HARD SELL: Zimbabwe’s apex bank has trust issues

By Ranga Mberi

WHAT happens when a nation has lost faith in its institutions?

In Zimbabwe, John Mangudya, the governor of the Reserve Bank of Zimbabwe, knows best the answer to that.

Faced with a serious shortage of cash, the result of Zimbabwe’s high import bill and weak exports, he had to come up with an unorthodox plan. With hindsight, far too early in May he announced that Zimbabwe would introduce bond notes. This was a “currency” that would be at par with the US dollar, on the strength of a $200 million fund from the Afreximbank.

To Mangudya, the economics made sense. Zimbabwe was in a fix and needed a quick solution, while the larger problem of reviving its struggling industries was being resolved. It would be a temporary measure, he was honest enough to say.

However, what he meant to be a quick solution has morphed into something else. Large corporations have stopped banking their money, worsening the very situation that Mangudya was trying to fix.

The little foreign earnings that were coming in, from remittances to what remained of foreign investment, have slowed to a trickle, if not dried up entirely.

At a church meeting last Sunday, Mangudya sounded like the lay preacher he is, as he tried to ease the anxiety in his audience.

“If I fail,” he told them, “I will come back and apologise.”

Trial and error is the last thing Mangudya would have wanted to suggest, especially given the prevailing scepticism. But this is what it has come to.

Zimbabwe’s is a classic case of what happens when the public loses confidence in its public institutions. The hyperinflation period that Zimbabwe faced before it resorted to a multicurrency system in 2009 eroded the public’s confidence in many things – they could no longer trust the RBZ, the Treasury or even their own banks.

Restoring that confidence will be extremely difficult, especially in these times where rumour and speculation is taken as more credible than what public institutions say.

Social media, with all its opinion makers and so-called influencers, is all around us.

Panic spreads faster than calm and reason.

Once you add to that the poor communication of public policy by Zimbabwe’s institutions, you have a toxic mix that will take a while to clear.

It is a phenomenon that everyone acknowledges.

At a symposium for Zimbabwean businesses in Harare, Vice President Emmerson Mnagagwa candidly expressed the frustration of public servants who find themselves in Mangudya’s situation.

“The RBZ has been explaining and explaining and explaining, but the people have been doubting and doubting and doubting,” he said.

Whatever good there may be, because of what they suffered in the past, and because of poor communication today, the public’s trust in the RBZ has been eroded.

How does such trust get restored then? Well, when the public see that the institution is solving, and not causing, their problems.

As former African Development Bank president Donald Kaberuka said of the pan-African bank last year:

“It is important that we have an institution that is solid, which Africans expect to solve their issues.”

The region that is seeing the fastest economic growth in Africa today, East Africa, is benefitting a lot from building strong economic institutions that its publics have faith in.

“No doubt that institutions are fundamental to transformational change and to building a cohesive, resilient, competitive and transformed region,” the UN’s Economic Commission for Africa said of East Africa early this year.

How exactly is East Africa ahead of larger, more resource-rich economies in West Africa and here in Southern Africa? According to the AfDB, it is all down to the bloc’s investment in integration, markets, and strong institutions that work.

For those in Zimbabwe, and elsewhere in the region, it is a big lesson: you may have the best intentions, but as long as those you want to serve do not trust their institutions, your best intentions risk coming to naught.

November 2016
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