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MONETARY
Mid- year
POLICY STATEMENT
DR. G. GONO RESERVE BANK OF ZIMBABWE GOVERNOR BY
Monetary Policy StatementMonetary Policy StatementMonetary Policy StatementMonetary Policy StatementMonetary Policy StatementMonetary Policy StatementMonetary Policy Statement
Monetary Policy StatementMonetary Policy StatementMonetary Policy StatementMonetary Policy StatementMonetary Policy StatementMonetary Policy StatementMonetary Policy Statemen
Monetary Policy StatementMonetary Policy StatementMonetary Policy StatementMonetary Policy StatementMonetary Policy StatementMonetary Policy StatementMonetary Policy Statemen
2010
MONETARY
Mid- Year
POLICY STATEMENT
Issued IN TERMS OF THE RESERVE BANK OF ZIMBABWE ACT CHAPTER 22:15, SECTION 46 By DR. G. GONO GOVERNOR RESERVE BANK OF ZIMBABWE
28 JULY 2010
INTRODUCTION AND BACKGROUND BANKING SECTOR DEVELOPMENTS FINANCIAL INTERMEDIATION POLICY MEASURES INTEREST RATES DEPOSIT RATES ARCHITECTURE OF THE BANKING SECTOR SECTORAL DISTRIBUTION OF CREDIT CAPITALISATION LEVELS OF BANKING INSTITUTIONS BANK CHARGES AND DEPOSIT RATES INTEREST RATES MIS-MATCHES
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Table
10
10
INFLATION-INDEXED REAL INTEREST RATES RANGES MANDATORY PUBLICATION OF CONDITIONS OF SERVICE BASEL II IMPLEMENTATION ENHANCEMENT OF RISK MANAGEMENT GLOBAL ECONOMIC DEVELOPMENTS AGRICULTURE MINING GOLD COAL ZIMBABWE: REAL SECTOR OVERVIEW REAL SECTOR OVERVIEW: GLOBAL AND LOCAL DEVELOPMENTS
11
11
12
12
12
12
13
13
15
16
17
18
19
20
20
20
22
24
EXTERNAL SECTOR DEVELOPMENTS EXTERNAL DEBT AND PAYMENT ARREARS (US$ MILLION) INTERNATIONAL COMMODITY PRICE DEVELOPMENTS SHORT-TERM TRADE FINANCE FACILITIES EXCHANGE CONTROL OVERVIEW UTILISATION OF SHORT-TERM TRADE FINANCE FACILITIES EXPORT PERFORMANCE FOR THE FIRST HALF OF 2010 IMPORT PERFORMANCE FOR THE FIRST HALF OF 2010 EXCHANGE CONTROL POLICY MEASURES EXTERNALISATION
25
26
27
28
32
33
34
35
35
38
43
43
44
45
48
PROMULGATION OF EXCHANGE CONTROL REGULATIONS NATIONAL PAYMENTS SYSTEM INTER-BANK CHEQUE SYSTEM REAL TIME GROSS SETTLEMENT (RTGS) SYSTEM POLICY GUIDANCE ON PAYMENT SYSTEM INITIATIVES REGIONAL PAYMENT SYSTEMS INITIATIVE CONCLUSION CENTRAL BANKS ROLE OF PAYMENT SYSTEMS OVERSIGHT
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Table
48
48
49
49
50
50
51
51
economic and social programmes. The Mid Term Fiscal Policy Review, announced by the Minister of Finance on 14th greater policy congruency and effectiveness between the Fiscal and Monetary sides.
July 2010, therefore, forms the key anchor points around which this Monetary Policy Statement is formulated to ensure 3. This Monetary Policy Statement has also been crafted consistent with the changed regulatory environment as reflected in the Reserve Bank of Zimbabwe Amendment Act of 31 March 2010 which has refocused the operations of the Central Bank.
4. I wish to commend Government for the recent appointment of the Reserve Bank of Zimbabwe Board of Directors during structural and viability matters among other strategic areas.
the first week of May, 2010, which appointments now make it feasible for the Central Bank to address outstanding
for the convergence of the economys macroeconomic performance indicators towards sustainable steady-state growth
7. To anchor inflation permanently at low and stable levels, both supply-side and demand management, as well as psychological interventions are critical. 8. This Monetary Policy Statement will present the ingredients for the achievement and maintenance of low and stable
inflation.
9. Zimbabwe being an agro-based economy, overall positive real economic growth will also be sustained through concrete measures that restore vibrancy in agricultural production. 10. As will be demonstrated in this Monetary Policy Statement, another critical success factor that will promote greater stability is the need to cultivate positive expectations and deepen business confidence in the economy. 11. Through this stability, short, medium term and long-term capital inflows will be ensured. 12. This way, corporates and individuals who are currently banking their money out of the country would also be encouraged to bring their their resources onshore to liquefy domestic money and capital markets. 13. Notable growth in the mining sector will need to be harnessed into being a key pillar in the economys overall welfare through win-win fiscal regimes that optimizes Government revenues while at the same remaining friendly to investors.
14. Manufacturing, Tourism, Transport and other service sectors need also to adopt new ways of doing business in the face of reduced trading margins, rising competition(shrinking local, regional and international markets). matter of survival. 15. Specifically, the winning models of low production costs, low margins and high trading volumes have to be adopted as a 16. In all these rebalancing equations, it is imperative that internal consistency be maintained between factor-input prices and the general inflation levels. 17. To this end, an intricate balance has to be struck between overall wage increases and inflation levels in the economy. 18. Where wage increases outpace productivity and inflation levels, sooner rather than later, the productive sectors will fail to pay their way leading to the protracted undesirable spiral of cost push inflation which would in turn be aggravated by the resultant shortages induced price bubbles.
19. Success in any economic turnaround also hinges significantly on the depth and stability of the financial sector. 20. It is for this reason that this current Monetary Policy Statement devotes considerable space and focus on the banking sector stability. 21. As will be expanded later in the statement, the notable cases of highly extractive lending interest rates on the one hand co-existing with prevalent cases of near zero deposit interest rates cannot be tolerated any longer as this undermines the whole essence of financial intermediation in the economic growth and development equation. becoming a debilitating cancer in the countrys banking sector.
22. This Monetary Policy Statement also deals with another disturbing trend of excessive bank charges that are fast
INTRODUCTION
Structure of the Banking Sector Commercial Banks Discount Houses* Building Societies Microfinance Banks Asset Management Companies Microfinance institutions CAPITALISATION LEVELS OF BANKING INSTITUTIONS
Number 15 5 0 0
26
16
95
26. As at 30 June 2010, seventeen (17) out of 24 banking institutions (excluding POSB and the microfinance bank) were in compliance with the prescribed minimum paid-up capital requirements. 27. The 7 of unqualifying institutions have been directed to either raise fresh capital from existing shareholders or bringing in new partners without any further delays. There will be no further extension beyond 31 December 2010. 28. The Reserve Bank is on record advising the banking sector that Monetary Authorities no longer have appetite for curatorships. LEVEL OF CAPITALISATION OF ASSET MANAGEMENT COMPANIES (AMCs) 29. As at 31 June 2010, fifteen (15) out of the 16 (sixteen) asset management companies had met the minimum paid-up equity capital of $500,000 effective 31 March 2010.
648,615.81
500,000.00
640,443.00
500,000.00
635,926.70
500,000.00
608,606.00
500,000.00
562,010.00
500,000.00
515,213.80
500,000.00
510,736.44
513,245.79
500,000.00
500,000.00
501,680.71
500,000.00
500,000.00
500,000.00
ALPHA
523,850.00
500,000.00
483,687.00
500,000.00
500,000.00
30. Undercapitalised banking institutions and AMCs with realistic recapitalisation initiatives were given time to pursue their surrender their licences voluntarily or face involuntary liquidation.
initiatives. Those with unrealistic initiatives were directed to merge their operations with stronger banking institutions,
31. The last quarter has, therefore, witnessed the disposal of business units and rationalisation of operations by some banks as they endeavour to realign their capital positions and business and activities. 32. The Registrar of Banking Institutions cancelled the banking licences of the Discount Company of Zimbabwe (DCZ) and NDH Bank Limited, following, the institutions separate requests for cancellation of their licences in terms of section 14 (4) of the Banking Act [Chapter 24:20].
33. NDH Bank applied for the voluntary cancellation of its licence citing viability challenges and shareholders inability to raise minimum capital required for merchant banks of US$10 million. 34. The surrender of the DCZ banking licence follows the Kingdom groups consolidation of banking operations which will see the discount house business being merged with the microfinance business. measures to ensure a safe and sound banking sector. 35. The Reserve Bank will continuously monitor banking institutions capitalisation and institute appropriate supervisory
FINANCIAL INTERMEDIATION
36. As at 18 June 2010, total banking sector deposits amounted to $1.80 billion, with Loans and Advances of $1.11 billion. Trend of Banking Sector Deposits, Loans & Advances 31.12.09 08.01.10 $1,363.67m Total Deposits $1,404.49m
15.01.10
$1,412.15m
29.01.10 19.2.10
$1,410.24m
$1,405.95m
$715.57m
$1.463.88m
$743.37m
50.74%
$1.489.22m
$759.41m
52.87%
$1,487.03m
$774.34m
51.88%
$1,570.32m
$795.12m
52.00%
$1,610.90m
$824.39m
53.47%
$1,664.78m
$853.87m
52.50%
26.3.10
$1,665.57m
$862.44m
53.01%
01.04.10
$1,680.55m
$888.84m
51.81%
09.04.10
$1,671.85m
$899.12m
53.37%
16.04.10
$1,708.53m
$946.46m
53.50%
23.04.10
$1,673.28m
$924.83m
56.61%
30.04.10
$1,718.55m
$948.05m
54.13%
07.05.10
$1,708.23m
$963.46m
56.66%
14.05.10
$1,754.44m
$934.43m
56.09%
21.05.10
$1,761.90m
$953.70m
54.70%
28.05.10
$1,812.85m
$977.94m
54.36%
04.06.10
$1,810.92m
$1,013.42m
55.00%
11.06.10
$1,811.68m
$1,043.41m
55.90%
18.06.10
$1,869.77m
$1,093.10m
57.62%
$1,798.67m
$1,086.29m
60.34%
$1,108.24m
58.10%
61.61%
SECTORAL DISTRIBUTION OF CREDIT 38. In November 2009, the Reserve Bank urged banking institutions to re-orient their lending portfolios to achieve the following sectoral thresholds for lending activities: Economic Sector Agriculture Mining Other Manufacturing Recommended Threshold 30% 25% 25%
20%
Distribution
229,260,644.91
227,601,385.41 83,092,596.76
20.69%
220,247,650.88 58,625,970.39
20.54% 7.50%
19.87% 5.29%
18.14% 2.91%
23,333,988.67
18,395,067.97
2.11%
1.66%
1,108,237,759.16
1.30%
100.00%
40. The Reserve Bank promotes market determination of applicable charges and interest rates for bank products and affordable banking services.
services. The Bank is, however, cognisant of the need to balance viability of the banking sector and accessibility to
41. The Central Bank has and continues to receive multiple genuine representations from the banking public on the excessive bank charges that are being levied by some banks. 42. Under the current conditions of reduced general market liquidity, Shareholders, Boards of Directors and Management teams in banking institutions must have a frank re-look at their pay structures and other overheads. are suggesting otherwise cannot be sustained. 43. The current scenario where bank management in some institutions get paid and live like angels whilst their own financials 44. The banking corporate and individual sectors cannot therefore, be made to sustain utopia-style packages that do not reflect the Banks core income streams benchmarked on reasonable charges and normal trading activities. 45. As Monetary Authorities, we do not wish to be dragged to the extreme points where there will be no option but to prescribe limits on bank charges. 46. Indeed, such a day will regrettably be a dark one as our economy remains steadfast in allowing the virtues of market forces to flourish in the interests of both allocative and productive efficiencies.
POLICY MEASURES
STATUTORY RESERVES
47. As part of risk containment measures in the banking system, statutory reserve requirements will be abolished with immediate effect. 48. This policy initiative will release more resources for lending by the banking sector and will substantially dampen interest rates, which are currently prohibitive and counterproductive. LIQUID ASSET RATIO 49. To minimize systemic risks in the banking sector, the prescribed prudential liquid asset ratio requirement of 10% in our Banking Regulations will be increased to a minimum of 20% with immediate effect. 50. Banks are hereby called to comply without exceptions. RESUSCITATION OF THE LENDER OF LAST RESORT FUNCTION 51. As spelt out in the 2010 Mid-Term Fiscal Review, the Central Bank has been capacitated with a modest seed fund to resume its lender of last resort function. 52. In due course, the detailed operational modalities for this critical intervention will be circulated to the Banking Sector. INTEREST RATES 53. Interest rates which essentially denote the cost of money to the receiving entity (the debtor entity) or a return to the saving or lending entity (the creditor) entity, play an important signalling role in the economys financial and real sectors. 54. This signalling function requires that: (a) Saving individuals, households and corporate entities get a fair return on their savings; and (b) The borrowing entities be charged fair interest rates that reflect the time-value of money (inflation and opportunity costs), as well as the risk profiles in the borrowing sectors. 55. Tragically, however, in Zimbabwe, some of the players in the banking sector have completely diverted their interest rate unexplained, outrageous, punitive lending rates. as exemplified below:
regimes from the core fundamentals of inflation and fair evaluation of risk profiles in the market, more towards
56. Reflecting this are the excessive positive real lending rates (above inflation margins) and negative real rates to depositors
10
INTEREST RATES MIS-MATCHES Inflation(Year on Year June, 2010) Range of Upper Lending Rates(% per annum) Lower Deposit rates(% per annum) 5.3% 30-50% 0 1% Lending Deposits 24.744.7% 4.3% 5.3Real Rates
Positive Negative
57. The implications of the above skewed interest rates profiles are that: (a) Lenders are being heavily penalised. The positive real borrowing rates of 24.7 44.7% reflect the financial burden that the banking sector is unfairly imposing on the productive, individual and household sectors of the economy. This is retrogressive to the turnaround efforts; and
(b) Depositors are losing their value of money due to the negative real deposit rates. This has the hazardous effect of discouraging savings. A nation with limited or no savings culture has no scope for sustainable long-term investment finance, particularly from internal sources.
58. Against this unfortunate inability by some players in the banking sector to shake away from the hangover of the negative to intervene with the immediate introduction of a more robust market-based interest rates framework.
psychological effects of the 2007-2008 hyperinflationary periods, the Reserve Bank has been left with no other option but
11
DEPOSIT RATES 61. The Reserve Bank fully appreciates the hot nature of most deposits which can be withdrawn at very short notice. 62. This notwithstanding, it is imperative that banks play their deposit mobilisation function through the awarding of positive real deposit rates that are consistent with the above market-linked lending rates system. MANDATORY PUBLICATION OF CONDITIONS OF SERVICE 63. In order to promote transparency and a levelled playing field to the providers and users of banking services, with immediate effect, each banking institution must post onvisible boards, their explicit conditions of service, covering deposit and lending rates, as well as all other banking charges.
64. The mandatory publishing of each banks conditions of service will ensure that banks do not penalize borrowers through extractive charges and interest rates that are unrelated to fundamentals. 65. The Banking Public are encouraged and advised to actively verify their actual banking terms with the published conditions of service, reporting to the Central Bank any instances of misrepresentations. conditions of business. 66. Appropriate remedial measures will be taken against those banks which misrepresent facts in respect of their true 67. Whilst the Reserve Bank does not subscribe to the intervention of prescribing bank charges, the Banking Sector must strongly take heed that any excesses on bank charges will not be left unchecked. BASEL II IMPLEMENTATION 68. The Reserve Bank issued a draft guideline Guideline No. 1-2010/BSD: Technical Guidance on Basel II Implementation In Zimbabwe on 28 April 2010 for comments by the banking sector. August 2010, for implementation. 69. Comments from the banking sector are being incorporated into the guideline which will be issued to the market on 1 70. Through this initiative, financial sector stability will be deepened further. ENHANCEMENT OF RISK MANAGEMENT 71. In line with recent trends in risk management and the weaknesses unearthed by the global financial crisis, banking business spectrum as opposed to focussing only on regulatory compliance. institutions are expected to manage risk in a more comprehensive, coordinated and integrated way across the entire
12
73. As such, the Reserve Bank requires banking institutions to develop formal bank-wide risk management frameworks an integrated process for identification, measurement and managing of all risks within the institution. frameworks incorporating the Enterprise-wide Risk Management concept.
incorporating the Enterprise-wide Risk Management (ERM) concept. In terms of this approach, banking institutions adopt
74. The Reserve Bank issued a circular to banking institutions on 28 April 2010 requesting updated risk management 75. In this respect, the Reserve Bank is also in the process of revising the Risk Management Guideline to rake into account the unfolding global dynamics of financial sector risk profiling and management.
77. The global economy is thus projected to grow by 4.3% in 2010 compared to a contraction of 1.1% experienced in 2009. Nascent recovery signs have been evidenced by accelerating world trade, industrial production, and rising consumer demand.
78. The downside is likely to emanate from recent turbulence in financial markets as a result of the debt crisis in Greece which has weighed down on growth prospect. The Greek debt crisis originated from the twin challenges of severe fiscal deficit the Greek debt crisis. and high public debt, as well as a competitiveness problem. European stock markets took a tumble due to the effects of
13
Source: IMF Economic World Outlook ADVANCED ECONOMIES 79. Advanced economies are projected to post strong growth of about 4.6% in 2010 compared to a contraction of 1.2% contraction of 2.4% in 2009 precipitated by the credit crunch, as well as falling housing and equity prices. Growth in 2010 will be driven by strong policies aimed at restoring stability at the core financial institutions, improved financial conditions and a recovery in consumer demand. in the U.S. property market. experienced in 2009 owing to the global financial crisis. In the US, growth is projected to peak at 3.3% in 2010 following a
80. Risks, however, still remain stemming from uncertainty about regulatory reforms and the possibility of renewed weakness EURO ZONE 81. The Euro Zone is projected to register a modest growth of 1.0% in 2010 following a decline of 4.1% in 2009. Tight credit conditions in the region have improved, bank-based financial system will take time to fully resume its intermediating role. ASIAN COUNTRIES 82. The GDP growth for Asia is projected to increase from 0.9% in 2009 to 6.7% in 2010. Asias strong recovery from the global financial crisis will be sustained by continued buoyancy in exports and strong private domestic demand. stronger-than-expected exports during the first half of 2010. 83. In Japan, growth is now projected to rise to about 2.5% in 2010, compared to a 5.2% contraction in 2009, attributed to 84. The Chinese economy is projected to grow by 10.5% in 2010 from 6.5% growth in 2009. Despite the subdued external demand, economic growth will be sustained by aggressive efforts to provide major fiscal stimulus and monetary easing, share of the economy, particularly after factoring in its high import content. which are helping boost consumption and infrastructure investment. In addition, the export sector is a relatively smaller conditions will limit private investment. Rising unemployment will also weigh on consumption. Although financial market
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85. In India, growth is expected to accelerate to about 9.5% in 2010 from 5.7% in 2009, as robust corporate profits and favourable financing conditions fuel investment. The strong growth will be driven by improved financing conditions and the stimulus aimed at suppressing the effects of the global financial crisis. SUB-SAHARAN AFRICA 86. Growth in Sub-Saharan Africa is projected to rise from 2.2% in 2009 to about 5% in 2010 as a result of firming international developing economies. commodity prices and stronger economic policies that are helping many economies to drive up internal demand and
attract capital inflows. The ongoing rebound in global trade is also supporting the recovery in many emerging and ZIMBABWE: REAL SECTOR OVERVIEW 87. In 2010, economic prospects are bright, against the background of strengthened policies, favourable shocks, notably higher international commodity prices and a good 2010 agricultural season. 88. The economy registered a growth of 5.7% in 2009 and is projected to grow by a further 5.4% in 2010. The economys commodity prices for gold and platinum and a better than expected 2010 agricultural season.
robust performance is due to a diversity of positive factors and favourable shocks, notably, higher international
89. Zimbabwe benefited immensely from the rebound in global economic activity, wherein the global economy is expected to grow by 4.3% in 2010. This resulted in increased world trade, industrial production, and rising consumer demand. 90. The Zimbabwean economy, however, remains constrained by the following challenges: ii. Skills Flight; I. Lack of External Support;
v. Inadequate Levels of Liquidity. 91. The economy is projected to grow by 5.4% in 2010 underpinned by expected growths in mining (31%), agriculture (18.8%), manufacturing (4.5%) and tourism and distribution (3.5%). domestic services, 1.5%. 92. Social and services sectors are also projected to register significant growths as follows: education, 2%; health, 2%; and 93. The electricity and water sub-sector is, however, expected to decline by 1.8% in 2010, mainly as a result of challenges being faced in electricity generation.
15
*Estimates **Forecasts AGRICULTURE 94. Agriculture is projected to grow by 18.8% in 2010 compared to 14.9% in 2009. The growth is mainly a result of the following increases in output: tobacco, 71%; dairy, 39%; horticulture, 14%; and maize, 5%. MAIZE 95. Maize output is projected to increase from 1 240 000 tonnes in 2009 to 1 300 000 tonnes in 2010, as a result of an increase in hectarage. TOBACCO 96. Tobacco output is expected to increase to 110 million kilograms in 2010, up from 45 million kilograms produced in 2009. This is based on the following: I. Increase in the number of smallholder farmers producing the crop; and
Ii. Availability of inputs on the open market. 97. As of day 89, cumulative tobacco deliveries amounted to 92.9 million kgs at an average price of $3.02. SUGAR 98. Sugar production is expected to decrease to 250 000 tonnes in 2010, from 286 000 tonnes in 2009. This is mainly a result harvested after 10 months. of the fact that the industry is currently carrying out a replanting exercise to replace old cane. The replanted crop will be
99. The following factors are, however, expected to improve sugar production: I. Investment of R145 million in Triangle Sugar and Hippo Valley Estates, by Tongaat Hulett, with 70 million rand targeted towards the two mills in the country and 75 million rand for the upgrading of the firms transport fleet. The company expects to increase output to around 600 000 tonnes per year in the next three years; and
16
ii.
The 45 million euros set aside by the European Union to revamp the countrys sugar industry announced in June 2009.
POULTRY 100. Poultry is expected to grow from 42 000 tonnes in 2009, to 50 000 tonnes in 2010. The increase is mainly driven by the stability in the sector fostered by the multi-currency system. 101. The sector is expected to reach the 2007 levels by year end where it can supply 400 000 birds per day in line with imports from South Africa.
national demand. Currently the sector is producing about 270 000 birds per day with the deficit being satisfied by
102. The figure below shows developments in the agricultural sector. AGRICULTURE OUTPUT GROWTH (2001 TO 2010)
* Estimate
** Forecast
MINING 103. The mining sector is estimated to have grown by 8.5% in 2009. The sector is projected to grow further by 31% in 2010, underpinned by output growths in all minerals. 104. Productivity in the mining sector is, however, expected to be weighed down by the following: ii. i. Lack of funds for recapitalisation mainly due to the liquidity challenges in the economy. Erratic power supply; and
17
* Forecast GOLD 105. Cumulative gold output as at 31st May 2010 amounted to 2 779 kilograms, compared to 712 kilograms recorded during the same period in 2009. 106. During the first five months of 2009, most mines were still at early stages of resuscitating their operations after suspending production due to challenges experienced prior to 2009. 107. The liberalisation of gold marketing has enabled some gold mines to resume production. In addition, the issuance of gold dealership licences to gold producers has resulted in mining houses securing lines of credit, critical in increasing production.
108. Annual gold production is therefore expected to increase from around 4 966 kilograms in 2009, to 7 000 kilograms in 2010 underpinned by the following factors: i. Freda Rebecca Gold Mine is finalising a loan facility of US$10 million provided by the Industrial Development programme and working capital. This will increase its output to around 1 600 kilograms by the end of 2010; ii. iii.
Corporation of South Africa. The loan is expected to accelerate the implementation of the mines refurbishment
Metallon Gold has re-opened all its five mines and is targeting an output of around 3 200 kilograms of gold in 2010; and Caledonia is targeting a 45% growth following the improved economic environment that has rekindled its expansion fourth quarter of 2010 despite persistent power outages. programmes. Output is projected to increase to 1 134 kilograms after the completion of its expansion programme in the
18
* Projection COAL 109. Coal production was at 20% of installed production capacity as at end of May 2010. Coal production in 2010 is therefore following factors in 2010: i. ii. iii. expected to remain at around 1.7 million tonnes realised in 2009. Output is, however, expected to be influenced by the
Anticipated re-capitalisation of Hwange Colliery Company; Increase in production as a result of the efficient use of the dragline; and Underground production will be boosted by the introduction of the second continuous mine.
* Forecast
19
PLATINUM 110. Platinum has significant growth potential buoyed by the recovery in prices on the world market. 111. Platinum output is expected to increase from 6 849 kilograms in 2009, to 7 800 kilograms in 2010, due to the following factors: i. Increased investment by platinum houses;
iii.
ii.
* Forecast NICKEL 112. Currently, there is no primary producer of nickel following the closure of BNC in October 2008. Nickel available is a byproduct of platinum group of metals (PGMs). 113. Nickel production is expected to increase from 4 858 tonnes, to 6 000 tonnes in 2010. 114. Bindura Nickel Mining Company is expected to start operations in the last quarter of 2010. Negotiations are underway to Metals are also expected to boost nickel output. MANUFACTURING 115. The manufacturing sector is estimated to have grown by 10.2% in 2009 and the sector is projected to post a lower growth of 4.5% in 2010. Manufacturing production improved significantly from January 2009 to April 2010 due to: i. Iii. ii. Duty reduction on capital equipment; Positive benefits from the liberalized environment; Introduction of multicurrency system iv. Access to lines of credit; and start importing ore from Zambia and Botswana for smelting. In addition, increased activities in the Platinum Group of
20
v.
*Estimate
** Forecast 116. Overall capacity utilization in the manufacturing sector has grown from an average of around 10% in January 2009 to the current average of around 37%. The low levels of capacity utilization are due to suppressed power supplies and lack of access to cheap and long term lines of credit among other factors.
117. The manufacturing sector continues to face the following challenges: ii. i. Obsolete equipment; Insufficient working capital;
iii. v.
iv.
Infrastructural bottlenecks especially in the utility distribution sectors; Punitive borrowing interest rates; High customs duty on finished products that are used as raw materials in some industries. Relatively low effective demand; and
vi.
MANUFACTURING SUB-SECTORS
FOODSTUFFS INCLUDING STOCK FEEDS 118. Capacity utilisation in this sub sector increased from an average of 30% in the first half of 2009, to current levels of around 40%. The sector is expected to grow by 5% in 2010. DRINKS, TOBACCO & BEVERAGES 119. Capacity utilisation in the drinks, tobacco and beverages sub-sector increased to more than 80% for some firms during the period January 2009 to April 2010.
21
120. Delta Beverages and British American Tobacco are currently operating at full capacity. Delta is in the process of installing a new 42 000 capacity bottling plant in Bulawayo at a cost of US$14 million. The plant is expected to be commissioned in October 2010. METALS AND METAL PRODUCTS 121. The performance in metals and metal products is expected to remain subdued on the back of the poor performance by ZISCO Steel and stiff competition from regional players. INFLATION DEVELOPMENTS 122. Rising international oil prices, appreciation of the Rand, energy shortages and attendant supply side bottlenecks have contributed to the recent build-up of inflationary pressures in the economy. 123. The annual headline inflation increased from 4.8% in April 2010 to 6.1% in May 2010, before thawing down to XX% in June 2010, reflecting increases in both food and non-food inflation, which rose from 5.2% in April to 6.7% in May and from 0.1% recorded in April 2010. ANNUAL INFLATION PROFILE (%) from 4.6% in April to 5.8% in May 2010, respectively. 124. On a monthly basis, inflation increased to 0.3% in May 2010,
125. The countrys inflation remains within the regional average of about 6%, a development, which ensures external competitiveness.
22
ANNUAL INFLATION FOR SADC COUNTRIES AND USA (%) Dec 2009 Zimbabwe -0.7 3.6 -4.8 -7.7 Botswana 5.8 6 6.1 6.1 Mozambique 6.8 5.1 4.2 Tanzania 10.9 9.4 9.0 9.6 12.2 Zambia 9.8 9.6 9.9 SA 6.3 USA 2.1 2.6 2.7 7.6 Malawi
May 2010
Apr 2010
Mar 2010
Feb 2010
Jan 2010
6.03
4.85
7.8
7.1
12.7
9.1
7.1
7.9
4.6
4.8
5.1
5.7
6.2
2.1
2.4
2.3
7.8
8.1
8.3
8.2
7.8
126. In the outlook period, inflationary pressures will largely emanate from the following sources: ii. i. Rising oil prices; iii. Further appreciation of the Rand; Money illusions and psychological hangovers where sellers of goods and services are taking time to appreciate the true value of hard currencies, and hence escalate prices disproportionately. Pressure on wages; and High utility charges;
v.
iv.
LESSONS ON INFLATION 127. The recent upsurge in inflationary pressures in an environment where there is absolutely on printing of money clearly impulses of inflation are ignited by much more fundamental factors than just money supply. an academic constant that holds no water in reality. corroborates the position the Reserve Bank has been making over the past six or so years which position is that the
128. Milton Friedman (1945)s proclamation that inflation is always and everywhere a monetary phenomenon is therefore, 129. Lasting stabilization of inflation, therefore depends on our ability as a country to address the following factors: (a) Working hard to improve business investors and consumers expectations through the establishment of a vibrant stable in individual and corporate pricing/costing and demand and supply behaviours; (b) macro-economic environment. A positive psychological outlook fortifies low and stable inflation through actual change
Eradication of the perennial hurdles on the matrix of enablers in the production chain. Stability of electricity supply; smoothening of telecommunication systems. a complete revamp of NRZ and Hwange capacities; creation of a robust cargo airfreight system and upgrading of our road network systems as well as improved water availability in the built environment would all add on the greater supply side response.
(c) (d)
General increase in capacity utilization across the economys key sectors of production through enhanced inputs supplies and technical support systems; and Coordinated restraint on wage increases, particularly in the private sector and the agricultural sector
23
MONETARY DEVELOPMENTS
130. The countrys financial intermediation has deepened as reflected by growth in broad money (M3) and gradual improvement in lending activities to the productive sectors of the economy. 131. In the first half of the year, M3 increased from US$1.4 billion in January to US$1.8 billion in May 2010. The main sources of liquidity have been gold sales, tobacco finance facilities, workers remittances and other off-shore lines of credit. BROAD MONEY (US$ BILLION)
132. The short term nature of deposits is, however, of major concern as it is not supportive of long-term lending to the levels, high bank charges and the inclination towards a cash economy.
productive sectors of the economy. Short term deposits account for over 90% of total deposits, reflecting low income
133. Credit to the private sector has grown moderately from US$759.6 million in January to US$1 012.2 million in May 2010, benefiting distribution (21.7%), manufacturing (18.6%), agriculture (17.4%), services (15.7%) and mining (9.9%). DISTRIBUTION OF CREDIT TO THE PRIVATE SECTOR
24
134. Reflecting the structure of deposits which is heavily skewed towards short term deposits, the loans to deposit ratio currently at 52%, remains well below best international benchmark of 70-90%. 135. Banks have been reluctant to over expose themselves by lending on a long term basis particularly in the absence of the lender of last resort function of the Central Bank and relatively inactive interbank market. 136. Punitive lending rates of around 30% per annum being offered by some local banks are also prohibiting borrowing by the in South Africa, which has a comparatively developed financial system in the region.
productive sectors. The current levels of lending rates are significantly higher than prime lending rates of 10% prevailing
137. This situation has been worsened by the absence of money market instruments such as Treasury bills (TBs), which has acceptances. The market generally prefers to use Government securities especially Treasury Bills. STOCK MARKET DEVELOPMENTS
left banks without securities to use as collateral. Most interbank transactions are, therefore, secured by bankers
138. Stock market activity has remained subdued in 2010, largely reflecting liquidity constraints, particularly in the absence of balance of payments and budget support, coupled with subdued export performance. 139. Since February 2010, the the stock market largely due to the perceived country risk. MARKET CAPITALIZATION (US$ MILLIONS) stock market has exhibited a downward trend reflecting low investor confidence. Most foreign investors moved out of
140. Reflecting these, market capitalisation declined from US$3.97 billion in January 2010 to US$3.19 billion in June 2010. 141. The industrial index registered a 19.2% decline since December 2009 to June 2010, which largely reflects liquidity challenges facing industries.
25
INDUSTRIAL INDEX
142. The mining index has also performed poorly, despite the recovery in the international prices of minerals. MINING INDEX
EXTERNAL SECTOR DEVELOPMENTS 143. In 2010 the external sector position has been improving, benefiting from high demand as the global economy recovers, high operational costs exacerbated by wage pressures. higher export prices, general macroeconomic stability, increased capacity utilisation and improvement in capital flows.
Investment in key export sectors, however, remained handicapped by inadequate infrastructure, energy shortages and 144. The current account deficit is projected to reach 21.1% of GDP from the 17.1% of GDP recorded in 2009. Dependence on donor aid has also increased significantly, with current and capital transfers through NGOs estimated at 12% of GDP in 2010.
26
145. On the capital account, the country faces significant capital account vulnerabilities. The country has been unable to attract significant long-term capital flows, relying instead on short-term flows which are more vulnerable to sudden changes.
146. Furthermore, increased uncertainty about indigenization legislation slowed capital inflows and deteriorated investors confidence, which has added further pressure to the already vulnerable external position. EXTERNAL DEBT 147. The countrys total external debt amounted to US$6 432 million in June 2010, compared to US$5 667 million in of interest on external payment arrears. DOD December 2009. The increase in external debt is attributed to short-term borrowings by the private sector, capitalization
EXTERNAL DEBT AND PAYMENT ARREARS (US$ MILLION) TOTAL DEBT Public &publicly guaranteed 6 089.0 Government Long Term Bilateral creditors Paris Club Non-Paris Club 3 818.6 267.9 1 703.9 1 435.9 2 114.8 405.2 327.3 1 501.6 1 200.0 245.6 256.0 87.0 92.3 497.5 824.7 6 432.0 4 492.0 4 452.1
1 124.3
223.0
Non-Paris Club
369.9
557.4
151.3
Private Sector Long Term Suppliers Credits Reserve Bank Private sector SHORT TERM DEBT
Multilateral creditors
0.0
27
EXTERNAL DEBT BY CREDITOR TYPE 148. About 38% of the countrys total debt is owed to multilateral creditors, while bilateral and commercial creditors are owed 36% and 26%, respectively. EXTERNAL DEBT BY CREDITOR: 30 JUNE 2010
149. The Government remains the largest debtor accounting for 61% while parastatals and the private sector owed 34% and 5%, respectively. EXTERNAL DEBT BY DEBTOR: 30 JUNE 2010
INTERNATIONAL COMMODITY PRICE DEVELOPMENTS 150. Commodity prices which reached their lowest levels in the first quarter of 2009 are on a rebound. As the global economic global economic recovery and the increasing important role of emerging and developing economies in the global commodities markets played a significant role in international commodities price improvements. and financial conditions improved through 2009, commodity prices steadily improved. The stronger than expected
28
GOLD 151. Gold prices, which peaked at over US$1 200 an ounce in early December 2009, remained firm in the first half of 2010, however the onset of July 2010 has seen prices of Gold declining by about 3%. 152. In the first half of 2010, gold prices benefited from a weakening US dollar. Since the beginning of the year, the US dollar has depreciated against the six major trading partners currencies, a development which resulted in firming gold prices. 153. In July 2010, gold prices started easing following indications by the Chinese Central Bank that it would not be buying gold for their strategic reserves. Furthermore, the increase in gold holdings by Bank of International Settlements (BIS) reporting banks has led to the retreat in gold prices.
PLATINUM 154. In the first half of 2010, platinum traded at an average price of US$1 599 per ounce, almost 25% higher than the 2009 average of US$1 212 per ounce. The demand for platinum is estimated to have grown by about 3 percent in 2010, mainly driven by the recovery in the global automotive industry particularly in China and the US. There is also strong demand for platinum in the jewellery industry.
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155. Reflecting this, platinum prices rose from about US$1 490 per ounce in January 2010 to US$1 524 per ounce in July 2010. NICKEL 156. The increase in the price of nickel in the first quarter of 2010 from US$18 852 per tonne in January to a high of US$27 252 per tonne in April was partly driven the speculative buying from emerging economies, especially China and India. also resulted in higher prices. 157. Production constraints, including the strike at Vale in Canada, as well as project delays and production disruptions have NICKEL PRICE TREND
158. New capacity is, however, expected to come on stream in the second half of the year and push the nickel market into surplus, thereby depressing prices in the second half of the year.
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COPPER 159. During the first half of 2010, copper prices gained by 28% from an average of US$5 282 per tonne in 2009 to an average 2010. price of US$7 184 per tonne in 2010. Increases in demand has been key to the metals price gains in the first half of
160. An anticipated slow recovery in the US economy, and the construction sector in particular; and a likely build up of global inventories is, however, expected to adversely impact on copper prices in the medium term. CRUDE OIL 161. The rally in international crude oil prices in the fourth quarter of 2009 spilled over into the first half of 2010. Crude oil recovery in global economic activity also spurred oil prices. CRUDE OIL PRICE TREND prices increased by 8% buoyed by demand from emerging economies, especially India and China. The general
31
162. The rise in crude oil prices in the first quarter prompted producers to increase production. Supply remains plentiful with global inventories at end of May 2010 at 97 days supply, 9 days higher than the 5-year average. 163. The increase in crude oil supplies, coupled with low demand in the major consuming countries in the second quarter of the beginning of July.
2010 adversely impacted on prices which declined from a peak of US$87 per barrel in April to about US$75 per barrel at
SHORT-TERM TRADE FINANCE FACILITIES 164. External Loans Coordinating Committee approved short-term trade finance facilities for 23 companies amounting to US$737.6 million, during the first half of 2010. 165. This compares with approvals for 32 companies during the same period in 2009 amounting to US$625.9 million. 166. Afreximbank, Standard Chartered Bank London, PTA Bank, Tian Li and some South African banks are the major lenders accounting for over 60% of the approved credit lines to Zimbabwe. PTA Bank. 167. Due to sanctions, Standard Chartered Bank London mainly lends through syndicated facilities through Afreximbank and SUMMARY OF APPROVED SHORT-TERM FACILITIES JAN - JUNE 2010 Agriculture Energy Mining Total
Sector Number of Companies ELCC Approved Amount (US$ Million) Utilized Amount (US$ Million)
Manufacturing Financial
15 4 4 4
164.2 13 16 10
% Utilization
11% 19%
38%
23
737.6
222.4
19.2
SUMMARY OF APPROVED SHORT-TERM FACILITIES JAN - JUNE 2009 Agriculture Energy Mining Total
Sector
Number of Companies
11 6 1 3 9 2
178 14
10.6 14 0 3
% Utilization
6%
32
168. The Agricultural sector, which accounted for US$429.5 million had the highest value of approved facilities, followed by the manufacturing sector at US$115 million. 169. Approvals in the agricultural sector, largely reflects credit requirements by tobacco merchants given the on-going tobacco marketing season, as well as the on-set of the cotton marketing season.
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170. The energy sector accounted for a total of US$83.6 million. The other sectors had approvals of less than US$80 million. 171. Facilities approved for the financial sector were global facilities for banks, mainly for on-lending to their exporting and importing clients. SECTORAL LOAN APPROVALS FOR FIRST HALF 2010
UTILISATION OF SHORT-TERM TRADE FINANCE FACILITIES 172. Utilization of the approved facilities over the review period remained low at 30% or US$222.4 million. 173. This compares to utilization of 9% or US$58.3 million during the same period in 2009. 174. On a sectoral basis, utilization of the approved facilities continued to reflect the on-going marketing season for tobacco and cotton. The agricultural sector, therefore, accounts for US$164.2 million or 74% of total.
33
175. The delay in the drawdown of approved facilities is largely due to the need for the borrowers to fulfil some conditions precedent as lenders require ELCC approvals before their Board approvals. before they drawdown on the facilities. 176. In some cases, borrowers also find alternative funding through their foreign currency accounts and local borrowing 177. Local industry requires long-term funding for recapitalization of their operations. EXCHANGE CONTROL OVERVIEW 178. The Exchange Control liberalisation framework introduced in February 2009, has allowed for the free movement of restrictions on import payments and adoption of the multicurrency system. foreign currency in the economy and full Current Account convertibility. This is manifested through the removal of
179. The Government adopted this bold move on Current Account liberalisation in line with the SADC Protocol on Trade and Exchange Controls which seeks to ensure current account convertibility among member countries by December 2010. trade and exchange restrictions. This is also consistent with the requirements of the International Monetary Fund (IMF) Articles VIII on the removal of
180. On the Capital Account, while restrictions on investment income remittances and procurement of external loans have been removed, there is still management of the inward and outward flow of investment capital. The remaining restrictions on the Capital Account will be gradually removed in a manner that creates a balance between curtailing capital. capital flight and the need to foster an investor-friendly environment that allows for the unfettered and free movement of 181. However, it is important to note that, the liberalisation of the Current Account has also resulted in increased foreign currency leakages in the economy. This is evidenced by the imbalance arising from the mismatch between increased export shipments and declining foreign exchange inflows into the market.
182. This Monetary Policy will, therefore, seek to review the existing administrative and monitoring mechanisms for crossborder transactions with a view to curb the unwarranted externalisation of foreign exchange resources.
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EXPORT SHIPMENTS
183. For the period 1 January 2010 to 30 June 2010, total export shipments (declared on Forms CD1) amounted to US$871.9 million, compared to US$477.0 million declared during the same period in 2009, representing an increase of 82.8%. 184. The positive export performance recorded during the first half of the year was largely attributable to increased mineral (16.6%), manufacturing (8.9%), agriculture (4.9%) and horticulture (0.9%). Total Monthly Export Shipments (US$) Month March April May January 2010 February 178,272,800 154,802,532 2009
export shipments. On a sectoral basis, mineral export shipments accounted for 68.7% followed by tobacco exports
68,971,953
Variance
173,711,833
94,463,516
variance
121,234,945
72,760,607
June
Total
133,474,102
110,370,100
71,934,933
83,056,413
871,866,313
477,043,720
85,856,295
394,822,593
82.8
186. The surge in mineral export shipments was a result of increased gold export shipments due to the liberalisation of gold trading and the attendant firming up of international metal prices. 2010 2009 Mineral Export Shipments (US$) Month March April May June January February 110,355,783 86,758,751 88,409,648 89,470,845
24,119,082
Variance
132,002,961 91,960,348
22,576,810
65,351,763
44,560,869
87,778,972
43,848,778
97,779,724
48,705,625
Total
598,958,337
207,566,943
391,391,393
47,926,529
108.8
35
CONTRIBUTION OF MINERALS TO SHIPMENTS 187. Platinum continued to significantly contribute towards the total mineral shipments in 2010. The same scenario obtained in 2009. Ferrochrome also contributed significantly to the total shipments in 2010. 2010 2009 Mineral Export Shipments, JanJune 2009 & 2010 (US$) Mineral Gold Platinum Ferrochrome Diamond Other Total 224,611,141 24,786,619 156,946,090 67,380,218
128,114,844
Variance
125,234,268 598,958,336
13,774,986 35,215,762
27,300,821
3,160,531
96,496,297
Source: Computerised Export Payments Exchange Control System (CEPECS), RBZ AGRICULTURE
207,566,944
391,391,392
188.6
188. For the period 1 January to 30 June 2010, total combined export shipments for the three agricultural sub-sectors namely same period in 2009. This represents a marginal increase of 2.2% General Agriculture Export Shipments (US$) Month March April May June January 2010 February 7,795,392 7,576,235 2009 General Agriculture, Horticulture and Tobacco, amounted to US$192.4 million compared to US$188.2 million for the
6,901,200
9,822,562
Variance
(2,027,170)
4,738,423
(2,714,613)
Total
10,416,177
3,766,099
41,193,528
12,532,636
58,975,418
(17,781,889)
(2,116,459)
189. The general decline (decrease of 30.2%) in exports of agricultural products is attributable to reduced commercial national herd for production of beef, hides and dairy products. The poultry industry has also not performed well in terms of production of commercial eggs and day old chicks.
190. In order to complement efforts by the Government to re-invigorate agricultural production in Zimbabwe, there is need for deliberate National agricultural policy on training, supported by the availability of working capital support to farmers. their efforts. 191. It is also critical that the country creates vibrant marketing frameworks that ensure that farmers are fairly rewarded for HORTICULTURE 192. Total horticultural export shipments from 1 January to 30 June 2010 amounted to US$8.1 million, compared to US$6.6 million over the same period in 2009, reflecting a 23 % increase.
36
Horticulture Exports Shipments (US$) Month March January 2010 February 1,471,549 941,094
2009
779,064
Source: Computerised Export Payments Exchange Control System (CEPECS), RBZ TOBACCO
Total
June
May
April
8,131,113
1,268,369
1,049,616
1,610,890
1,789,594
6,611,189
1,293,154
1,438,640
1,099,396
1,087,328
913,606
511,493
46.5
193. Total tobacco export shipments from 1 January to 30 June 2010 amounted to US$143.0 million, compared to US$122.6 million for the same period in 2009, reflecting a 16.7 % increase 2010 2009 Tobacco Export Shipments (US$) Month March January February 71,731,788 22,731,063 5,883,102
26,920,444
Variance
Source: Computerised Export Payments Exchange Control System (CEPECS), RBZ MANUFACTURING
Total
June
May
April
12,344,275 16,469,205
13,882,936
14,100,958
47,975,348
4,811,344
143,042,372
20,418,856
11,912,461
261.4 16.7
(33.5)
(38.9)
194. Total export shipments for the manufacturing sector from 1 January to 30 June 2010 amounted to US$77.2 million, compared to US$65.7 million for the same period in 2009, reflecting a 17.5 % increase. 2010 2009 Manufacturing Export Shipments (US$) Month March January February May April 11,932,352 7,537,759
18,366,743
6,154,427
Variance
Total
June
12,461,652
12,253,725
1,550,638
1,383,331
65,673,898
12,988,150
(1,099,447) 11,510,273
3,378,263
6,113,017 184,469.45
37
CROSS BORDER TRANSPORT 195. Exchange Control authorities continue to experience challenges of foreign currency leakages from the transport sector. While systems have been put in place with authorised dealers to ensure full accounting of earnings from cross border external partners. operations through the Form CD3, some transport operators continue to under declare their receipts to the prejudice of the economy. In addition, some operators continue to engage in unauthorised offsetting arrangements with their
196. For the first half of 2010, the value of freight services generated in foreign currency from transit, export and import cargo declined by 22.8% in 2010, as compared to same period in 2009 as indicated in Table 8. 2010 2009 Transport Sector shipments (US$) Month March January February 3,017,582 2,827,470
2,679,137
April May
3,802,222 3,862,232
3,076,141
Source: Computerised Export Payments Exchange Control System (CEPECS), RBZ TOURISM
Total
June
3,947,320
3,894,333 3,827,329
4,234,411
5,393,475
5,647,641
19,824,992
25,678,335
197. The 2010 FIFA World Cup has come and gone, and it is disheartening to note that market reports as at end June 2010, do not indicate an increased inflow of foreign currency receipts from the Tourism sector. 198. Exchange Control authorities note with concern that there is generally lack of compliance with the requirement for objectives by Authorised Dealers and tourism operators. Monetary Authorities shall therefore put in place new monitoring and reporting mechanisms for the Tourism sector to ensure full accounting of foreign exchange receipts. US$12.28 million realized during the same period in 2009. This represents a 12.3% decrease. 199. For the period 1 January 2010 to 30 June 2010, recorded tourism receipts amounted to US$10 million, compared to
reporting of transactions at tourism operator levels. This is mainly attributable to the misinterpretation of liberalisation
38
Monthly Import Payments (US$) Month March January 2010 February 128,260,170 185,174,656
2009
Variance
May
April
TOTAL
June
186,418,378 946,924,195
157,544,095
175,334,183
136,030,489
114,192,713
110,721,306 645,871,453
82,525,620
98,741,895
49,144,167
9,113,580
128,362,305
301,052,742
(14,169,592)
75,697,072
110%
201. Full current account convertibility has had a significant impact on the countrys cross border transactions, particularly import payments. This is reflected in the increase in imports by about 50% over the six months in 2010 compared to the same period in 2009. However, on a month on month basis, import payments declined by over 10% in June 2010, largely due to liquidity challenges in the foreign exchange market. imports in the year 2010 except for the month June.
202. An analysis of monthly trends for 2010 and 2009 shown in the graph below, affirms the above mentioned increase in Monthly Import Payments
39
Import Payments by Sector (US$) Sector Agriculture 2010 116,849,201 2009 96,007,087 Change % 20,842,115 Change 630% -15% 89% 44% 22%
TOTAL
Services
Mining
Manufacturing
100,637,394
23,346,727
946,924,195
645,871,453
290,628,937
165,880,874
70,007,830
47%
204. The increase in imports was largely attributable to increased importation of consumption goods by the retail and manufacturing sector has not reached levels that will result import substitution.
distribution sector. This indicates that the country is still reliant on imported goods as capacity utilization in the
205. The Reserve Bank urges the relevant Government ministries to put in place policy measures that will promote production by local industry and avoid deindustrialisation through over-reliance on imports of finished goods. 206. The Charts below show that services and mining sectors continue to account for more than 50% of the imports. This shows that they are more active than other sectors of the economy. Sectoral Distribution of Import Payments
Source: Computerised Exchange Control Batch Application System (CEBAS), RBZ 207. The increased import bill for the mining sector is explained by the sectors recovery from the recession on the back of firming metal international prices. 208. The Services Sector, while it shows a decline in 2010 compared to 2009, the sector continues to account for over 40% of the countrys total import bill. This proportion in 2010 has largely been attributable to the boom in the mobile communications subsector wherein mobile operators are expanding their network and hence the need for importation of capital equipment and other consumables.
40
SOURCES OF FUNDING FOR IMPORTS 209. The liberalisation of the Current Account and adoption of the multi-currency system also resulted in the designation of Foreign Currency Accounts (FCAs) that have become the main sources of funding for imports. Global Import Payments by Source of Funds Source FCAs Offshore Lines of Credit TOTAL Interbank Loans 2010 646,242,487 26,462,798 946,924,195 485,509,371 152,558,243 7,803,839 645,871,453 2009 Change % 160,733,115 18,658,960 301,052,742 Change 239% 80% 47% 33%
274,218,910
121,660,667
210. FCA balances continue to account for more than 65% of total funding for imports. The domestic money market credit.
continues to face liquidity challenges owing to low deposit base (non-banking) and failure to access offshore lines of
Source: Computerised Exchange Control Batch Application System (CEBAS), RBZ 211. There is a notable increase in the percentage of imports funded from offshore lines, which account for about 30% of the investor confidence in the economy, which is an important variable towards the countrys desired economic growth targets. funding for imports. These lines of credit are a significant component of private capital flows and a reflection of improved
41
Imports by Category of Goods/Services Category CAPITAL GOODS 2010 173,431,509 64,409,035 2009 94,896,579 Change % 105,381,290 78,534,930 3,906,668 Change 83% 76% 6%
Source: Computerised Exchange Control Batch Application System (CEBAS), RBZ Distribution of Imports by Category
CONSUMABLES
RAW MATERIALS
465,647,992
243,435,660
352,418,138
138,054,369
60,502,367
113,229,853
32%
Source: Computerised Exchange Control Batch Application System (CEBAS), RBZ FOREIGN CURRENCY REMITTANCES 213. As at 30 June 2010, the Reserve Bank licensed a total of 32 bureaux de change. With the advent of the multi-currency system, most bureaux transformed their operations to engage in inward money transfers, as bureau de change and free flow of foreign currency remittances from the diaspora, hence an increase in inward bound money transfers. business became limited. Furthermore the liberalisation of the current account transactions allowed for the unfettered 214. For the period 1 January 2010 to 30 June 2010, remittances from the Diaspora into Zimbabwe through Bureaux de Change were USD112.2 million representing about 40% increase when compared to USD80.8 million for the same period in 2009. Month March April May June
Remittances for 2007, 2008, 2009 and 2010 (US$m) January 2007 0.1 0.5 2.5 February
2.6
1.8
7.6
TOTAL
11.4 1.9
3.9
6.8
15.2
41.6 6.9
4.9
15.5
22.0
80.8
14.9
19.7
13.5
112.2 18.7
15.5
215. The table above depicts that over the period 2007-2010, the average monthly remittances from the Diaspora has been over the same period in 2010.
on the increase from about US$2 million per month during the first six months of 2007 to about US$20 million a month
42
216. It is important to note that a significant portion of these funds are not banked and the banking sector is urged to introduce innovative financial products that would effectively encourage individuals to deposit their diaspora receipts with the banking system.
EXCHANGE CONTROL POLICY MEASURES EXTERNALISATION 217. The past decade has been characterised by a continuous decline in the countrys foreign exchange reserves, a development that has helped protract the economys growth prospects. 218. The decline in reserves has not only been exacerbated by lack of international BOP support, but sadly, also driven by foreign currency leakages propagated by some corporate and individual engagement in ills that promote foreign currency externalisation.
219. Serious economic crimes of this nature, only but retrogressively work to obstruct any national turnaround initiatives to the detriment of the economy. 220. With foreign exchange remaining a key factor towards the sustainable recovery of the economy, the extermination and non-perpetuation of this economic crime of foreign currency externalisation, becomes an imperative area of our focus as Monetary Authorities.
221. For example, in the year ending 2009, the Joint BIS-IMF-OECD-World Bank statistics on external debt reported that Zimbabwe had foreign assets in the form of deposits at BIS reporting institutions amounting to US$1.95 billion, representing about 40% of the countrys GDP.
222. During the same period, official data from the countrys banking system, however, showed that cross border deposits at correspondent foreign banks including BIS reporting banks amounted to US$339.4 million. This showed a discrepancy of US$1.6 billion, which represents unrecorded balance of payments transactions of Zimbabwean financial resources
43
being banked offshore. 223. This amount if accounted for and recorded in the countrys balance sheet and becoming part of remittances back home, will have long term benefits to the country. 224. Monetary Authorities outline hereunder policy measures to ensure significant accountability for the economys resources and curb foreign currency leakages/externalisation. WHAT IS FOREIGN CURRENCY EXTERNALISATION? 225. In its narrowest definition, foreign exchange externalisation is the illegal remittance/transfer or the holding of foreign currency earnings generated using Zimbabwean resources, outside Zimbabwe. 226. Foreign currency externalization activities culminate in total prejudice to the economy, evidenced in the failure to ensure corresponding value attributable to the economy from the appropriation of proceeds arising from such an activity.
receipt of a true and fair value from the application of an economys resources in and out of the country. It should be borne in mind that where a resident applies the countrys factors of production in or outside the country, there should be
227. Where such funds are, however, held in other territories, Zimbabwe fails to realise gains that could have been achieved from having such funds (assets) on its balance sheet, especially in cases where income earned from such holdings is not remitted back into the country.
228. This, therefore, means that proceeds from exports of goods and services from Zimbabwe, income from offshore investments (profits, dividends and royalties) initiated from Zimbabwe, and lines of credit approved for Zimbabwean companies, should be as a matter of principle, always be repatriated for the benefit of the economy.
(v)
(Iv)
(iii)
230. As part of the efforts of curbing externalisation of export proceeds through under-invoicing, the Reserve Bank is in the transactions that depict under-invoicing or under-valuation of exports.
process enhancing the Computerised Export Payment Exchange Control System (CEPECS) to automatically flag
231. In the same spirit, the Reserve Bank strongly urges the National Inspectorate Conduct Inspectorate (NECI) and the Zimbabwe Revenue Authority (ZIMRA) to build the necessary capacity in order to curb under-invoicing of exports through conducting aggressive pre-shipment inspections at all ports of exit.
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RECOVERY OF OVERDUE EXPORT RECEIPTS 232. The current policy states that exporters are entitled to the full value (100%) of their export proceeds which are expected to be brought into the country within a statutory period of 90 days from the date of export or when contractually due. For a period beyond 90 days, prior Exchange Control approval should be sought from the Reserve Bank.
233. As Monetary Authorities, we are, however, concerned that some exporters have continued to illegally keep export the fiscus.
proceeds in unapproved offshore accounts in order to avoid the necessary taxes on their earnings which are due to
234. In order to curb the illegal practice of keeping export proceeds in unapproved offshore accounts, all exporters with overdue export proceeds shall continue to be red-flagged in the CEPECS system and such exporters would be subjected to a higher Form CD1 Accessing Fee of US$50.00 per Form CD1 as a default penalty.
235. Such exporters would thus, remain red-flagged in the CEPECS system until they have cleared their overdue status.
OVER-INVOICING OF IMPORTS
236. Over-invoicing of imports relates to acts of connivance involving importers and their suppliers in deliberately inflating the value of imports in a bid to externalise the excess foreign currency resources that would have paid. 237. The Reserve Bank has formulated the following strategies to deal with cases of over-invoicing of imports: i. ii. imports from diverse source markets. working closely with ZIMRA for the establishment of an import valuation database covering all the countrys major Regularly updating the database to ensure the establishment of a comprehensive import valuation database to allow for
the checking of import values stated on the suppliers invoice against the internationally acclaimed value of such imports
238. In order to arrest the continued acts of externalisation, without re-introducing restrictions on import payments, the Reserve Bank shall enhance its monitoring framework for all foreign payments, which must be reported on the Computerized Exchange Control Batch Application System (CEBAS).
239. In addition, where goods and services have been paid for, confirmation of receipt of value of such goods and services therefore be required to build capacity to ensure submission and up to date acquittal of such documentation. ACCOUNTING FOR EXPORT RECEIPTS FROM CROSS-BORDER TRANSPORT OPERATIONS
through necessary documentary proof, such as Bills of Entry (imports) etc. shall be required. Authorised Dealers will
240. The current policy states that all local trucking companies who are holders of Bilateral/PTA permits and authorised complete a Form CD3 each time they cross the Zimbabwean border.
under the Road Motor Transportation Act [Chapter 13:15] to engage in cross-border transportation, are required to
241. The completion of the Form CD3 is for balance of payments reporting purposes as well as to ensure that all crossborder transporters hauling goods on behalf of foreign entities are paid in denominated currencies and the funds are received through normal banking channels in Zimbabwe.
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242. Despite the liberalisation of foreign exchange regulations, the cross border transport industry seems to have some persistent motives of externalizing foreign currency, hence the following leakage areas of foreign currency. i. Offsetting of Freight Receipts It is generally acknowledged that transporters encounter some incidentals which
include breakdowns, maintenance, tyre bursts and refuelling in a foreign country which needs to be paid for being made as to the level of expenditure relative to gross freight earnings.
urgently. Since they may not have ready cash, the transporters end up offsetting expenses against revenue with
their foreign agents. Such transactions, however, pose formidable challenges in trying to authenticate the claims Ii. Defaulting in Freight Payments - There is high default rate in the acquittal of Forms CD3 from some transporters. These transporters have since changed ownership, closed down, disappeared or are denying ownership of the raised Forms CD3, hence incidences of externalisation.
243. Monetary Authorities are concerned that, in order to avoid paying the necessary taxes on their earnings, the majority of cross-border transporters have continued to illegally retain export proceeds in unauthorized offshore accounts, set up and foreign services. illegal offshore companies as well as engaging in illegal offsetting arrangements for procurement of fuel, spare parts 244. In order to curb the illegal practice of keeping export proceeds in unauthorized offshore accounts, all cross-border exporters shall be subjected to a higher Form CD3 Accessing Fee of US$50.00 per Form CD3 as a default penalty.
transport operators with overdue export proceeds shall continue to be red-flagged in the CEPECS system. Such
245. Furthermore, there is a growing tendency by local transport operators to couple their local machines with foreign trailers accrue to the economy as the hire charges on the foreign asset always have the first claim on the Zimbabwe gross amounts.
or vice-versa, purportedly on a temporary basis. The net result of such is the reduction of the freight revenue that should
246. In order to curtail this form of externalisation, Monetary Authorities shall require that such contracts be registered with Exchange Control. All foreign registered trailers coupled to local horses and vice-versa shall be required to produce the relevant authority documents at port of entry/exit.
ACCOUNTING FOR EXPORT RECEIPTS FROM PRECIOUS MINERALS 247. Zimbabwe is well-endowed with precious minerals such as Gold, Diamonds and Platinum Group of Metals (PGMs), issuance of a Form CD1. This is the same arrangement with the export of Gold. ACCOUNTING FOR TOURISM EXPORT RECEIPTS 248. Due to the regional exposure arising from hosting of the World Cup in Africa, significant tourism potential for the economy has been unlocked. 249. In order to fully account for all such tourism receipts the Reserve Bank, in consultation with the relevant stakeholders in the tourism sector shall introduce an enhanced web-based and user friendly Tourism Receipts Accounting System to replace the current Form TR1 which has been rendered ineffective due to the adoption of the multicurrency system. among several others. In order to fully account for proceeds from exports of rough and polished Diamonds, with
immediate effect, all exports of Diamonds shall require documentary evidence of official valuation of the same before
250. The new Tourism Receipts Accounting System (TRAS) shall be designed to ensure the timeous recording of earnings in
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the Tourism Sector from both local and foreign tourists and the principles of data collection shall be in line with international best practices.
SMUGGLING OF GOODS AND OTHER PRECIOUS MINERALS 251. As Monetary Authorities, we have noted with concern that there has been a rampant smuggling of goods out of the country by individuals and corporate entities. This involves illegal export of undeclared goods through the official and unofficial ports of exit.
252. The adverse effects of smuggling of goods (externalisation of foreign exchange earnings) results in loss of revenue to the Fiscus, adversely impacting on the countrys economic growth prospects. 253. There is, therefore, need for the relevant Government Departments and Law Enforcement Agents tasked with manning the national borders to enhance capacity to conduct spot checks on individual company production levels with corresponding export shipments.
AUTHORISED OFFSHORE ACCOUNTS 254. As part of the Reserve Banks mandate to constantly create an environment that is facilitative of foreign investment, the have largely been allowed for large mining houses, especially in the platinum, gold and diamond sectors. funds deposited offshore. Bank allowed the operation of offshore accounts as a way of providing comfort to foreign investors, protection of capital
investments and also ensuring the availability of foreign currency for local operations. Authorised offshore accounts
255. While this framework is designed to bring security to the investors, the economy has not fully benefited from having such 256. In order to ensure that there is a win-win arrangement from this dispensation and to guarantee the timely accounting of Managing Banks to open mirror accounts. These accounts shall reflect daily transactions on the offshore account and reporting to Exchange Control shall be on a weekly basis. be submitted to the Reserve Bank on a monthly basis.
export proceeds deposited offshore under this scheme, Monetary Authorities shall now require the Administrative/
257. In addition, to enhance the reporting requirements, the actual bank statements for the offshore account shall continue to INTERNAL AND OUTWARD MONEY TRANSFERS 258. Current policy on money transfers is limited to inward bound remittances and all outward money transfers can only be done through Authourised Dealers. Licenced bureaux who wish to partake in additional products which involve outward remittances may do so through Authorised Dealers of their choice.
259. In addition, inorder to enhance the expanded framework of operation of Money Transfer Agencies (Bureaux), the Reserve Bank shall now allow licenced companies to do internal transfers. 260. This system shall entail the transmission of funds within Zimbabwe and across towns and cities. Bureaux wishing to engage in this business shall be required to submit proof of capacity, in terms of foreign exchange availability and systems effectiveness, to the Reserve Bank.
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MEASURES TO FACILITATE FOREIGN INVESTMENT STREAMLINING OF INVESTMENT PROCEDURES 261. Foreign investment flows play an important role in the turnaround of the economy. 262. In the past decade, FDI has come to play a major role in the internationalization of business. The change in trade and investment policies and the regulatory environment globally in the past decade, including trade policy and tariff privatization of many industries, has probably been the most significant catalyst for foreign investments expanded role. 263. It is in this respect that as Monetary Authorities, we remain committed to the establishment of an investor-friendly environment that fosters the free and unfettered movement of capital into and out of Zimbabwe to ensure that investors who choose to bring their capital to Zimbabwe are able to realize value from their investments. liberalization, easing of restrictions on foreign investment and acquisition in many nations, and the deregulation and
264. To that end, Exchange Control has removed controls on the remitability of income from investments which has seen profits and dividends becoming freely remittable. In addition, in order to guarantee expeditious processing of proposals involving foreign participation in existing local entities, all investment applications below US$5 million will now be processed by Exchange Control under advice to the Exchange Control Review Committee. 265. This intervention will speed up the turnaround time in processing applications. 266. This and other initiatives being implemented by other relevant Government departments such as implementation of a one- stop shop for investment approvals, will culminate in a wholesome reduction in the time lag of processing investment applications thus further enhancing Zimbabwes status as a favourable investment destination. PROMULGATION OF EXCHANGE CONTROL REGULATIONS 267. The liberalized regime requires a review of the current Exchange Control regulatory framework to ensure the promulgation of a legal backing that is supportive of this liberalized and multicurrency system. 268. It is therefore, imperative that the existing regulatory framework be amended to reflect this regime and to that end, we are pleased to announce that the existing Exchange Control rules and regulations have been amended accordingly and are now awaiting gazetting, once all outstanding processes have been completed. NATIONAL PAYMENTS SYSTEM 269. The National Payment System remains sound and efficient, in line with current efforts to deepen the Reserve Bank of Zimbabwes oversight function. The National Payments System was successfully re-configured to process transactions in United States Dollars. Major milestones in this regard were: ii. i.
The successful conversion of the Real Time Gross Settlement (RTGS); The re-alignment of the Zimswitch platform for local card based transactions; and The resuscitation of the VISA platform for international card based transactions. The re-introduction of the inter-bank cheque payment stream;
Iv.
iii.
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REAL TIME GROSS SETTLEMENT (RTGS) SYSTEM 270. The RTGS system, which is primarily meant for high value high risk payments, continued to play a pivotal role as the main settlement hub for most of the payment streams in the economy. The system recorded an average utilization level of 99% of total settlement in value terms, during the period January to June 2010. January to June 2010. market.
271. A cumulative total of 704 575 transactions valued at US$8.8 billion were processed through the RTGS system from 272. The monthly transactional activity in the system increased at a lower pace due to liquidity constraints prevailing in the
INTER-BANK CHEQUE SYSTEM 273. A total of 68 748 cheques amounting to US$17 million were processed through the Harare and Bulawayo Clearing 14%. Houses from January to June 2010. Cheque volumes increased at a monthly average of 15%, while values rose by
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CARD PAYMENT SYSTEM (ATMS/POS) 274. Volumes and values of card based transactions increased at a monthly average of 68% and 10% respectively. 275. The cumulative volume of card transactions during the period under review was 481 503 amounting to US$77.4 million. Of this amount, ATMs constituted 85%, while POS represented 15%. MOBILE PHONE AND INTERNET BANKING 276. A cumulative total of 205 714 transactions valued at US$58 million were processed through the mobile and internet banking platforms during the period under review. These transactions represent payments processed within (intrabank) individual banking institutions only.
POLICY GUIDANCE ON PAYMENT SYSTEM INITIATIVES 277. Policy efforts in payment systems modernization are focused on promoting the achievement of inter-operability of electronic payments. 278. While great strides have been achieved in the large value payment system (RTGS), retail payment system still lags behind as it remains fragmented and characterized by manual interventions. 279. To this end, the Central Bank encourages the banking community and other payment service providers to come up with initiatives that promote the development of comprehensive electronic retail payment streams. 280. This will go a long way in enhancing initiatives that promote financial inclusion in the economy and the much needed infrastructure as widely as possible in order to minimize costs and optimize usage of electronic means of payment.
convenience to the transacting public. Financial institutions and other stakeholders are therefore encouraged to share
281. Given that the current regulatory framework recognizes payment systems operated by financial institutions only, other payment system products that cater for the un-banked population.
non-banking institutions are encouraged to work closely with the banking community in coming up with electronic retail
iii.
ii.
minimize and control the risk of transmitting shocks through systemic crisis emanating from the payment system; and anyone point in time.
pursue the level of technological and institutional development necessary to satisfy the payment needs for Zimbabwe at
283. The scope of payment systems oversight in Zimbabwe is guided by the need to protect the customer as well as ensuring that the systems are safe, practical and efficient for the economy. The scope of oversight therefore defines the breadth and depth of oversight activities undertaken by the Central Bank in collaboration with other regulatory bodies.
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iii. iv.
ii.
i.
Recognized payment systems operating in Zimbabwe; Systems that are considered important by the Bank and effect the transfer or withdrawal of money with the use of
Retail payment systems which are widely used in the country such as cheque, internet, mobile phone and card payment
REGIONAL PAYMENT SYSTEMS INITIATIVE 285. As part of the ongoing modernization efforts in payment systems, the SADC Central Banks, through the Payment Systems Project Team are working on Regional Integration of Payment Systems. 286. The Reserve Bank is actively participating in this initiative which seeks to harmonize all payment systems in the Region given that the majority of central banks have launched RTGS systems in their respective countries. with the SADC vision of fostering regional economic co-operation and integration. 287. The main objective of the harmonization initiative is to facilitate cross-border payments within the SADC region in line CONCLUSION 288. Economic recovery prospects are bright. Strengthened policies and favourable external sector commodity price shocks present immense growth opportunities for the country. 289. Supply side bottlenecks and energy shortages however remain a major stumbling block to the countrys economic recovery prospects. These must be resolutely addressed to achieve maximum supply response. sector as we work to play our part in the turnaround programme. 290. The Reserve Bank of Zimbabwe will continue to undertake aggressive regulatory action to foster stability in the banking I thank you.
DR G. GONO GOVERNOR
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MONETARY
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POLICY STATEMENT
2010