Zimbabwe Final

1

Republic of Zimbabwe

Bekezela Ncube

Khetiwe Richards

Joshua Yau

2

Basic information about the country

The Republic of Zimbabwe was established as an independent country in 1980.

Zimbabwe had long since been a major tobacco producer, and was poised to be a breadbasket

for the surrounding southern African countries. However a number of challenges plagued the

country and caused a downturn in the economy. For example, in the early millennium, a

drought and the forced seizure of almost all white‐owned commercial farms, with the stated

aim of benefiting landless black Zimbabweans, led to sharp falls in production and precipitated

the collapse of the agriculture‐based economy. Since, the country has endured rampant

inflation and critical food and fuel shortages.

Zimbabwe is home to the Victoria Falls, one of the natural wonders of the world, the stone

enclosures of Great Zimbabwe ‐ remnants of a past empire ‐ and to herds of elephant and other

game roaming vast stretches of wilderness.

Population

The population of Zimbabwe is predominantly African, with Shona 71%, Ndebele 16%, other

Africans 11%, white 1%, mixed and Asian 1% [iv]. Of the African population, Zimbabweans are

made up of two major language groups, which are subdivided into several ethnic groups. The

Mashona (Shona speakers), have lived in the area the longest and are the majority language

group. The Matabele (Sindebele speakers), centered in the southwest around Bulawayo, arrived

within the last 150 years. An offshoot of the South African Zulu group, they maintained control

over the Mashona until the white occupation of Rhodesia in 1890. More than half of white

Zimbabweans, primarily of English origin, arrived in Zimbabwe after World War II. Afrikaners

from South Africa and other European minorities, including Portuguese from Mozambique, also

are present. Additional population data can be found in table 1.

Table 1: Zimbabwe Population Data

Data Source = UN [iii] Source = CIA WFB [ii] Source = BBC News [i]

Population 13.34 million 11.39 million 13.5 million

Population Gwth

Rate

1% (2006) 1.53% (2009 est)

Urban Population 36% (2006)

Age Structure 38.0% 0‐14 yrs,

58% 15‐60 yrs,

43.9% 0‐14 years,

52.2% 15‐64 years,

3

4% 60+ yrs 3.9% 65 years +

(2009 est.)

Life Expectancy M: 44 yrs, F: 43

yrs (2006)

M: 46.4 yrs, F: 45.2 yrs

(2009 est.)

M: 44 yrs, F: 43 yrs

Ethnic Groups African 98% (Shona

82%, Ndebele 14%,

other 2%), mixed and

Asian 1%, white less

than 1%

Government

The British declared Zimbabwe (then called Southern Rhodesia) a British colony in 1890.

Disappointed by the softening of the British to the African citizens, the Whites in Southern

Rhodesia declared unilateral independence from Great Britain in 1965 under the rule of Prime

Minister Ian Smith (under the name Rhodesia). Guerrilla uprising, UN sanctions, and support

from neighboring countries led to free elections in 1979, a constitution written Dec 21 1979,

and independence (renamed Zimbabwe) on April 18 1980. Robert Mugabe, the nation's first

prime minister, has been the country's only ruler (as president since 1987) and has dominated

the country's political system since independence.

Recently, Mugabe’s leadership role has been challenged. The most recent national elections

were held on March 29, 2008 and ZANU‐PF lost parliamentary majority for the first time since

independence. The opposition was Movement for Democratic Change (MDC) under the

leadership of Mr. Tsvangirai. Though Mr. Tsvangirai was the documented vote winner, a runoff

was requested and granted by MDC. Mr. Tsvangirai later pulled out of the run‐off and Mr.

Mugabe was declared the winner in June.

Despite losing the election, Mr. Tsvangirai was able to secure the position of Prime Minister

through the Inclusive Government agreement.

Major Industries

Zimbabwe’s most important industries are mining, manufacturing, and agriculture. Zimbabwe

was the world's thirteenth‐largest producer of gold in 1997, which is the country's biggest

mineral export [vii]. Manufacturing in Zimbabwe, focused on textile and sugar production, at

one time was one of the largest, most diversified, and integrated manufacturing sectors in sub‐

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Saharan Africa [vii], partly due to import substitution policies implemented after the 1965

declaration of independence. The economy is also dependent on agricultural products such as

tobacco, cotton and sugarcane. The country’s tourism industry has suffered as a result of the

economic and political conditions. See table 2 below for a full list of major industries of the

country

Table 2: Zimbabwe Major Industries

Data Source = CIA WFB [ii] Source = US Dept of State [iv]

Major Industries Mining

Steel

Wood products

Cement

Chemicals

Fertilizer

Clothing and footwear

Foodstuffs

Beverages

Mining

Manufacturing

Public administration,

Commerce

Transport and

communication.

Macroeconomic Data

Zimbabwe’s economy has struggled since 2000. Shortages of basic goods such as fuel and

bread are often reported. The negative effects of HIV/AIDS exacerbate these problems.

The crisis is seen to be as a result of a combination of factors [v]: Inappropriate economic

policies, the maintenance of a fixed exchange rate, and increased regulations and government

intervention. These factors can be characterized by the following specific examples that have

damaged the Zimbabwe economy [ii]

Its 1998‐2002 involvement in the war in the Democratic Republic of the Congo drained

hundreds of millions of dollars from the economy.

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The government's land reform program has badly damaged the commercial farming sector, the

traditional source of exports and foreign exchange and the provider of 400,000 jobs, turning

Zimbabwe into a net importer of food products.

The Reserve Bank of Zimbabwe routinely prints money to fund the budget deficit, causing the

official annual inflation rate to rise from 32% in 1998, to 133% in 2004, 585% in 2005, passed

1000% in 2006, and 26000% in November 2007, and to 11.2 million percent in 2008.

Meanwhile, the official exchange rate fell from approximately 1 (revalued) Zimbabwean dollar

per US dollar in 2003 to 30,000 per US dollar in September 2007.

Badly needed support from the IMF has been suspended because of the government's arrears

on past loans and the government's unwillingness to enact reforms that would stabilize the

economy. These conditions have made conducting business very difficult, resulting in a huge

drop in economic activity as well as chronic shortages of foreign exchange. See Table X for key

macroeconomic figures and Table 3 for historical inflation.

Table 3: Key Macroeconomic Measures

GDP (PPP) $1.59 billion

(2008 est.)

Inflation 11.2 million %

(2008 est.)

GDP (Real Exch Rate) $4.59 billion1

(2008 est.)

Labor Force 4.03 million

(2008 est.)

GDP real growth

rate

‐12.6%

(2008 est.)

Unemployment Rate 80%

(2005 est.)

GDP per capita (PPP) $200

(2008 est.)

Public Debt 241.2 % of GDP2

(2008 est.)

1 Hyperinflation and the plunging value of the Zimbabwean dollar makes Zimbabwe's GDP at the official exchange rate a highly inaccurate statistic

2 Zimbabwe is ranked #1 on the CIA World Factbook in public debt owed

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GDP per sector agriculture: 18.1%,

industry: 22.6%,

services: 59.3%

(2008 est.)

Budget Revenues: $153,700

Expend: $179.300

(2008 est.)

Source: CIA World Fact book [ii]

Table 4: Inflation Rate (Consumer Prices) from 2003 – 2008

Year Inflation Rate Rank % Change Date of Information

2003 134.50 1 0 2002 est

2004 384.70 1 186.02 2003 est

2005 133.00 222 ‐65.43 2004 est

2006 266.80 224 100.60 2005 est

2007 976.40 223 265.97 2006 est

2008 12563.00 224 1,186.67 2007 est

Source: CIA World Fact book [ii]

Current Conditions & Recent Developments

Zimbabwe Currency Officially Dead – April 20 2009

Given hyperinflation, Zimbabwe has abandoned the Zimbabwe dollar and officially commenced

training in foreign currency (USD, ZAR, BWP, or GBP are accepted currencies at this time). “The

Zimbabwe dollar is dead. It is no longer being printed and not likely to be used for a year at

least,” said the Economic Planning Minister Elton Mangoma, quoted in the Zimbabwean

Magazine3.

IMF Article IV Consultation Statement – March 26 2009

3 http://www.thezimbabwean.co.uk/

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The IMF visited Zimbabwe during the period March 9‐24, 2009 to conducted an Article IV

consultation. Highlights from concluding statements by Vitaliy Karamenko, Mission Chief for

Zimbabwe are below [viii]:

“The mission welcomes the authorities’ commitment under STERP to eliminate quasi‐fiscal

activities and implement cash budgeting in 2009”

“A steep decline in economic activity and public services contributed to a significant

deterioration in the humanitarian situation in 2008”

“The official adoption of hard currencies for transactions has strengthened the credibility of the

government’s commitment to fiscal discipline and has already helped stop hyperinflation”

“Effective oversight of the RBZ needs to be established”

Though the meeting was positive, the IMF still has limited involvement. As stated by Vitaliy

Karamenko, [viii], “IMF staff stands ready to continue to assist the authorities through policy

advice. Technical and financial assistance from the IMF will depend on establishing a track

record of sound policy implementation, donor support, and a resolution of overdue financial

obligations to official creditors, including the IMF.”

Stock Market Resumes Trading after 3 month halt – February 19 2009

According to a Feb 19 2008 Bloomberg article4, the Zimbabwe stock exchange resumed trading

after being closed for three months. After opening, prices were listed in US dollars given the

decline in the local currency.

Low Food Harvests – May 2008

The Food and Agriculture Organization (FAO) and the UN World Food Program (WFP)

conducted an assessment in May 2009, which confirmed that harvests were lower than the

previous year [vi]. According to the study, this was attributed to perennial shortages, late

delivery of inputs, and unfavorable weather conditions. As a result, Zimbabwe remained in

need of food imports to cover the deficit estimated at 1.2 million tons.

Trade

Zimbabwe is well positioned geographically to encourage trade in the southern Africa region.

In addition there are eight airports, two railway companies, two nearby ports (Beira and

4 http://www.bloomberg.com/apps/news?pid=20601116&refer=Africa&sid=a2M6kWnKSfo0

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Durban) [ix]. Despite this potential, the trade balance has been negative for some time. Likely

due to the economic issues discussed above.

Table 5: Zimbabwe’s Global Trade 2000‐2006 (US Millions)

2000 2001 2002 2003 2004 2005 2006

Total Exports 1760.5 1282.6 2107.7 3420.5 1740.5 958.6 1308.3

Imports 1803.4 1574.9 2379.9 2196.8 1730.6 893.9 1728.6

Trade Balance ‐42.9 ‐292.3 ‐272.2 1223.7 9.9 64.7 ‐420.3

Source: COMESA Country Profile [ix]

Table 6: Zimbabwe’s Global Trade 2000 – 2006

Source: COMESA Country Profile [ix]

Banking System

As of January 25 2009 the banking sector in consisted of 28 banking institutions [x] that are

supervised by the Reserve Bank of Zimbabwe (RBZ). See Table X below for breakdown of type

of institutions.

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Table 7: Zimbabwe Financial Institutions

Financial Institution Count

Commercial Banks 15

Merchant Banks 6

Finance Houses 0

Discount Houses 3

Building Societies 4

Total 28

Source: Reserve Bank of Zimbabwe Money Supply – Jan09 [x]

The Reserve Bank has been documented as recognizing the greed and recklessness that has

characterized the banking sector of late. Illegal and unethical activities were commonplace at a

number of institutions, such as issuance of unfunded and fraudulently drawn bank checks.

These activities made the cash shortage situation much worse and fueled the record‐breaking

inflation. Some of the specific flaws in the banking sector are listed below [x].

Shift from core banking business to speculative transactions

Abuse of bank holding company structures to evade regulation

Poor corporate governance, risk management practices and insider dealing

Rapid local and regional expansion with no proper internal controls, and adequate capacity

Disregard of prudential laws and regulations.

In response, the reserve bank enhanced supervisory processes through the following

guidelines.

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Deposits and lending rates remained relatively constant for the past week, with the exception

of the merchant bank lending rate and three month deposit rates, which fell from 21,500% and

235% to 20,500% and 200% respectively. See Image below for details.

See the appendix for tables 4 and 11, taken from the RBZ Annual Report, for more detailed

information on financial institutions.

In a 2005 report, the IMF wrote:

Zimbabwe has all the elements of a modern developed financial sector, including life and

general insurance, public and private pension funds and active capital markets including the

Zimbabwe Stock Exchange and twelve stockbrokers. [xi]

The latest IMF Article IV report for Zimbabwe published in 2005 [xii] notes that the country’s

financial system has shown “remarkable resilience” in the face of the macroeconomic

difficulties. Despite a 2004 banking crisis that saw the closure of a number of insolvent

institutions, the stability of the banking system was threatened: at the time, the 5 largest banks

held 65% of deposits. As a result, the Fund notes:

With the exit of weak institutions, the sector is now largely populated by banks with high

capital adequacy ratios, little foreign exchange risk, and very short‐term maturities for both

assets and liabilities to cope with fluctuating interest rates. Staff noted that the banking system

appeared generally sound, supervision broadly adequate, with stress tests indicating that the

system is resilient to significant shocks, including credit, interest rate, and foreign exchange

risks.

Banks, wrote the IMF, further decreased their risk by moving their asset composition from

loans (to 25% of total assets) to short‐term securities, i.e. Treasury Bills. Table 8 shows the

indicators of financial soundness in the Zimbabwean system.

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Table 8: Zimbabwe Financial Soundness Indicators (in %)

Source: IMF Article IV (2005)

The Central Bank provides data to the SADC Bankers Association on bank balance sheets, with

the most recent provided for 2006. However, as noted by the IMF, the data have fallen in

quality since 2004. Table 9 shows bank assets versus GDP while Table 10 reproduces the

selected underlying data provided to SADC and notes the discrepancies [xiii].

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Table 9: Zimbabwe Bank Assets and GDP

Source: SADC Bankers Association

Table 10a: Zimbabwe Central Bank Assets and Liabilities (ZWD mm)

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Table 10b: Zimbabwe Deposit Bank Assets and Liabilities (ZWD mm)


15

Table 10c: Zimbabwe Other Deposit Institutions Assets and Liabilities (ZWD mm)


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The resilience of the banking sector comes, however, with some costs. These include limited

financing for the real economy, high costs for the small number of credit‐worthy borrowers,

and the discouragement of savings due to negative real interest rates.

Foreign vs. Domestic Ownership

Foreign ownership of private banks is limited to 35%. For companies listed on the Zimbabwe

Stock Exchange a maximum of 40% foreign ownership is allowed, with no single foreign

shareholding owning more than 10%.

As of end‐March 2005, foreign‐owned banks together enjoyed up to 45% share of banking

sector assets as shown in Table 6.

Deposit Insurance [xiii]

Deposit insurance in Zimbabwe exists in limited form. Payouts are mandated only in the event

of a bank’s liquidation, and depositors are largely unaware of its existence. Thus the insurance

fund cannot perform its goal of assisting smaller banks to compete for consumer deposits

against those banks perceived to be too big to fail. In fact, in the 2 bank failures in which the

DPB was involved through 2005, the majority of depositors failed to make claims.

The Deposit Protection Board (DPB) was established in July 2003 despite the absence of the

basic pre‐conditions for deposit insurance. It has therefore played a minimal role in past bank

resolutions. The DPB is chaired by the governor of the RBZ, and two deputy governors are also

ex officio board members, while the other three board members are appointed by the

governor. As the IMF writes:

This dominance of the DPB by the RBZ raises potential conflict of interest issues, as fiduciary

responsibility to minimize costs to the DPB could, in some circumstances, conflict with RBZ

objectives. [xi]

All licensed deposit‐taking institutions are required to join the DPB (preventing adverse

selection), and the Board uses partial coverage to minimize moral hazard. Coverage was

increased from Z$ 200,000 (about US$20) to Z$ 5 million (about US$500) in April 2005.

The hyperinflationary environment makes it challenging for the DPB to keep its coverage

meaningful while enabling it to accumulate adequate funds. The erosion by inflation of the real

value of the insured limit, and the requirement that depositors execute claims before a notary,

can result in costs to the depositor of more than the value of the deposit at risk.

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As of December‐2004, the fund was worth Z$ 42 billion (2% of the total deposits of the largest

bank). By end‐May 2005, the fund had grown to Z$ 79 billion, but its exposure increased

significantly to about Z$ 246 billion because of higher coverage levels instituted in April 2005.

Table 11: Ownership of Zimbabwe Banks

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Credit spreads have widened in Zimbabwe in the macroeconomic crisis, while the real lending

rate has risen somewhat (see Table 12 and Table 13) [xv]

Table 12: Interest Rate Spread

Source: Mix market

Table 13: Nominal and Real Lending Rates

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Source: IMF (2005)

3. Insurance companies and other financial institutions

Insurance

The Insurance and Pension Funds industry are a critical piece of Zimbabwe’s developmental

institutions. As part of the 2009 Budget policy measure, as of Feb 2009, insurance and pension

funds have the ability to transact in either local or foreign currency given the devaluation of the

local currently. The asset requirements are prescribed as follows [xii]:

Long term insurance companies will hold 7.5% of their foreign currency assets in Prescribed

Assets denominated in foreign exchange, whilst short term insurance companies will hold 5%.

Pension funds, also collecting their contributions in foreign exchange, will be obliged to hold

10% of their foreign exchange assets in Prescribed Assets denominated in foreign exchange.

Similar to the banking industry, there has also been inadequate oversight of the insurance and

pension sectors, which has lead to illegal transitions, indiscipline, and disregard of rules and

regulations. In addition, there are no prescribed educational credentials for stockbroker

registration, which exacerbates the issue. Studies have shown that most pension funds and

insurance companies are not complying with the minimum prescribed asset requirements of

35% and 30% respectively [xii].

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The following three insurance companies are listed on the Zimbabwe Stock Exchange5:

Nicoz Diamond National Insurance Company of Zimbabwe (NICOZ)

Old Mutual Public Liability Company (OLD MUTUAL)

Zimnat Lion Insurance Company Limited (ZIMNAT)

Other Financial Institutions

In addition to the 28 banking institutions, there were 17 licensed Asset Management

Companies, 75 operating microfinance institutions, down from 180 in 2007 [x], and 52

Cooperatives Societies and Credit Unions [xiv].

Asset Management

Within the community of Asset Management Companies (AMCs) in Zimbabwe, many players in

the sector are not conducting meaningful asset management business. The sector remains

“overgrazed” despite the closure of 14 failed AMCs in the period 2004 to 2006. As of the end of

2008, only five out of 17 AMCs account for more than 80% of total funds under management

[x]. Among those still in operation, some operation with inadequate capital reserves and some

are even known to participate in illegal activities in order to cover operating costs.

The RBZ Monetary Authority has warned these companies to concentrate on their core

business, however many refuse. As a result, the Monetary Authority decreed that as of March

1 2009, all MAC that are undercapitalized (less than USD 2.5 million) will be closed with no

option for curatorship [x]. Further, all AMCs engaging in illegal activities in violation of the

Asset Management Act [Chapter 24:26] 48 and will be likewise closed immediately with no

option for curatorship [x].

Microfinance6

5 http://www.africanselect.com/scripts/cgiip.wsc/tradeone/html/company_list.r?picountry-

id=1305&pcsort=Industry#Insurance

6 http://www.microcapital.org, April 7 2009 Article titled ‘Microcapital Story’

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Microfinance Institutions (MFIs) in Zimbabwe have been asked to revisit their operational and

financing strategies to improve growth of the country’s microfinance sector. The goal is to have

MFI refocus their business and to specifically identify appropriate options for recapitalization.

To recapitalize MFIs, the Zimbabwe Association of Microfinance Institutions (ZAMFI)7 lobbied

for the setting up of a national fund for MFIs in the region. In turn the MFIs would be

responsible for identifying clients who need to be served and work on modalities for plan to

offer housing loans. Capital and viability concerns have been issues plaguing the Zimbabwean

microfinance sector over the recent past and have forced a significant number of MFIs in

Zimbabwe to cease operations and surrender their licenses. As per a 2008 half‐year monetary

policy statement, out of a cumulative 309 registered institutions only 150 MFIs in Zimbabwe

were operational. A 2008 report by AllAfrica.com quoted an industry official as citing the

escalating cost of borrowing and hyperinflationary environment as reasons why moneylenders

and MFIs in Zimbabwe struggle to survive. Thus, MFIs in the region charge high interest rates

and this either tends to ward off potential borrowers or increases bad debt as borrowers find

the loans, which are required by law to be in local currency, to be increasingly difficult to repay.

Another factor contributing to the challenges faced by MFIs in Zimbabwe is the new minimum

capital requirements enforced in the country, effective August 2008. Under this requirement,

all money‐lending institutions in Zimbabwe need to hold a minimum capital of USD 5000. Many

MFIs in Zimbabwe are expected to cease operations following the enforcement of this new

requirement.

Private Equity

There is a small private equity industry in Zimbabwe. They are primarily foreign companies that

were established before the economic crisis. Two companies are Actis (http://www.act.is) and

Takura Ventures.

7 An organization that advocates for MFIs in Zimbabwe and to help integrate the microfinance sector into the country’s financial system

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4. Central bank and its role in the economy

The Reserve Bank of Zimbabwe (RBZ or the Bank) enjoys only limited autonomy. The Bank

answers to the Minister of Finance, who has the power to give general directions on all policy

issues and determines the budget of the Bank. The President appoints the Governor and his

three Deputies for a term of five years, with a 2‐term limit. The Board is made up of the

Governor, three Deputy Governors and no fewer than five and no more than seven Directors,

who are appointed by the President in consultation with the Minister.

The RBZ:

is the sole issuer of currency and banker to the Government

is advisor to the Government on all financial and economic matters

handles accounts of government departments and makes short‐term advances to government

manages government debt, acts as registrar of government stock and conducts the Treasury bill

tenders.

The Bank’s main instruments of monetary policy are:

Reserve requirements

Open Market Operations (OMO)

Overnight rate

Repurchase Agreements (REPOS)

Liquidity ratios also apply.

Reserve Requirements

Required reserves for depository institutions are shown in Table 14.

Table 14: Statutory Reserve Requirement for Zimbabwe Banks (%)

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Source: Munoz, IMF Working Paper, (2007) [xvii]

The RBZ sets the minimum Tier 1 capital ratio at 5% and the minimum capital adequacy ratio at

10%. Requirements for bad debt provisions range from 1% for the highest quality loans to

100% for those labeled “Loss.” A minimum liquidity ratio is required where liquid assets must

equal or exceed 10% of liabilities to the public.

Open Market Operations

Open market operations (OMO) involving mainly Government Treasury bills as collateral

security is the main tool for liquidity management. The RBZ introduced OMO Treasury bills to

manage the money supply which are distinct from ordinary Treasury bills for funding

Government. The maturity of OMO Treasury bills ranges from 91 days to 1 year. The Bank also

introduced 1‐year CPI indexed Treasury bills, with bi‐annual coupon payments.

Overnight Rate

The Bank’s overnight rates primarily serve as a pre‐emptive tool for fighting inflation

expectations in the economy. To discourage banks from accumulating excess end‐of‐day

surpluses, the RBZ introduced 2‐year compulsory Special Treasury bills with a punitive interest

rate.

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Repurchase Agreements

In practice, these are seldom used to influence monetary policy

The RBZ also manages Zimbabwe’s exchange rate policy. The country has a rationed multiple

exchange regime (3 "official" rates). Most transactions take place at the main auction ruling

rate but there are foreign exchange controls on current account transactions (and hence an

active parallel exchange market).

A secondary rate is used for inward remittances and a surrender exchange rate (that has been

eliminated) for export remittances. To compensate for the overvalued exchange rate, subsidies

and other incentives are paid to gold, tobacco and cotton exporters.

The RBZ sells foreign exchange three times a week (US$100 million per month for the main

auction and US$2 million per month for SMEs and individuals). The IMF 2005 report

summarizes the process:

Authorized dealers submit detailed bids on behalf of customers, including transaction

information such as intended use of foreign exchange and approval number by the RBZ. An RBZ

committee scans the bids and eliminates those that are for non‐priority purposes. The rest of

the bids are admitted to the tender system and allocated foreign exchange on the basis of

price. The main rate at the auction is heavily managed in the sense that although bids are

submitted, an increasing number are not met—which would not be the case in a true auction.

Monetary Policy

Source: RBZ Weekly Economic Highlights, Jan 2009

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During the month of September 2008 Reserve money closed at $78 870 millions reflecting an

increase of 165,697.6%. Largely contributing to the increase in Reserve money were increases

in currency issued of $72,771.8 million; required reserves, $17 365 048.7 million; other

deposits, $987 929.5 millions and excess reserves, $324,424.3 million.

Source: RBZ Weekly Economic Highlights, Jan 2009

Interest Rates

As a result of the liquid conditions on the money market, money market interest rates have

remained generally depressed.

Table 15: Interest Rates

Treasury Bill

Rate – 365 day

Interbank Overnight

Secured

Overnight

Unsecured

Commercial Avg

Lending

340% n/q 6500% 7500% 14375%

Source: RBZ Monthly Review June 2008

See Table 3 in the appendix, taken from the Reserve Bank of Zimbabwe Annual Report, for

detailed interest rates from 1994 through 2007.

Table 16 summarizes the history of Zimbabwe’s exchange and inflation rates (on a logarithmic

scale).

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Table 16a: Exchange Rates

SA Rand

(ZAR)

Botswana

Pula (BWP)

US Dollar

(USD)

Japanese

Yen (JPY)

UK Sterling

(GBP)

Euro (EUR)

29.76 35.72 266.64 2.68 395.12 349.18

Source: Reserve Bank of Zimbabwe, as of 4/17/2009

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Table 16b: Zimbabwe Currency History

First Dollar: introduced in 1980 to replace the Rhodesian dollar at par. The US dollar exchange

rate was ZWD 1: USD 1.47

Second Dollar: redenomination of the “First Dollar” on 1 August 2006 at the rate of 1 revalued

dollar = 1000 old dollars

Third Dollar (ZWR): redenomination of the “Second Dollar” on 30 July 2008 at the rate of 1

revalued dollar = 10 billion old dollars

Frequent cash shortages and the worthless Zimbabwean dollar, lead to the effective

legalization of foreign currency as valid tender on 13 September 2008. This is achieved via a

special program to officially license a number of retailers to accept foreign money. This reflects

a widespread practice by retailers to refuse Zimbabwean currency and request US dollars or

South African rands instead. As of 29 January 2009 all Zimbabweans are to be allowed to

conduct business in any currency.

Fourth Dollar (ZWL): On February 2, 2009, the RBZ announces that a further 12 zeros are to be

taken off the currency. The redenomination rate is set at 1 revalued dollar = 1 trillion old

dollars. The Third dollar is to remain legal tender until 30 June 2009.

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5. Government Bond Market

Government Securities: Treasury bills are issued for maturities of 91‐, 182‐, 365‐, and 728‐ days

and treasury bonds with 2‐ and 3‐year maturities. At the end of 2005, a 5‐year inflation indexed

bond was launched. The primary market operates via a multiple price system in which both

competitive and non‐competitive bids are accepted. There is no set issuance calendar [xx].

Non‐central government issuance: Private sector corporations do not issue debt in the

Zimbabwean bond market [xx].

Secondary Market: Short‐term government securities are traded over the‐counter (OTC), and

banks and other primary market dealers actively trade these. Trades are settled on the basis of

T+2 [xx].

Government domestic debt continued on an upward trend during the week of Jan 23 2009,

closing at $59 sextillion, with outstanding Treasury Bills accounting for 94% of this amount8

Stock Market:

The Zimbabwe Stock Exchange is a small but active stock exchange in Africa. It was established

in 1896 and has been open to foreign investment since 1993. It has about a dozen members

and over 65 listed securities. There are two indices, the Zimbabwe Industrial Index and the

Zimbabwe Mining Index [v].

The ZSE is an active member of the SADC's Stock Exchange Committee (SADCSEC) which

includes Botswana, South Africa, Mauritius, Zambia, Lesotho and Namibia.

8 RBZ Weekly Economic Highlights, week ending Jan 2009

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Companies may not allow more than 40% of their ownership (traded after 1993) to be foreign,

and no single overseas shareholder can possess more than 10%. Those bringing in funds

through a registered commercial bank may now repatriate their income and sale proceeds free

of charge, but taxes of 15% on dividends and 10% on capital gains are levied on individuals.

A company wishing to apply for a listing on the Zimbabwe Stock Exchange must conform to the

listing rules and regulations of the Listing Committee of the Exchange. These include:

A minimum requirement of one million shares with a value of not less than $500 000

A minimum of 30% of the issued equity capital being offered to the public

Compliance with the requirements of the Exchange by the company's Memorandum and

Articles of Association (regardless of whether this is a legal requirement)

The existence of a spread of shareholders wide enough to justify the listing (a minimum of

approximately 300 shareholders)

Provision of the name, history and description of the company's interests and activities

A report by the company's auditors for the last five financial years

Forecast earnings and dividends

Details of share capital structure, loan capital and borrowing powers

ZSE has approximately a dozen members and more than 65 listed securities9.

Major Companies Top Investors

ABC Holdings Limited

APEX Corporation of Zimbabwe Limited

Barbican Holdings Limited

Zimbabwe Alloys Limited

Zimbabwe Reinsurance Company Limited

Zimbabwe Newspapers (1980) Limited

African Distillers Limited

Barclays Bank of Zimbabwe Limited

BICC Cafca Limited

Zimbabwe Financial Holdings Limited

ZimnatLlion Insurance Company Ltd

Mhangura Copper Mines Limited

9 http://finance.mapsofworld.com/stock-market/zimbabwe-stock-exchange.html

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Meikles Africa Limited

Murray & Roberts Limited

British American Tobacco Zimbabwe Holdings Ltd

Bindura Nickel Corporation Limited

Zimbabwe Sun Limited

Medtech Holdings Limited

ASTRA Holdings Limited

Border Timbers Limited

Up until 2008, the ZSE was outperforming exchanges in the South African region. Given the

inflation issue, the returns on the ZSE were more trusted than bank returns and investors were

flocking to put their money in the ZSE. Effectively, it was one place where local assets had been

able to provide returns ahead of inflation.

However, in November 2008 the ZSE was closed after the RBZ accused traders of using

fraudulent checks. When it reopened in February 2009, trades were conducted exclusively in

US dollars. In April 2009, the ZSE saw its best performance, in terms of gains, since reopening.

In that week, the Industrial Index gained by 24.31 percent to close at 13,201.63 points whilst

the Mining Index gained 23.57 percent to close at 6,081.56 points.

According to the RBZ June 2009 Monthly Review, at the end of June, the industrial index was at

38,069 792,109,133.20 mining index was at 45,067,538,391,404.00.

Source: RBZ Weekly Economic Highlights, Jan 23 2009

32

Sources

[i] BBC News: http://news.bbc.co.uk/1/hi/world/africa/country_profiles/1064589.stm

[ii] CIA World Fact Book: https://www.cia.gov/library/publications/the‐world‐

factbook/print/zi.html

[iii] UN Data: http://data.un.org/CountryProfile.aspx?crName=Zimbabwe

[iv] US Department of State http://www.state.gov/r/pa/ei/bgn/5479.htm

[v] MBendi: http://www.mbendi.com/land/af/zi/p0005.htm#20

[vi] World Bank: http://www.worldbank.org/

[vii] Nations Encyclopedia:

http://www.nationsencyclopedia.com/economies/Africa/Zimbabwe.html

[viii] IMF News: http://www.imf.org/external/np/tr/2009/tr032509a.htm

[ix] COMESA Country Profile: document on webcafe

[x] Royal Bank of Zimbabwe Money Supply Report Jan 2009: document on webcafe

[xi] International Monetary Fund, Zimbabwe: Selected Issues and Statistical Appendix, IMF

Country

Report No. 05/359, October 2005

[xii] International Monetary Fund, Zimbabwe: 2005 Article IV Consultation—Staff Report;

Public

Information Notice on the Executive Board Discussion; and Statement by the Authorities of

Zimbabwe, IMF Country Report No. 05/360, October 2005

[xiii] SADC Bankers, Committee of Central Governors in SADCC. Member Central Banks,

Zimbabwe, September 2008

Available at:

http://www.sadcbankers.org/SADC/SADC.nsf/LADV/2FAB28CBD8C6B32F4225754500496D75/$

File/Zimbabwe.pdf

[xiv] Microfinance Gateway Zimbabwe Report Sept 2004: document on webcafe

[xv] The Mix Market. Available at:

33

http://www.mixmarket.org/en/environment/environment.show.profile.asp?CountryID=ZW

[xvi] Ministry of Finance Budget Statement 2009

[xvii] Munoz, Sonia, Central Bank Quasi‐Fiscal Losses and High Inflation in Zimbabwe: A Note.

IMF

Working Papers, Vol., pp. 1‐20, 2007, April 2007.

Available at SSRN: http://ssrn.com/abstract=984614

[xviii] EIU Zimbabwe Country Report

[xix] EIU Zimbabwe Country Profile

[xx] African Fixed Income Guidelines

Documents that could not be downloaded:

Reserve Bank of Zimbabwe 2007 Annual Report:

http://www.rbz.co.zw/pdfs/RBZAnnual2006.pdf

Reserve Bank of Zimbabwe Aug 2008 Monthly Review:

www.rbz.co.zw/pdfs/Monthly/August2008.pdf

Appendix: Supplementary Tables

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35

36