesandHighInflationinZimbabwe:ANote.
IMF

WorkingPapers,Vol.,pp.120,2007,April2007.

AvailableatSSRN:http://ssrn.com/abstract=984614
[xviii] EIUZimbabweCountryReport
[xix] EIUZimbabweCountryProfile
[xx]

AfricanFixedIncomeGuidelines

Documentsthatcouldnotbedownloaded:
ReserveBankofZimbabwe2007AnnualReport:
http://www.rbz.co.zw/pdfs/RBZAnnual2006.pdf
ReserveBankofZimbabweAug2008MonthlyReview:
www.rbz.co.zw/pdfs/Monthly/August2008.pdf

Appendix:SupplementaryTables

33

34

35

36