HARARE – The Confederation of Zimbabwe Industries (CZI) has warned the central bank that its current intervention to bail out firms with cheaper funding could backfire, in the absence of clarity and transparency.
Zimbabwe has come under fire from a rampaging inflation rate that has defied ongoing moves to avert a catastrophe, with bank interest rates discouraging firms from borrowing.
Two weeks ago, the Reserve Bank of Zimbabwe said in its mid-term monetary policy statement it would chip in with reasonably priced funding to lessen the burden on stressed industries.
But CZI said bailouts were important, but the central bank must twin their release with enhanced communication that include telling the market how much is being released.
It said this would help the market avoid speculating over the quantum of bailouts, which can lead to an inflationary resurgence.
The southern African country is currently battling an inflation rate that is creeping towards the 300 percent mark, according to CZI.
“Weighing down the disinflation effort is the introduction of concessionary financing facility to the productive sector which has not been quantified. This type of intervention has had negative consequences on the economy in the past through facilities such as Agricultural Sector Productivity Enhancement Facility, Parastatals and Local Authorities Reorientation Programme and Farm Mechanisation to mention a few,” CZI said in a note to its membership released recently.
“Zimbabwe’s annual inflation rate surged from 230,4 percent in July 2019 to an implied rate of 288,6 percent in August 2019. This is an implied rate after Zimstats suspended the publication of year on year inflation data for technical reasons when the economy moved from a multi-currency to a mono-currency regime,” said CZI.
Inflation has returned to haunt Harare again, a decade after dollarisation in 2009 helped the country pull the rate down to -7,7 percent, from 500 billion percent in 2008.
Anxiety has gripped the market, with basic commodity prices on a steep trajectory in the past week, after a relentless charge in black market foreign currency exchange rates.
On Friday last week, the Zimbabwe dollar briefly traded at a staggering $23;US$1 before receding back to about $15;US$1 on Monday, as speculation mounted that several big firms were behind the charge.
On Friday last week, the RBZ froze the accounts of four companies, a day after the local currency took a dramatic tumble on the parallel market.
The RBZ said it had frozen all outgoing transactions on bank accounts held by Access Finance, Croco Motors, Spartan Security and Sakunda Holdings to facilitate a money laundering investigation.
Sakunda, which has now diversified after starting off as a petroleum company, is owned by Kudakwashe Tagwirei, an ally of President Emmerson Mnangagwa and now part owner of the Commercial Bank of Zimbabwe.
Spartan Security is linked to the Mnangagwa family through one of his sons.
A memo sent to all banks by the central bank acting head of the Financial Intelligence Unit, Wonder Kapofu, said: “The FIU is carrying out analysis on the above-named entities and their sister group companies. As we carry out further analysis, you are directed to freeze, with immediate effect, all accounts held in the names of the listed entities until further notice.
“You shall not process any withdrawals or transfers from the accounts. You should however allow deposits or other flows into the accounts.”