RENOWNED banker and entrepreneur Nicholas Vingirai issued a stark warning this week, cautioning that the country's fragile sectors, including financial, require urgent intervention to prevent challenges from spilling over into the broader economy.
Zimbabwe’s banking sector has faced significant hurdles since 2000s, largely driven by currency instability amid political turmoil, human rights abuses, and declining production.
In April, the government introduced the Zimbabwe Gold (ZiG) currency — its sixth attempt at stabilising the economy in 15 years. Launched at an initial rate of ZiG13,6 per United States dollar, ZiG has since depreciated nearly 80% on the black market.
Hyperinflation, which has plagued Zimbabwe since 2008, has also seen resurgence this year.
“The banking sector lacks the wherewithal to fund the industry. Several factors contribute to this,” Vingirai told the Zimbabwe Independent on the sidelines of the third edition of the In Conversation with Trevor (ICWT) Ideas Festival being held in Nyanga.
The four-day festival, running under the theme “Transformative Ideas to Power Innovation and Entrepreneurship”, brought together some of the nation’s visionaries to connect, collaborate, network and inspire each other for the betterment of Zimbabwe’s economy.
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It started on Tuesday.
“Our economy's structure and volatile currency make it unattractive for transactions. Nobody wants to borrow in ZiG because its value depreciates quickly. Fuel, a major cost driver, cannot be funded using our currency,” Vingirai said.
“The scarcity of foreign currency, sought after as a store of value, exacerbates the situation. Banks cannot demand ZiG as it fails to provide what customers need. Instead, they shift to transacting in US dollars.”
Most households do not earn US dollars, forcing them to acquire it on the parallel market. Diaspora funding provides some relief.
Vingirai highlighted the uncertainty surrounding the US dollar’s tenure as legal tender. According to the law, the multi-currency system is set to end in 2030.
“Banks are hesitant to provide loans beyond the stated date for US dollar usage, adding complications,” he said.
Vingirai also lamented the loss of Zimbabwe’s capital market, once a key platform for bank profitability.
“Zimbabwe’s banking structure has changed. We no longer have a vibrant money market,” he said.
Previously, the money and capital market linked surplus and deficit units, facilitating borrowing and trading.
“Key banking instruments, like bills of exchange, are no longer understood, and technical expertise has been lost,” Vingirai said.
Meanwhile, Reserve Bank of Zimbabwe governor John Mushayavanhu recently painted a more optimistic picture.
In the 2024 Monetary Policy Statement, Mushayavanhu reported that the banking sector remains stable, with sufficient capital, liquidity, and asset quality as of year-end 2023.
Profits in some banks, he noted, are bolstered by foreign currency gains and investment revaluations.
As at December 31, 2023, the banking sector was adequately capitalised and all banking institutions complied with the prescribed tier 1 and capital adequacy ratios of 8% and 12%. Yet, Vingirai underscored the severe limitations imposed by Zimbabwe’s economic instability.
“Our currency can’t guarantee stable funding for essential costs,” he said.
As the country seeks to revitalise its financial system, Vingirai’s insights offer a sobering assessment of the challenges ahead.
His call for reform resonates with a growing chorus of concerns about the country’s economic stability.