RBZ onslaught on asset managers revisited

WHEN I decided to write the article about the nationalization of the asset management industry in Zimbabwe by the RBZ using the ordeal of the ENG directors as an example, I had no idea that it would generate so much interest and debate.
I was particularly touched by one individual who liked my article but felt that I should have included a number of other case studies in my article rather than merely focusing on ENG. It is important that we take note of the fact that there are many people who genuinely believe that the RBZ’s actions are justified in the face of a decaying and corrupt environment.
Such people would argue that the end justifies the means and Gideon Gono was left with no choice but to use any means necessary including emergency powers given to the President under the constitution to use without parliamentary consent in exceptional cases. Others would also argue that it was not Gono who created the mess but his predecessors. It is also argued that Gono’s predecessor, Dr. Leonard Tsumba, was an Economist with a doctorate in economics and yet his record as Governor left a lot to be desired.
Against the background set out above, it is understandable when people are critical of my articles in focusing on Gono’s policies rather than the root causes of the Zimbabwean crisis. Is it fair to focus on Gono, some would argue? Does Mawere have a personal grudge against Gono? If Mawere did not lose his assets in Zimbabwe would he have been critical of Gono? What alternatives are being offered by Gono’s critics? Should the asset management industry have been left alone when it was common cause that there was no effective regulatory framework to monitor and supervise the industry? In the face of “illegal sanctions” and the collective conspiracy of criminal business persons whose mission is to sabotage the economy for personal gain, how should the government respond? Is there a place for orthodox economics in a failed state like Zimbabwe? All these questions are pertinent and need to be addressed if the role of the RBZ has to be understood in a proper context.
I have been encouraged by many people who have responded saying that my articles are informative and educational. I believe that it is important that we elevate the Zimbabwean conversation to a level where issues can be openly debated without favor or prejudice. It is equally important that we are not blinded by actions that may be cast as national imperatives but that undermine the institutions that are critical for a democratic society. There are a number of issues that I had deliberately left out in my article on the assumption that most readers are aware of the key institutional and legal issues arising from the abuse of the RBZ and the attendant political implications. With respect to the political implications, it is important that we interrogate the proposition that Gono is just a mere messenger who is acting under instructions from a principal.
We can only expose the true nature of the parties involved if we use case studies that can help illustrate the real dangers to democracy posed by ill conceived actions that are never reflected upon by the public because the few who are fixed with knowledge did not take it upon themselves to share it with the ultimate shareholders of Zimbabwe i.e. the majority working and poor people. The real power of the shareholders of any country is found in the poor. No dictatorship can triumph if the oppressed have the knowledge and can organize. The obvious knowledge gaps in Zimbabwe have unfortunately condemned the country to accept lower standards and allow a few to confuse the many.
In this article, I think it is important that we understand the RBZ as an institution and then explore whether the conduct of Gono is consistent with the spirit and letter of the law. The RBZ is a public institution, wholly owned by government, and with a significant public policy role. It is established under an Act of Parliament and must be accountable to Parliament like most other central banks. The Bank’s annual report and accounts should be laid before Parliament each year before they are made available publicly and yet since Gono’s appointment, no report and accounts have been presented to Parliament.
I am not even sure whether Parliament has any clue about the financial health of the RBZ. The principal means of accountability for the Bank should be via the Public Accounts Committee of Parliament. The current governance and accountability framework is set by the RBZ Act which provides for a board of directors that consists of the Governor, three Deputy Governors (prior to Gono’s appointment there were two Deputy Governors) and non-executive directors. The Governors are all appointed by the President. Under the Act, the responsibilities of the board are to formulate policy and supervise the Bank’s administration and operations. The current composition of the board is as follows:
Dr. G. Gono – Chairman
Dr. C. Dhliwayo – Deputy Governor
Mr. E. Mashiringwani – Deputy Governor
Mr. N. Ncube – Deputy Governor
Mrs. S. Chella – Non-Executive
Dr. M.M. Ndubiwa – Non-Executive
Dr. C. Mumbengegwi – Non-Executive
Mr. L.P. Chihota – Non-Executive
As shown above, executive directors account for 50% of the board. Although the Act states that the board shall consist of the Governor and every Deputy Governor and not fewer than five and nor more than seven directors, it is clear that the current board is not properly constituted. It is significant that the Governor is the Chairman of the Board and knowing his views about corporate governance it is not clear how he would justify being an Executive Chairman when he is telling other banks to separate the roles. Dr. C. Mumbengegwi is a Lecturer at the University of Zimbabwe and also the brother of two Ministers in the current government. Mr. Ndubiwa is the former Town Clerk of the City of Bulawayo. Given the composition of the board, every Zimbabwean must be concerned about the implications on the independence of the RBZ and the political context in which it is operating. Can anyone realistically expect the board to stand up to the Governor?
How do other central banks fare? In the case of the Bank of England, the Court of Directors consists of the Governor, two Deputy Governors and 16 Directors. The Federal Reserve Board consists of seven members that are nominated by the President and confirmed by the Senate. The Chairman and Vice Chairman of the Board are named by the President from among the members and are confirmed by the Senate.
The SA Reserve Bank Act provides for a board of directors with 14 members. Among them are the Governor and three deputy governors, who are appointed by the President of the Republic for five-year terms. Three other directors are appointed by the President for a period of three years. The remaining seven directors, of whom one represents agriculture, two industry and four commerce or finance, are elected by shareholders for a period of three years. The number of non-executive directors exceeds the number of executive directors in most of the other central banks.
Now turning to the asset management industry of Zimbabwe, with effect from 2004, all the staff in the Ministry of Finance who were responsible for administering the Collective Investment Schemes were transferred to the RBZ by invoking the emergency powers of the President. I omitted to state that today, asset management companies are now required to be capitalized like any banking institution.
However, an asset manager should ordinarily not have an asset base since its primary business is managing third party assets on an off-balance sheet basis. The question is why Gono would be interested in controlling the huge asset management industry. Given the effective control of the RBZ by one political party, the implications to any opposition party are quite obvious particularly if it threatens the status quo. By asking shareholders of asset management companies to provide capital, Gono effectively converted the institutions from merely acting as agents to principals.
I received the following email from someone who had read my article. I have decided to withhold the name of the author given the situation in Zimbabwe.
He wrote:
Manyora wena nyaya ye RBZ and Asset Managers/Financial Services. But the examples are limited. In fact there are many that are equally harrowing. First Mutual Asset Management Executives - these were detained in filthy cells at Matapi, Mbare etc for over a week. The cops would choose to arrest on Fridays! Only to go to court on Monday! They were paraded as the worst fraudsters for over two years. The magistrate's court cleared them this year of any wrong doing. The compliant press did not report on this. Their careers were ruined and some are unemployed to date and living in abject poverty. Any compensation?
2. FNBS - the directors ran 'Withdrawals Accounts' and as a result were arrested on accusations of illegally accessing clients' funds. The bank was closed for many years. The directors were cleared of fraud, but failed to capitalize the bank leading to liquidation because, by closing it for several years, the RBZ denied the bank the opportunity to grow the funds through retained profits.
3. SFG Asset managers - these met all RBZ's licensing requirements, but were denied an operating licence because they had an 'inappropriate shareholding structure'. What this meant was that RBZ did not like two of SFG's shareholders who happened to be the owners of FNBS! Vairovana fongo nevakomana ava. Employees were thrown on the streets.
4. GP2 Asset Managers - ran a successful concern leading to them applying for a Merchant Banking Licence. Mari yange yawanda. While RBZ was processing the application, GP2 began to explore the market and take on a few clients so as to build their base. RBZ got wind of this and pounced on them. The directors spent two nights detained at RBZ. They would get two hours per night to sleep, eat, bath and search for documents demanded for by RBZ! GP2 was closed despite satisfactory filing of all documentation demanded for. Their sin? vange vasiri politically correct!!! Patriotism yavo yaive shoma. Again some of the employees and directors are living in abject poverty!
I could go on giving examples, clearly it shows that power has gotten too centralized on RBZ and this creates a dictatorship. In fact some of the senior RBZ officials would declare 'over my dead' when faced with pleas for mercy. Many entrepreneurs lost opportunities and money. Thousands of jobs were lost as many successful professionals who led honest lives were thrown onto the streets without money simply because someone thought they were criminals. Whole families were reduced to beggars living in abject poverty. The Asset Management industry was demonized for long and many indigenous companies are struggling as a result.
What really went wrong?
Va Mawere... contagion effect ndiyo yakakuvadza ma Asset Management companies. RBZ officials would leak 'confidential reports' produced by these same people. As a result, clients thronged them demanding for their funds. It is obvious that an investment manager worth his salt not would keep cash. So? There would be inadequate cash to pay these people. Then RBZ comes in to close. Even banks faced the same scenario. I believe that we have to come up with a commission of enquiry and facilitate compensation!
The above helps to illustrate the role of the RBZ in undermining the corporate civilization that normally characterizes functioning societies. The importance of respecting corporate citizenship cannot be understated and yet the RBZ is now a custodian for undermining the rights of juristic persons by targeting their promoters and sponsors. A company, like any individual, has its own rights and the constitution of Zimbabwe ought to protect such citizens but with Gono at the helm many of institutions have been dismembered through the use of emergency powers. We can only benefit from the real life experiences of many Zimbabweans who have been victimized and yet do not have the voice to share their ordeals for the collective good. I have come to accept that journalists in Zimbabwe who have the courage to document these case studies require an analytical framework to assess the kind of mind that informs the actions of Gono.
Like many Zimbabweans who have naively accepted that the stewardship of Gono is good for the country, it is difficult to have an honest discourse without people accusing the messenger of harboring ulterior motives. I have chosen not to be intimidated by those who support the use of undemocratic and illegal means to reform the dysfunctional Zimbabwean economy while purporting to be guided by a national interest. Given the manipulation of the Zimbabwean public into believing that any critic of the government must necessarily be a supporter of imperialist and corrupt forces, it is important that the impact of Gono on corporate governance starting from his tenure at CBZ and now at the RBZ be examined critically.
To the extent that the Zimbabwean public has accepted that corruption as defined by the powers that be is a cancer that is contributing to the economic meltdown, it is important that the true nature of corruption is exposed. Could it be the case that the President is not aware that the RBZ is now a headquarters of corruption? Given the weak corporate governance structure at the RBZ, how can the Zimbabwean public get to know more about the abuse of power and the intimidation that is now an integral part of the functioning of state institutions?
We all have a collective responsibility to expose and educate in the hope that the Zimbabwean promise can be revealed to all on a transparent and sustainable basis. It is for this reason that I will continue to focus on the state-sponsored commercial violence that now characterizes state institutions. Collective amnesia and inaction provide opportunities for crafty operators to fill a power vacuum that may potentially blind the whole nation into a logic that places blame on manufactured enemies when the real enemies continue to pollute state institutions at the expense of the nation.