Eight companies appeared in court yesterday, the 27th, for illegally dealing in foreign currency. The companies allegedly bought foreign currency on the streets using EcoCash agents, illegally.
The unlucky eight are:
- Titanium Capital (Pvt) Ltd
- Dream High Investments (Pvt) Ltd
- Access Finance (Pvt) Ltd
- Tererati (Pvt) Ltd
- Vision Credit Score (Pvt) Ltd
- Capital Profit Financial Services
- Raymond Mudonhi Investment (Pvt) Ltd
- Justice Mahuni, Kudzai Mudonhi, and Juso Global Limited
Each of these companies is alleged to have used EcoCash bulk payer lines to trade in hundreds of millions of ZWD (hundreds of thousands in USD). Their accounts show that they received millions from various individuals and companies which they then transferred to agents using the EcoCash bulk payer lines. The agents are said to have purchased forex from the streets on their behalf.
This episode is the one that ultimately put the target on EcoCash’s back. The mobile money solution was in the crosshairs even before this activity. The regulators resolved to break EcoCash after this.
To be fair to the government, it feels like EcoCash should have noticed the unusually high amounts that were being moved on the platform. Especially how cash in/ cash out transactions seemed to be wildly popular when on the ground, everyone knew no cash was exchanging hands in those transactions.
Some began wondering if EcoCash themselves might have been involved in the illegal activity. There was no substantial evidence for this but they left themselves in that position by not clamping down on the activity. Even the regulators should have investigated how cash in/ cash out transitions were still popular in a more or less cashless economy.
The root cause of the madness
What these companies allegedly did is illegal but truth be told, almost every other company was and is up to similar mischief. This behaviour and reckless disregard for the law does not stem from teenage-like rebellion but rather from astute business instincts. It is a matter of life and death for their businesses. Of course, once survival is secured, super profits are pursued as human nature dictates.
Earlier this year, supermarkets were in the hot seat for pricing their goods using parallel market rates instead of the RBZ auction rate. As consumers we were incensed, as rational human beings we understood why they had to do that. They were and are not getting all their foreign currency at the same official rate. As my colleague put it:
That is because the so-called official rate is an average mean. Each business bids in the RBZ Auction and gets foreign currency at a different rate.
To make matters worse, most businesses have to supplement the auction acquired forex with street-sourced forex for it to meet their actual needs. When we consider that the auction system sometimes take over 10 weeks to reach process payments, is it any wonder they turn to to the black market.
The government, through its various arms, has continuously warned companies against using arbitrage for profiteering. It was only a few months ago that the RBZ named and shamed abusers of the auction system. This month the RBZ governor was urging companies to stop exploiting the gap between the black market rate and official currency prices. I found that rather silly.
It’s like locking dogs in a butchery and screaming, ‘please don’t eat the meat.’ Dogs will be dogs, boys will be boys and human nature will prevail. Rather than prosecuting the dogs for eating the pork chops, why not ensure they don’t end up locked up in the butchery. Why are companies engaging in these illegal activities?
Low production in the economy
Zimbabwe was once the breadbasket of Africa. The tides changed and the empty breadbasket ended up importing onions from South Africa and maize from Zambia. That paints the picture of how little we produce now.
The government is responsible for most of the policies that got us to this position. Politicking has always been the undoing of our economy. The land reform programme saw some unmotivated party loyalists get farms where, unsurprisingly, output tanked. The fiscal and monetary policies have also made business hard to conduct in the country. The inevitable result was reduced production.
The problem is low production = low exports. That remains the biggest factor in our foreign currency shortage issues. There is low demand for our currency because the other countries are buying less from us. We get less foreign currency because we are selling less than we are buying. This is simple to understand but hard to fix.
Depreciating local currency and inflation
It was only a few years ago when the ZWD was officially trading at 1:1 with the USD. Now the official rate is around 86:1 with the parallel market rate fast approaching 200:1. That means it is unwise to hold any amount of money in ZWD, let alone the large amounts that businesses accumulate.
The instability of the local currency means the prudent thing to do is convert your ZWD into USD at the earliest possible time. Otherwise you might find that you can’t restock owing to the loss in value of your takings. Individuals are engaging in this activity as well. The only problem is that there is insufficient foreign currency through the official channels for everyone to do this. Hence the parallel market activity.
The exchange rate gap
There are a few certainties in this life; death, taxes and the Zim government pegging an ailing currency at a fixed rate against the USD. It has never worked and it never will in the long run.
What it does is create arbitrage opportunities for those able to access both markets – the official market where the ZWD is pegged arbitrarily favourably against the greenback and the parallel market exclusively influenced by market forces. The opportunity to buy at $86 and sell at $170 is just too difficult to pass up.
The auction rate is somewhere between a pure market-force driven rate and a prescribed one. It has elements of market forces but is mostly prescribed to remain artificially low.
The motivation for the ‘criminals’ therefore comes from the tough economic conditions, the inflation and depreciating local currency. The exchange rate gap then stares them in the face and they are ‘forced’ to take advantage of the arbitrage opportunity.
The unintended consequence
The problem with immoral/inhumane/ill-advised laws is that people will break them. As they continually break them, respect for the rule of law diminishes. Most Zimbabweans continually break the law that prohibits them from buying foreign currency on the streets.
That becomes like the gateway crime and the longer we engage in it, the easier it is for us to break other laws.
So while it is deplorable behaviour that these companies engaged in, it is at the same time completely relatable and understandable. This means, ultimately, the government should shoulder most of the blame.
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18 comments
Companies are just taking advantage of the existing loopholes in order to make more money,
In Zimbabwe there is too much dependence syndrome we want the government to provide everything for us, on breadbasket issue us who are involved in agriculture we are one to blame we rarely share information we have attained in colleges or help other farmers how to set up successful agribusiness, existing associations tend to serve more those involved in commercial farming excluding small scale farmers who constitute a large proportion of farmers
Entrepreneurs and Business people are those who keeps the economy moving forward, and the gvt as a regulator only.
Techzim this type of journalism where your analysis is mainly based on the negative side is retarded has to stop,be balanced in your reportimg not all of us are PESSIMISTIC when it comes to current state of Zimbabwe, in fact am tired of hearing negative issues mostly, and get to hear to good things about Zimbabwe from foreigners in some meetings they organize on our country.
I understand where you are coming from but we are optimistic, I promise. For those of us who are optimistic it may appear as if we are negative but actually this comes from knowing that indeed we can do better as a country. There isn’t much time to pat ourselves on the back when there are significant issues that need to be addressed, so the focus falls on the areas we can improve in.
You started your comment by saying, ‘ Companies are just taking advantage of the existing loopholes.’ That right there is the whole problem. The loopholes. Why are they there? Let us not put most effort into chasing those who are exploiting the loophole. Rather most effort should go into closing those loopholes. As long as the loopholes exist, they will be exploited, fact!
We can’t call ourselves optimists whilst we ignore the root cause of our problems.
Your articles are more for the opinion section. Please give us news then we can analyse and have our own opinions.
Honestly what is there to praise? What will you have them praise. This country is in the gutters and the government yakutaura zva2023!! Asi uri murakashi?
your articles are boring these days. I feel emotions and an anti regulator’s taste of reporting. You seem to defend and justify everything that is “said” to be illegal. Please correct that. Try to give a balanced analysis.
Somebody finds these articles interesting
Indeed loopholes should be closed to avoid facilitating the illegal trade
amongst the enterprises and business.
You should have stick to your tech analysis coz you are now reporting boring articles. Try balance reporting not based on your opinion.
It takes two to tango my friend ,both parties are guilty BUT dont defend the illicit dark trading. Black market exists for currencies in nations with strict currency controls. We have weak economic fundamentals i.e inflation rate and our forex reserves are next to zero and to make it worse we are trying so hard to artificially fix the official exchange rate.
The sterilised intervention worked for sometime but might be failing now due to abuse of facility and arbitrage opportunities being created.
The question is :What are the possible interventions that RBZ can do and to help stabilize our currency? Do you want them to just watch and let this go on unabated?
Intervention is a management process and RBZ is forced to adopt conflicting currency policies in order to maintain the stability of its currency’s internal and external value. Whether its necessary or not is an argument for another day but they must act!
China has survived with a very undervalued currency but have strong USD currency reserves due to a very strong export sector.
You got it right our country needs to EXPORT EXPORT & EXPORT courtesy of a viable mining and agriculture sector, not command projects, the RBZ should go back to its core business of governance through monetary policy and stop auctioning Forex.
This is the madness that has ruined our country
This is a good article. One thing I have learnt in Zimbabwe is that there are people who are benefiting with crises. These are the same people who will critisize this kind of article because it threatens their interest. There is no normal person who will critisize what this article is saying except if you are the beneficiary of the crises.
So true.
How best can the country solve the depreciation of the local currency and to rescue the economy at large.
I don’t think it’s right to say buying foreign currency on the black market is illegal, this because the source that generates most of this foreign currency are remittances from the diaspora, as the article points our economy has tanked it’s not exporting as it did during the “bread basket of Africa” days.
Why do we have people getting penalised for dealing on the parallel market which is the realistic market. in a normal economy with a strong local currency nobody cares about foreign currency , and one would Forex from the banks , but the reputable banks are closed and the few that are left have no morals at all , the fly by night pentacostal type banks are there for laundering money
Great article. The source is production. Our gvt is dealing with effects not the root problem. That is production primary, secondary production is dead.. low exports, import subsition. & people have no trust in gvt policies with what happened in the past. Who is keeping a lot of money in the bank. Almost everyone is scrubbing to change & save earnings in USD$. Check what happens when civil servant get paid. We are already in hyper inflation zone. We are back to that gono era. They need to 1st deal with production then trust. I think we can be half-way.
My personal opinion of how we can ‘tame the parallel rate’ is by (i) clamping down on gold smuggling, (ii) increasing the retention ration for miners, especially gold miners, to 100% and (iii) Fidelity paying market value for gold. Everything else is just dancing in circles avoiding the elephant in the room.
If ZNA, OPC, RBZ and MOF can do this, we may finally get back on track on developing Zimbabwe for all Zimbabweans. We are a small population. There really is enough for everyone in Zimbabwe. There is no reason why more than half the population faces extreme poverty, as reported by ZIMSTAT in their 2020 Rapid PICES report.
It takes two to tango my friend. RBZ and some individual companies are guilty but we must not forget that the biggest black market exists for currencies in nations with strict currency controls. We have weak economic fundamentals i.e inflation rate and our forex reserves are next to zero and to make it worse we have the RBZ trying so hard to artificially fix the official exchange rate.
The question is :What are the possible interventions that RBZ can do to help stabilize our currency -is prosecution alone enough? RBZ cant let this continue unabated let them do the necessary intervention. Yes it may seem as if the monetary authority is being forced to adopt conflicting currency policies in order to maintain the stability of its currency but what options are available? How can they close the loop holes that have created these exploitable arbitrage opportunities? Arbitrage has become a sustainable trading strategy that big companies and individuals are using to take advantage of volatile markets and they are guilty too.
China has survived with a very undervalued currency but have strong USD currency reserves due to a very strong export sector. Lets start production and reduce imports!
Market forces are at play here. You cannot stop water from flowing by putting a dam wall , one day it will over flow.No matter how big the dam is the water will find it’s way out. Either the water will wash away the wall or overflow over the wall. Hapana hapana tese tinoziva the problem.