• President Emmerson Mnangagwa bans banks from lending money
• Local currency has plunged to a fraction of earlier value

EMMERSON Mnangagwa has stymied Zimbabwe’s economy, five years after he declared the country “Open for business.”

Flanked by his finance minister and central bank governor, the president announced in a May 7 televised speech that banks had been banned from lending in a bid to stem the precipitous decline of the local currency. The order threatens to dissipate what little confidence there is in an economy that’s been in turmoil for more than two decades.

It’s the latest in a series of economic missteps that’s seen Zimbabwe ride a roller coaster of hyperinflation and periodic shortages of food and fuel. At the heart of the economic malaise is a currency policy that’s retarded growth, gouged businesses and cost citizens their savings.

“They are desperate to have their own national currency even though they have nothing of value to underpin it,” said Stephen Chan, a professor of world politics at the School of Oriental and African Studies in London. “It’s an act of desperation. It makes legitimate business almost impossible.”

Zimbabwe’s economic woes began in 2000 when then-President Robert Mugabe encouraged invasions of White-owned commercial farms by subsistence farmers.

Export earnings collapsed and the US and European Union imposed sanctions, tipping the economy into a downward spiral that led to hyperinflation estimated by the International Monetary Fund at more than 500 billion percent in 2008. The Zimbabwe dollar was abandoned in favor of the US currency and was only restored in mid-2019 by Finance Minister Mthuli Ncube, an economics professor who has taught at Oxford University.

It hasn’t been a success.

While a precursor to the Zimbabwe dollar was pegged at parity with the greenback in February 2019, it now trades at an official rate of 173, an interbank rate of 280 and a black market rate of as much as 420.

The ban on lending is an attempt to reduce the amount of the local currency in circulation, stifling a flourishing black market and, ultimately, inflation. It’s also hobbled the economy.

An executive at an agro-processing firm, who asked not to be named for fear of reprisal, said his company can’t borrow what it needs to pay 500 farmers for the soy and sugar beans it contracted them to grow, or fund the purchase of inputs such as fertilizer for next season’s crop.

Mark Mobius, co-founder of Mobius Capital Partners, suggested the government shift to either a US dollar-based economy or use a currency board, where the local unit could be pegged against the dollar or gold, for example.

The decision to stop lending “will probably have the opposite effect because when you freeze all kinds of activity, confidence goes out the door,” he said in an interview on Friday. “I don’t know who advised them. I don’t know how they came up with such an idea.”

Tongaat Hulett Ltd., a South African company with sugar-growing subsidiaries in Zimbabwe, suspended advance payments to cane growers because it said it normally pays them from bank loans. Dairiboard Holdings Ltd., the country’s main dairy company, scrapped a dividend.

Late on Thursday the government exempted producers of commodities including sugar, tobacco and corn from the ban, adding to the uncertainty.

Necessary Step

Still, the government is adamant the step is necessary.

“Tough policy measures anywhere in the world always attract criticism,” Ncube said in an interview on Thursday. The lending ban “is temporary in order to prick the bubble of speculative activities,” he said.

Nick Mangwana, a spokesman for Mnangagwa, said the lending ban was “initially a bit misunderstood” but there is now a better understanding on why it was necessary.

The government has been one of the key architects of the currency’s demise.

Zimbabwean dollars have been printed to pay for roads, dams, a national census and by-elections, according to the Zimbabwe National Chamber of Commerce. Contractors then quickly converted them into greenbacks fearing the local unit would depreciate — adding to the decline.

“There is a complete loss of faith in the local currency,” the chamber said in a May 9 submission to the finance ministry. “Economic agents are desperately getting rid of their Zimbabwean dollar the moment they earn it.”