BSR: Shutting the stock market & mobile money platforms
On 26 June 2020, the Goverment of Zimbabwe shut down the Zimbabwe Stock Exchange and banned mobile money payment system. The decree was issued by the Secretary for Information, Publicity and Broadcasting Services, Nick Mangwana. This statement sent shockwaves across the country and beyond, especially as it came from the political arm of the government, rather than from the usual traditional economic sphere.
The Ministry of Information is the Zimbabwean regime's arm for political propaganda. Its primary function is to communicate political messaging for the ZANU PF regime. The message was clear: this was a political measure taken by political rather than economic authorities. The closure of a popular payment system and the stock market are economic and regulatory matters that are traditionally handled by regulatory authorities. But it was clear that they had been sidelined.
This apparent marginalisation of the economic and regulatory authorities was the first sign of problems and dysfunctionality of the governance system. A matter for regulatory authorities was being directed by political institutions. Those with the mandate and expertise on economic matters had involuntarily given way to politically superior forces. It was clear that the regulatory authorities were not the authors of the ban. They may not even have been consulted.
The tone and content of the statement, its rambling character which read like an elaborate and badly written police charge-sheet was not the language of regulatory authorities. Both the Ministry of Finance and the RBZ were conspicuously silent for nearly 24 hours after the ban, a sign of reluctance to claim responsibility for the garrulous statement.
When the RBZ finally issued a press statement late on Saturday afternoon, it was brief and lukewarm. It looked hurried and forced both in its tone and content. It had been written out of duty, without any conviction. The statement purported to confirm the previous day's ban. However, it actually watered it down by directing that individual transactions would continue. This effectively meant that mobile money services would continue uninterrupted for the general public. It was also just a press statement, not couched in the frm of a legal instrument as a regulatory authority would do concerning such a serious matter.
It became more embarrassing for the RBZ when it emerged that its Monetary Policy Committee (MPC) had held a meeting on 26 June 2020, the same day that Secretary Mangwana issued the ban on mobile money services. This meant that the MPC had played no part in the decision that resulted in the ban of a major national payment system. That decision had been made elsewhere. If it did, the RBZ would have issued the ban. Instead, they were as surprised as everyone else. None of them came out to defend the ban, although there are characters who enjoy the attention of the media.
Who is in charge?
So who had made the big decision? Who is in control of economic policy-making ahead of the bodies that have the legal mandate? Have the traditional monetary authorities been sidelined and given way to a more powerful force? This, at any rate, seems to be the case. Details began to emerge earlier this week revealing the source of the decree.
Bloomberg reported on Tuesday that the ban on mobile money and closure of the ZSE was a command from the security structures of the state. "Zimbabwe’s security force leaders sidelined the nation’s economic chiefs and forced the government to close the stock exchange and halt most mobile-money transactions, people familiar with the situation said," reported Bloomberg. The security chiefs at the Joint Operations Command were apparently dissatisfied with the approach of the Finance Minister Professor Mthuli Ncube and RBZ Governor John Mangundya.
The Deputy Chief Secretary responsible for communications in the Office of the President, George Charamba appeared to confirm the role of the security chiefs when he suggested on social media that there was nothing wrong with what security services had done.
“You would think it’s criminal or odd for security structures to advise on markets and market-related threats to national stability,” he tweeted in capital letters on his Twitter handle @Jamwanda2 on 1 July 2020. If the story was not true, the president's spokesperson would have denied it. Instead, he was moving an argument to justify military intervention.
This role of the military means this is not merely a usurpation of power from regulatory authorities by political authorities but more specifically by the security authorities. The intervention means the security chiefs have lost confidence in the economic chiefs. Bloomberg described it as a sign that security chiefs are "growing impatient with the administration of President Emmerson Mnangagwa".
Whatever the correct position, this direct intervention in the economic sphere should not be taken lightly. As shown by the comments of the presidential spokesperson, the intervention is being justified on grounds of national security. This is an ominous sign which deserves more attention than it is getting. It may be interpreted as laying the ground for military intervention more widely. If it is justified for the military to intervene to correct “market-related threats to national stability” as Charamba asserts, what will stop it from intervening to correct political-related threats to national stability in the near future? After all, similar justifications were used for the coup in November 2017.
There are significant tell-tale signs of the military becoming tetchy in an environment of a runaway crisis. The country's top soldier, General Phillip Valerio Sibanda made an unusual televised appearance last week, making strong comments against corruption within ZANU PF. That appearance raised eyebrows and for good reason. This week, the Minister of Defence repeated comments pointing to a dire situation in the barracks. Two weeks ago, the Joint Operations Command held a bizarre press conference at which it denied the existence of a rumour of a coup.
Those watching the Zimbabwe situation must pay greater attention to these developments. The stock market and mobile money businesses are merely the visible casualties but there is a bigger political polt unfolding. However, apart from the political dimensions to this saga, there are also more immediate economic ramifications.
First, the directive was essentially a decree without any legal instrument backing it. While the Mnangagwa regime has made extensive use of decrees in the form of statutory instruments especially in economic matters, it has often done so through statutory instruments. Where it has issued directives it is because the laws permit it. The latest ban was not based on a statutory instrument or a directive.
Secretary Mangwana tried to scramble an old statutory instrument a day after the decree but it did not provide authority for what had happened. The fact of the matter is that he was not a regulatory authority and had no legal authority to issue the statement. Even when the RBZ confirmed the ban the next day, it was also through a press statement, not a legal directive or statutory instrument.
Rule by decree is anathema to the rule of law. This is particularly harmful where the decree affects business operations and affects property rights. Millions of users of mobile money platforms were affected by the ban. Thousands who invest and hold property on the stock market were similarly impacted by the suspension of trading on the ZSE. It is not surprising that stockbrokers were inundated by investors following the arbitrary suspension. Their property is at risk.
This violation of property rights and the use of arbitrary power is a blow for a country which is crying out for help and investment. Ironically, a country which is claiming to be open for business shuts down a major payment system which is relied upon by millions and businesses and the stock market. Finance Minister, Professor Mthuli Ncube has been keen to talk up Zimbabwe’s chances of improving on the Doing Business Index as measured by the World Bank. The latest decree will significantly diminish Zimbabwe’s performance.
The decree is also the latest in the government's strategy to find scapegoats for the country’s economic woes. This time its mobile money providers and the Zimbabwe Stock Exchange. It blames them for the continuous and escalating collapse of the Zimbabwe Dollar which is now trading officially at 1:63 (nearly 100 on the parallel market). A few months ago, the government blamed the Old Mutual Implied Rate (OMIR), which tracks the movements of dually-listed Old Mutual shares. It moved to ban the fungibility of Old Mutual shares. Still, it did not solve the problem. Now the regime has shut the market - it’s tantamount to throwing the baby together with the bathwater.
The truth is, people have been seeking refuge in the stock market because of the depreciation in the ill-fated Zimbabwe Dollar. Currency depends on trust. However, the local currency is weak and people have lost trust in it. Given that scenario, people seek other instruments to maintain the value of their savings. If the foreign currency was readily available, they would buy it for purposes of storing value. In the absence of foreign currency, people have been buying shares on the stock market. Shutting it down means their property is locked up on the stock market, taking away the liquidity that is an attractive feature of that market and preventing the circulation of capital. A foreign investor seeing this scenario will quickly look away.
But those who are locked out will simply look for alternatives. They will look for other assets to buy as a way of storing value. In the past banks have bought bricks to protect their savings. The government cannot ban every market that people get into for purposes of storing the value of their savings.
As for mobile money services, they have become the mainstay of the informal economy. More than 80% of transactions in the informal sector use the mobile money payments system if traders aren’t demanding the US Dollar. Mobile money payment systems have had the advantage of extending financial inclusion, bringing the previously excluded into the financial system.
More than 90% of the adult population is now financially included, a critical enabler to economic engagement. The largest mobile money provider, EcoCash boasts of more than 10 million customers and has a market share of more than 90%. Millions in the rural economy rely on these mobile money platforms. Thousands of agents and merchants are heavily reliant on the same. The disruption has a significant impact on local and household economies. A ban is therefore as unsustainable as it is undesirable. The government itself has relied heavily on mobile money payments systems for its 2% tax intriduced a couple of years ago, another reason why the ban is self-deafeating.
The regime must understand that problems are not solved by banning economic activities, let alone platforms of trading. Mobile money payment systems and the stock exchange are not the problems. They certainly weren’t a problem 7 years ago when Zimbabwe was using the US Dollar during the multicurrency environment There were no allegations of mobile money providers creating money or that trading on the ZSE was fuelling the parallel market. So what changed?
Problems started when the government took the misguided path of a pseudo-currency in 2016 and then the return of a fully-fledged Zimbabwe Dollar last year when it was under-prepared and under-resourced. The problems are deep-seated and will not be solved by scapegoating. The government must look into the mirror to appreciate the source of the problem.
As has been said before, Zimbabwe’s problems emanate from its dysfunctional political sphere. Unless a solution is found there, this scatter-gun approach to governance will only yield more misery to the long-suffering people of Zimbabwe.