Confusion, contradiction, lies – Breaking down the ban on EcoCash and others

Of course we will keep going to town about the most stupid decision announced by the Zimbabwean government ever. Scrutinising the statement that announced the suspension of all mobile money and the Zimbabwe Stock Exchange word for word will give us volumes upon volumes to criticise. I’ll try to pick a few words to illustrate:

Prudent

The statement starts thus:

Government has, with immediate effect, undertaken a series of prudent and coordinated interventions

I think the prudent thing for me to do is to let the dictionary respond to Nick Mangwana’s statement. Here is the definition of the word prudent:

adjective
acting with or showing care and thought for the future

Well, according to statistics from the Reserve Bank of Zimbabwe, 85% of all transactions happen on mobile. Even more interesting is that in terms of the value of the transactions, mobile represents a far less percentage of 22%.

What this means is that mobile is being used for the everyday small transactions mostly by individuals. In fact when we use the fourth quarter 2019 reports from the RBZ we realise that the average transaction value on mobile was a mere ZW$98. Using the official interbank foreign currency rate at that time, this average is less than USD6.

Do you see any prudence in shutting down 85% of all transactions most of which are by individuals in the midst of a ruthless pandemic?

Shut, locked and sealed for business

Do you remember the mantra, “Zimbabwe is open for business?” I am sad to say that I was right in saying that declaring those words was not equal to a national vision. Suspending mobile money in and of itself is a definite closed for business stance. However, these guys are not doing anything in half measures, they had to shut the stock exchange as well:

Concurrently, the measures will also include the suspension of all trading on the Zimbabwe Stock Exchange.

Whenever the president talked about being open for business it was almost always in relation to attracting foreign investment into the country. What serious investor comes into a country that shuts down the major liberal capital market like the stock exchange until further notice to carry out a witch hunt?

The purpose of a thing

Mangwana’s statement says:

These measures are to subsist until such time that the mobile money platforms have been reformed to their original purpose and all the current phantom rates of exchange have converged into one genuine rate that is determined by market forces under the Foreign Currency Auction System which was launched by the Reserve Bank of Zimbabwe on 23rd June 2020.

Author’s emphasis

The first thing I will pick from this is his reference to some kind of a reformation of mobile money to its original purpose. That is ludicrous. Who determines the purpose of a thing? The purpose of EcoCash is defined by two parties. The first to define it is EcoCash itself and its creators. Their website says:

EcoCash is an innovative mobile payment solution that enables customers to complete financial transactions directly from their mobile phone! Customers can send money to loved ones, buy airtime, pay for goods and services and much more.

Second group that determines what EcoCash is is its users. Due to the failure of the government that Mangwana represents, EcoCash’s users – citizens of Zimbabwe have decided that EcoCash is cash. They didn’t want to do that. In fact they prefer cash as evidenced by long bank queues to withdraw it as well as the premiums they pay some unscrupulous but enterprising folks who sell cash. However, much as they love cash, it is not available and therefore they knighted EcoCash to be cash.

Purpose cannot be defined by the government outside of their licensing framework. Last I checked, EcoCash is licensed to carry out some of what Mangwana accuses them of doing for example this:

Acting as banks outside the purpose for which they were originally licensed, as non-banking financial institutions. This includes, in the particular case of Ecocash, holding well in excess of ZWL$8 billion…

Umm, Nick, EcoCash is licensed to take deposits.

The one, the only rate

I will use the same quote I used above and just emphasise a different portion:

These measures are to subsist until such time that the mobile money platforms have been reformed to their original purpose and all the current phantom rates of exchange have converged into one genuine rate that is determined by market forces under the Foreign Currency Auction System which was launched by the Reserve Bank of Zimbabwe on 23rd June 2020.

Author’s emphasis

Does Mangwana realise that the portion I highlighted above is self contradicting? The auction that he refers to is a ‘Dutch action‘ which allocates forex to the bidders at their bid level starting with the highest bidder.

This means by design, there is no one official rate. Last Tuesday we were told that the highest bid received was for a USD to ZW$ rate of 1:100. Those bidders were given forex by the RBZ at that rate and other bidders on the same day were given some forex at 1:25.5 (the lowest bid). When they then averaged things out the ‘official rate’ became 57. I’m not one to use big words but if I was, I would call the rate of 57 a ‘phantom rate.’

Do you see how confusing this is? If Tinashe’s supermarket bid 100 to get forex to import stuff for resale, how then can Tinashe’s supermarket be asked to price its goods based on a very low average exchange rate of 57? In primary school taiti “it can’t.” By being a Dutch auction determined rate, the official forex rate is itself self-defeating. So no, Mr. Mangwana, there is no one ‘genuine rate’ to converge to.

Market forces what art thou?

I will again take from the same portion I used twice above:

…one genuine rate that is determined by market forces under the Foreign Currency Auction System which was launched by the Reserve Bank of Zimbabwe on 23rd June 2020.

Author’s emphasis

By market forces does Mangwana mean price fixing by a handful of entities (real and imagined) that participated in the inaugural auction on Tuesday? Here is a telling image:

Mangwana’s one genuine rate is determined by just 92 entities most of which did not even value the forex at the resultant rate. Above 30% (at least) of them bid higher and an equal percentage bid lower. The government should just call it the official rate and leave it at such. To call it market determined is a stretch.

The real market rate is one that exists on the streets. The street markets are open to all, not just those who can afford USD50,000 as Mangwana’s does. The players on the street market are numerous and hence their average transactions result in a truer market determination of the value of local currency than just 92 rich entities.

I’m a skeptic and I would bet on my skepticism that some of the 92 entities are non existent bidders that were added by the authorities to make sure the rate did not go ‘out of control.’ BUT let me veer out of conspiracy theories. This is a domain for Mangwana and the government he represents. You remember Mangudya talking about demons, prayers, guerrilla warfare, Sodom and Gomorrah?

We are at war?

I was worried by this phrase used by the government:

…prevent any collateral damage that these interventions may cause to the innocent…

Author’s emphasis

The phrase collateral damage is very telling. It tells me that this move sounds more military than civilian. It tells me how my government sees my life and my livelihood: both are just collateral damage. This is wrong. Civilian life should not be collateral damage but it should be the absolute responsibility for a government.

Miti- what?

The full version of the paragraph I quoted above:

Government will concurrently ensure that prudent measures are also put in place to mitigate and prevent any collateral damage that these interventions may cause to the innocent transacting public who were using these platforms.

Promises, promises. Our government is fond of making grand promises it cannot nor intends to keep. In April the government announced they would give ZW$200 per household per month to 3 million households starting in April. At the time that money was equivalent to USD4 per household. It never came and was raised (yes the promised money that never came had an increment) in May to ZW$300 still worth just below USD6. Today families have not received any of it and the promised relief has been deteriorated to USD3 per month by the crash of the local currency. Still it’s just a promise. Some have received ‘something’ though. I know of a case where a family received ZW$63 (USD0.63)!

If they failed at the above, how on earth can they mitigate against locking up people’s little monies in mobile wallets and getting business to a standstill?

A lot of words

All of the above words are from the preamble to the statement. The government goes on to level some 15 allegations against EcoCash particularly. Some of the allegations sound criminal in nature, most of them are just verbose statements that mean nothing in context. I will not go into those because those allegations are preceded by this declaration:

Government is in possession of impeccable intelligence which constitutes a prima facie case

Who am I to argue against whatever ‘prima facie’ is?

Fake counters and the Old Mutual Implied Rate

This bit is worrying in how it reveals the levels of misinformation the government suffers from:

The impact is exacerbated by the existence of fake counters on the Zimbabwe Stock Exchange, which is epitomized by the so-called Old Mutual Implied Exchange Rate (OMIR).

I had a conversation with some government guy, political guy just over a month ago. I was trying to explain to him how the restrictions on transactions were hurting businesses especially small ones and the average person. The guy then said to me that the real problem was Old Mutual. I was like ‘huh?’

Guy said, “If only you understood what the Old Mutual Implied Rate is…” Well I do understand what it is and I told him what it is:

Old Mutual is a multinational company traded on the Zimbabwe Stock Exchange as well as the Johannesburg Stock Exchnage in South Africa and the London Stock Exchange. When you buy one share of this company on any of the markets it is perfectly equal to a share bought on any of the others. Old Mutual is Old Mutual.

Because there is a lot of interference in the way local Zim currency is valued, clever people just started to estimate the true value of the local currency using how much Old Mutual shares are worth on the different exchanges. Simple example: If a piece of gold sells for ZW$100 locally and for USD1 in New York. You can use that to imply an exchange rate between the USD and ZW$ of 1:100.

So you see, the OMIR is not a real thing, it is just the market’s attempt to place a value on the local currency. This rate was officially used quite a lot in 2008. Old Mutual does not control this in any way. Targeting Old Mutual is pitifully ill informed.

On whose authority?

Mangwana’s statement ends this way:

Statement issued by
N Mangwana
Secretary for Information, Publicity and Broadcasting Services

Mangwana’s statement doesn’t specify in any part the authority under which it was issued. No wonder EcoCash has told its customers to keep calm and keep transacting. The document has no legal basis. Mangwana has no authority to issue executive orders of this nature.

Even the president doesn’t. When the president does stuff like that he has to site the Act of Parliament under which he is deriving power to act. He conveniently uses the all purposes Presidential Temporary Powers Act but still at least its an Act of Parliament.