The RBZ and asset managers: implications on democracy II

WHEN I first wrote the article RBZ and the Rule of Law: Implications on Democracy, I had no idea that it would generate so much interest and controversy.
Given the emergence of the RBZ and its current Governor, Gideon Gono, as the only source of salvation for Zimbabwe, it is important that we continue to test and interrogate the hypothesis that there is a causal link between the actions of the RBZ/Gono and the undermining of the rule of law, property and human rights.
In addition, there is need to test the hypothesis that democratic institutions are being undermined by the RBZ/Gono resulting in the creation of a single power centre that may be described as a “weapon of mass destruction” in the context of Zimbabwe given the consequences of a series of policies and programs implemented by the RBZ/Gono since December 2003.
In as much as people may believe that my critique of the RBZ/Gono economic policies are motivated by my substantial loss of assets pursuant to the extra-judicial expropriation of all the companies deemed to be under my control in Zimbabwe, I believe that it is important to broaden the discourse beyond me and seek to objectively contextualize the political and economic challenges facing the country and the role, if any, of the RBZ/Gono in resolving or worsening the crisis.
At independence in 1980, Zimbabwe made a choice to be a democratic state with a constitution that enshrined on its citizens a common set of rights. In choosing to create a common citizenship under one Republic, there was hope that no Zimbabwean would be a subject of another like under a monarchy or an object of another like under apartheid/colonialism. Equally, it is important to state that rights without remedies are sterile.
After 26 years of independence and given the colonial legacy, it was the expectation of many that the values that underpinned the liberation struggle would be an integral part of the nation building project and never again would the rights of a few be used to undermine the rights of many.
I have chosen to focus only on the actions of the RBZ under Gono not only because it comes at a time when the future of Zimbabwe is so bleak but because his actions do have a direct bearing on the rule of law and if not exposed may condemn the country to a state where citizens have rights with no recourse.
I believe that it is only fair that we use empirical evidence to test the hypotheses referred to above. In my article of last week, I used Makamba’s ordeal in support of the thesis that the use of emergency powers to undermine citizens’ rights has nothing to do with fighting corruption but demonstrates the contempt with which the importance of the rule of law is regarded by many state actors including Gono.
In this article, I have chosen to look at the ENG saga that provides a comprehensive case study of the role of the RBZ in undermining democracy and the rule of law. ENG and its executive directors, Messrs. Nyasha Watyoka and Gilbert Muponda, as well as the former legislator, Phillip Chiyangwa, were the first victims of Gono’s reign when they were arrested in December 2003 during the first month of Gono’s appointment. The fate was already decided when Gono made his maiden state of the nation address on 18 December 2003 by unilaterally announcing that asset management firms would fall under the direct supervision of the RBZ with effect from January 2004. He said that asset management firms were not adequately policed and posed a threat to the country’s financial system.
The RBZ without any change of the legal framework assumed the responsibility to directly monitor the registration process, supervision and regulation of all asset management companies in the country. All asset management companies were required to re-register with the RBZ notwithstanding the fact that some of them were legally registered by the Ministry of Finance. By effectively assuming control of the asset management industry, it meant that he could decide single handedly decide who was a criminal and direct the police to arrest such individuals.
Before dealing with the merits of the ENG case, it is important that we put into context the regulatory framework that governs the asset management industry universally and the point of departure in the case of Zimbabwe. Asset management is often used to refer to the investment management of collective investments and is a non banking activity that is normally regulated by independent institutions established by statute to oversee the Non-Banking Financial Services Industry in the public interest.
In the case of the UK, the asset management industry is regulated by the Financial Services Authority (FSA), an independent non-governmental body, given statutory powers by the Financial Services and Markets Act 2000. It is a company limited by guarantee and financed by the financial services industry. The Treasury appoints the FSA Board, which currently consists of a Chairman, a Chief Executive Officer, three Managing Directors, and 10 non-executive directors (including a lead non-executive member, the Deputy Chairman). This Board sets our overall policy, but day-to-day decisions and management of the staff are the responsibility of the Executive. The FSA is accountable to Treasury Ministers and through them to Parliament.
It is operationally independent of Government and is funded entirely by the firms it regulates. The FSA is an open and transparent organisation and provides full information for firms, consumers and others about its objectives, plans, policies and rules. In South Africa’s case, the asset management industry is regulated by The Financial Services Board (FSB), a unique independent institution established by statute to oversee the South African Non-Banking Financial Services Industry in the public interest. Its mission is to promote sound and efficient financial institutions and services together with mechanisms for investor protection in the markets we supervise.
However, in the case of Zimbabwe, the control of asset management industry has been placed under the RBZ, a state actor, whose primary goal is no longer consistent with what ordinarily would be the achievement and maintenance of price stability in the Zimbabwean economy. Only in Zimbabwe is the asset management industry defined as asset quasi-banking institutions whose financial intermediary role is mainly to manage financial assets on behalf of specific customers. By defining these institutions as quasi-banking, Gono craftily found a way of removing such institutions that fall under the Collective Investment Schemes (CIS) laws that were administered with the Registrar of Banks and Financial Institutions.
Accordingly, Parliament was circumvented by Gono through a re-definition of what is universally accepted as a non banking financial services provider into a banking platform so as to allow him to control the entire financial services industry without parliamentary oversight. While other countries see a role for an independent regulator, in Zimbabwe this is not the case. Accordingly, if you are deemed to be an enemy of the system and you wish to operate an asset management company, you now know the consequences.
As background, it is important to locate the nationalization by Gono of the asset management industry in some context. Having assumed control of this significant financial services provider, Gono instructed the asset management firms to invest 40% of their assets in productive investments. In his Monetary Statement he presented the conclusion a self-serving “research” that the RBZ had carried out on the operations of asset management firms and that said if the companies continued without adequate regulation, they would seriously compromise the broader financial services sector. The compliant media then was put into full gear with stories portraying Gono as the “messiah” and “corruption buster” who was on a mission to crack down on institutions engaged in shady dealings and indigenous banks that were described as battling for survival as well as asset management companies were his main target.
In a typical fashion, anonymous high-level sources were quoted by the media saying that banks and asset management firms - some of which were allegedly used as conduits for money-laundering activities and speculative investments - were struggling to cope with new regulations ushered in by Gono's recent monetary policy statement. Some of the statements from these nameless and faceless sources were saying that most of the locally-owned banks were facing a serious liquidity crisis and bank managers were reported to be holding emergency meetings, including on Christmas day, to find ways of surviving in the new environment. Gono, the master spin doctor gave the financial services industry their Christmas 2003 gift with this statement widely reported in the media: "Gono's threat that the curtain will soon come down on the era of the proliferation of weak, poorly-managed financial institutions dependent on cheap and unlimited central bank credit was real."
This marked the beginning of the palace coup staged by Gono whose sole mission was to identify enemies of the state and use extra-judicial measures to punish them. The pioneer victim was ENG whose directors were arrested with the media having a field day regarding the underpinning criminality of these individuals. The police arrested the two directors of ENG Capital Asset Management while its subsidiary, Century Discount House, had its operating licence withdrawn by the Reserve Bank of Zimbabwe. The arrest of the directors came after it was reported that ENG had failed to pay more than $50 billion owed to investors. The financial services industry was in panic with banks reported to be selling their properties and foreign currency reserves to improve their liquidity and raise their capital levels. After the actions of Gono, the US dollar dramatically crashed from US$1:$6 000 to US$1:$4 500.
Reports in the media were saying that the ENG directors were on the run as a result of problems engulfing their financial services concern. The firm was understood to be facing a liquidity crunch of between $70 billion and $80 billion. Creditors were reported to have pounced on ENG, seizing the firm's property with one leading bank grabbing vehicles and shares which the company holds at a local commercial bank. Asset management companies were generally reported to be the source of the problems in the financial services industry and indirectly to the economic meltdown. Against this background, there was need to identify and punish the culprits and ENG provided a convenient scapegoat and Chiyangwa provided the high profile victim needed to capture the imagination of the general public that Zimbabwe had a new no-nonsense boss.
Chiyangwa was only cleared by a magistrate of attempting to defeat the course justice, contempt of court and perjury by the magistrate’s court after the State failed to build a case against him. The State in what has now been standard practice failed to prove a prima facie case against Chiyangwa and all charges were withdrawn after plea and accordingly he was found not guilty on all the three counts. Muponda and Watyoka’s arrest by police on December 31, 2003 for allegedly defrauding investors which included Century Holdings, First Mutual Asset Management among others, presented Gono with the first casualties he desperately needed in proving his credentials to his masters that he understood Zimbabwe’s problems and he alone had the answers.
In a dramatic development, on July 31, Nyasha Watyoka was set free at the Harare Magistrates' Courts. Harare magistrate, Mrs. Faith Mushure, finally granted Watyoka's application for refusal of further remand after an ordeal spanning over two years saying he would be called to court by way of summons if more evidence against him crops up. If any of the liberation war heroes were to come back to live and hear Watyoka, Muponda and Chiyangwa’s stories they would justifiably not believe that it is the same Zimbabwe that they risked and sacrificed their lives for. It is difficult to imagine what Watyoka was thinking of when he walked out of court as free man but I am not sure whether he would have any complementary things to say about the rule of law and democracy in Zimbabwe.
The ENG and Makamba’s cases share one thing in common i.e. they have not captured the imagination of the opposition parties and non-state actors who appear not to have woken up to the corporate violence taking place in Zimbabwe that has left the affected individuals with no remedies for damages suffered. I believe that the ENG proprietors have lost everything only to be told after two years that the state is still trying to manufacture a case and may proceed by way of summons. How do you compensate such a loss and is the RBZ considering a compensation package for individuals like Watyoka or it is the price they need to pay to facilitate Gono’s short journey to the state house.
Notwithstanding, the state was still arguing that Mr. Watyoka must not be removed from remand. In her ruling, Mrs. Mushure considered the defence submission that Watyoka's placement on remand for over two years without a trial date was unreasonable.
She said: "As much as this court appreciates that the charges against the accused are very serious, a remand of two years in my view, is unreasonable. This court has given the State three chances to furnish the accused person (Watyoka) with his trial date, but obviously, the State has failed. The State has now failed to bring the accused person to trial within a reasonable time. I am of the view that the interest of justice will not suffer any prejudice if the accused is removed from remand. The State has failed to serve him in the two years. It was Watyoka who actually suffered the prejudice due to the State's failure to set his matter down for trial. His (Watyoka's) preparation of the defence may have improved and the delay may have led to disproportionate delay and mental torture. Further remand is therefore refused. State to proceed by way of summons for prosecution if more evidence arises."
Watyoka was asked to collect his $150 million bail and $700 000 surety from the clerk of court.
To confirm the direct nexus between the actions of the RBZ/Gono and Watyoka’s ordeal, the charges are revealing. He was facing 31 counts of fraud, 12 counts of theft, seven counts of violating the Serious Offences Act and several Exchange Control charges. Watyoka’s co-accused, Gilbert Muponda, having discovered that his case had nothing to do with the bona fides pursuit of justice, decided to skip bail and is now believed to be in exile.
I believe that it is important to learn from the rich experiences that have characterized post-independence Zimbabwe if the goal of creating a new dispensation is to be realized in our life time. I have often reflected on my own personal experiences and it occurred to me that even Mugabe may not be fully aware of the destructive nature of the actions that have been taken by the RBZ/Gono in the name of national interest. I do not have any idea what Mugabe would say to a person like Watyoka who may have believed in the nation building project and registered with his colleagues an asset management company that operated in accordance with prevailing laws of the country only to wake up on 31 December 2003 and found out that he was an accused person.
The legal framework that would permit Gono to nullify the licences of asset management companies that were registered under a law passed by the Parliament of Zimbabwe should be interrogated otherwise the difference between Gono’s actions and those typically associated with dictators of which Africa has many examples would be the same. Surely, if Watyoka and company were guilty of fraud against investors and its clients, one would have expected a complaint by such interested parties rather than a Governor of the RBZ. One would have expected the injured parties to have their own remedies since an asset manager is nothing but an agent representing the interests of its principals. The return to an asset manager should ordinarily be management fees and we are not told to date how ENG ended up being a principal without the knowledge and consent of its principals. Instead we see the government being the complainant and the RBZ/Gono changing laws to create a room for intervention so that the rights of the legitimate interested parties are then subordinated to the state.
As Zimbabwe gropes for solutions to the current economic meltdown and political crisis, it is obvious that a critical evaluation of the role of the RBZ/Gono in undermining democratic institutions is undertaken and appropriate lessons be drawn from case studies like the one described above. Failure to appreciate the danger posed by individuals who have no regard of the rights of others and who do not have the patience to use Parliament as the law making body not only undermines nation building but exposes future generations to poverty. Rather than focusing the debate on regime change, it is time that we focus on the kind of governance that enables creative and enterprising people to apply their minds without fear of the state abusing their rights and using the law to persecute them.
In focusing on the actions of the RBZ/Gono one hopes that this exercise will enable anyone interested in the future of Zimbabwe to reflect on what Zimbabwe and its people urgently require if hope and confidence is to be restored. In as much as the ENG saga shows blacks in government do not need the former colonial master’s help to victimize their own fellow citizens, there may not be any value in Benjamin Mkapa’s much talked about intervention that appears to be premised on the belief that Zimbabwean problems are externally and colonially generated. It is my hope that in our lifetime we will reach a stage where we can openly talk about Africa’s challenges and promise using real life examples without favour and prejudice.