Home Business Mthuli Ncube declares an all-out war on black market

Mthuli Ncube declares an all-out war on black market

Mangudya and Mthuli

Mthuli Ncube declares an all-out war on the black market. Cabinet last week summoned RBZ Governor Dr John Mangudya to explain the alarming loss of value of the local unit. In the past week, the rate of the US dollar plummeted to as low as US$1 to $70 ZWL, leading to a spike in the price of basic goods as most businesses peg costs on the parallel exchange rate.

The Reserve Bank of Zimbabwe (RBZ) is expected to further assert itself in overseeing mobile money transactions, as part of multiple measures to enforce discipline and deal decisively with illicit financial activities that have prompted the plunge of the local currency on the parallel market.

The impact of the galloping exchange rate has brought untold suffering for ordinary workers, most of whom pay for goods and services, including rentals, that are indexed to the parallel market rate. Authorities insist that the run on the local currency is not a result of genuine economic fundamentals but speculative tendencies, with mobile money giant EcoCash fingered for slackening on its duties to regulate illicit financial activities.

Information, Publicity and Broadcasting Services Minister Monica Mutsvangwa said Cabinet last week vigorously recommended tougher action against the black market.

“Cabinet actually received a report on the state of the economy and expressed appreciation (for this report). There was a robust debate for about two-and-a-half hours, and all the challenges were looked at. There was an appreciation of the state of the economy from the report by the Minister of Finance and also by the Reserve Bank Governor who was called into Cabinet to explain the issues.”

With a dominant market share of over 95 per cent on the mobile money market, EcoCash has been in the cross-hairs of the RBZ as investigations by the Financial Intelligence Unit (FIU) showed that its transactions did not support huge money movement on this platform.

Finance and Economic Development Minister Professor Mthuli Ncube said new measures, which will see the RBZ wielding more power on mobile money operators, will be announced soon.

“What we have in Zimbabwe is a typical case where the mobile platform is led by Telcos (telephone companies) and the banks follow. In other countries the model is bank-led, central bank regulates. The new measures that we are going to put in place will be sustainable measures because these are about regulating financial services. Whether the exchange rate is stable or not, our financial services need to be regulated better. What you saw playing out is an issue around the regulation, in this case, the absence of exchange rate regulations was fuelling the parallel market.”

The government already put regulations in place through Statutory Instrument 80 of 202, which, among other measures, state that “mobile money providers are deemed to be financial institutions in terms of the Banking Act”. The mobile money providers are also required to “open and maintain a bank account that is designated exclusively for mobile banking services” and to “allow the Reserve Bank read-only real-time access to its payment system”.

Pertaining to the black market, Professor Ncube said although it was common for the informal sector to emerge whenever any economy in the world is undertaking reforms, the activities in Zimbabwe had become too widespread.

“The idea is always to close this gap. There is always a tolerable spread, for example, if the spread was small it wouldn’t mean much. The wider the spread, the more problematic it is for policymakers. The black market is a typical feature of economic reform but our challenge is to make sure it is put under control and it stops causing so much pressure on the parallel front, which it is doing, leading to unjustifiable price hikes.”

He said informalisation of the economy was a contributory factor to the spiralling black market. “If an economy is this in formalised, 60 per cent informalisation, whenever you enact monetary policy at times it becomes a blunt instrument.

When you raise interest rates, you expect that to come down and lower consumption, because the price of money is now high and people borrow less. When an economy is in formalised it doesn’t quite work that way.”

Prof Ncube said Government had not enforced price controls but the moratorium with businesses had been done in good faith. He said there is further need to re-engage business in a “firmer” way to address price hikes.

“First of all this moratorium was a product of a handshake, moral persuasion. It was not price controls, because if it was, what is happening now (price increases) would not have happened. We still want to reach out to industries and shake hands again, perhaps a bit firmer. What has been happening is that there has been an immediate reaction to the parallel rate. We still need to have continuous dialogue with industry so that we can have this price moratorium.”
Last week the RBZ issued a new directive that limits transactions on the Zipit platform to $20 000 a day and $100 000 monthly.

The FIU noted that shortcomings in the Zipit system made it difficult for banks, regulators and law enforcement agencies to speedily identify counter-parties to a transaction or to identify multi-banked users.

Following the new directive, the local currency gained slightly on the parallel market rate and was trading at between US$1 to $50 and 60 ZWL as of yesterday. It is envisaged that the local unit will continue to make gains on the back of new measures that will be unveiled by authorities.

Source – Sunday News

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