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Who props Mugabe's economy?
The Southern African
July 09, 2007

http://thesouthernafrican.com/business/african_biz/who_props_mugabes_economy_20070709_1561_83.html

One of the questions often asked by those watching the Zimbabwe crisis unfold is: "Who provides the foreign currency that props President Robert Mugabe's Zanu PF government? After all, every economic indicator shows an economy that is so battered it should have collapsed by now.

Inflation is now estimated at almost 5,000%, the Zimdollar trades at such ridiculous exchange rates as 400,000 to the USdollar, unemployment is beyond 80%, supply of basic commodities is erratic and yet, the fat cats continue getting fat and the government system still gets foreign currency.

Fingers have previously been pointed at the more than three million Zimbabweans in the Diaspora who have propped up the economy through forex they send to families back in Zimbabwe.

But much as that is true, it would never be enough to maintain a whole economy.

But for those who did not know, certain laws and agreements compel foreign investors in Zimbabwe to provide forex as long as they operate in the country and nothing demonstrates this more clearly than a story that appeared in Africa Confidential six months ago.

In an effort to answer the vexing question of "who props up Mugabe's economy", we reproduce the story here in full:

British and South African banks have provided a more than US$400 million financial lifeline to President Robert Mugabe's government over the last two years, much of it targeted at financing Harare's controversial land resettlement programme.

This funding flies in the face of President Mugabe's routine attacks on British 'neo-colonial sabotage' and claims that his government receives most of its vital funding from its radical allies in Asia and Latin America.

It also shows that Britain has become complicit in propping up the regime, according to opposition MPs at Westminster.

Britain's Barclays Bank lent over Z$300 billion ($49.3 mn.) in 2005, on concessional terms, to the government's Agriculture Sector Productivity Enhancement Facility, aimed at consolidating the land-reform programme and boosting falling farm productivity.

Barclays also arranged offshore financing facilities of $110 mn. for Zimbabwean clients in tobacco, cotton, mining, sugar, manufacturing and horticultural sectors.

We understand that Barclays' upcoming annual report for 2006 will show a similar pattern of lending over the past year.

Until a month ago, Barclays' new partner, South Africa's ABSA, held a 24.1% stake in the Commercial Bank of Zimbabwe which was formerly run by Mugabe ally and current Reserve Bank Governor Gideon Gono.

CBZ - together with ABSA - managed a Treasury bill portfolio in Zimbabwe of over Z$2.7 trillion ($443 mn.) in 2005 and reached similar levels in 2006.

Barclays told Africa Confidential that agricultural lending to the Zimbabwe government will continue in 2007, as will investment in treasury bills and bonds, 'from time to time, depending on our relationship with the customer'.

British-based Standard Chartered Bank and insurance giant Old Mutual also lend the Mugabe government billions of Zimbabwean dollars through their purchase of treasury bills and government bonds.

Under the Reserve Bank's statutory reserve requirement, commercial banks must reinvest 40% of their surplus in government treasury bills and insurance houses must bid for them.

Companies say that they are merely complying with Zimbabwean law. 'This is part of doing business in Zimbabwe,' Standard Chartered's Sean Farrell said.

'It affects all banks doing business there.' But several Zimbabwean economists calculate that Old Mutual's lending to the Mugabe government is so high that it has become a critical prop for the regime's financial survival.

Opposition British MPs argue that lending to the Mugabe government has become morally indefensible. Liberal Democrat MP Norman Lamb told Africa Confidential: 'By going along with the rules provided by the Zimbabwe regime they [the companies] become complicit with the actions of the Zimbabwean government and complicit with a corrupt regime.I struggle to see that as a justification.'

Conservative party MP Boris Johnson said the lending reflected British disinterest in the plight of Zimbabwe: 'its part of a much bigger problem.we have to face the fact that we've done nothing to remove a tyrant responsible for untold deaths and complete ruination of the economy.'

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