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MOST foreign-owned firms and weak cash movement laws in Zimbabwe could be blamed for the tight liquidity conditions prevailing in the economy, analysts have said.

Analysts said Zimbabwe was now like a “gold heaven” where foreigners have crafted ways of creating a hemorrhage in the financial sector to take cash out of the country.They noted that while there are procedures to follow should one want to take money out, the challenge remains on enforcement because the intricate network of cartels involved in the practice is high paying and ineffectual to “tie the tide”.

Zimbabwe adopted a multi-currency regime of South Africa’s rand, US dollar, the British pound and Botswana’s pula in January 2009, with the greenback dominating transactions.

The use of the US dollar has attracted businesspersons to Zimbabwe, who see it as an easy source of currency. Economists have expressed concern over the increased number of retailers from foreigners saying “any investor who comes with a foresight on trading should be treated as a further hole in our economy as this would accelerate the wiping off of the scarce foreign currency. There is anecdotal evidence that foreigners are transferring huge amounts of money back to their homeland.

A senior banker who spoke on condition of anonymity said most foreign companies have the capacity to raise letters of credit and bank guarantees from foreign banks. This enables them to bring in goods on the back of these instruments.

The banker said most of these goods are then sold locally on a cash basis and thereafter cash is exported out of the country to meet the maturity of the paper instruments.

“The relaxed cash movement laws are partly to blame for the liquidity crunch as well as foreign companies operating in Zimbabwe. The foreign companies can easily access paper instruments with foreign banks to purchase goods for the Zimbabwe market and when the instruments mature cash is then moved out to settle.

“Most money used to buy tobacco this season came through letters of credit and bank guarantees and the money will ultimately leave the country. Most local companies are unable to access the LC and other instruments because they should have cash guarantees for some of the facilities. For instance to get an LC for US$80 000 they should have the same in their account as guarantees,” said the banker.

The banker said Government needed to embrace tough cash movement laws as was the case in neighbouring South Africa coupled with encouraging the use of plastic money.

“The Government should restrict the movement of cash. Currently one can leave with as much as $10 000. Imagine if one has a visa card on top of the $10 000 then how much money the country would have exported. The Government should take the initiative and adopt tough laws like in South Africa where exporting cash is a task.

“Government should also promote the use of plastic money locally as our attitude towards this has been very bad and encourage people to use mobile financial instruments.”

Economic analyst Mr Joseph Sagwati said most Indian, Chinese, and Nigerian companies that predominantly operate in low order high turnover consumer goods do not own or operate local bank accounts as some view this as the best way to escape and evade the Zimbabwe Revenue Authority tax net while

others have legal overtures that will put them under scrutiny with the immigration department.

“Remember the predominant currency is the greenback which is an attraction to any trader,” said Mr Sagwati.

“Zimbabwe is operating like a gold heaven where enterprising personas of foreign origins have crafted ways of creating a hemorrhage in the financial sector for the betterment of their parent countries.

“The easiest way to stem the tide of financial leakage is mass imprisonment or hefty fines to offenders with possible jail terms especially for these foreigners. You can’t do such financial misdemeanors as a foreigner say in China, UK or in Nigeria, you will be locked up.”

Dr Eric Bloch, another economist said it was a fact that Zimbabwe’s cash movement laws are weak thereby partly leading to the prevailing liquidity constrains. However, it is fair to say that it is not just laws that are behind our current liquidity.

“The fact is based on the issue that our economy is very weak that people have developed a tendency of doing what they want. At the moment people are gripped with the feeling that Government may re-introduce the Zimbabwe dollar and many business people are still skeptical of depositing their money in fear of the hyperinflation era.

“This is the reason why even up to now Indians and Chinese resorted to having security safes in their homes containing millions of dollars,” said Dr Bloch.

Economic analyst Mr Brains Muchemwa, however, said the “thinking” that the country is losing a lot of money through externalisation is not only factually incorrect, but is premised on retrogressive assumptions that do not recognise that “we are now living in a global village oiled by free movement of goods, capital, labour and technology.”

He said the fact that banking deposits have increased from as low as $275 million in 2009 to the current levels of $4 billion is beyond doubt a testimony that the current capital movement regime is progressive.

“Therefore to try and bring back the controls will not only dent investor confidence, but will in fact aggravate the same liquidity crunch that we are trying,” said Mr Muchemwa.

Source : The Herald

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