Zimbabwe Exclusive: The crisis and its effects on the Money Transfer market

An industry insider, who refused to be identified, working in the Zimbabwe market gives ‘Money Transfers’ an exclusive opinion on the current banking system woes. Here is his story. With just a few days left before the re-run of the Presidential election, Zimbabwe is slowly grinding to a halt. The President himself has publicly stood up and said that the country will never be taken over by ‘traitors’ (referring to the main opposition party, the MDC). "It shall never happen …as long as we are alive and those who fought for the country are alive," the 84-year-old leader said in an article in The Sunday Tribune (SA), 15 June. "We are prepared to fight for our country and to go to war for it."

The economy is in absolute crisis - the rate of inflation is at 2,000,000% and it is anticipated by economists to reach 6,000,000% by the end of June. Less than 10% of the population are gainfully employed and a huge food crisis looms ahead. The harvest will produce far less than the country needs and the Government has made scant effort to ensure there is enough food for the coming months.

So how does the country manage to keep going? Largely because of the monies moved into the country via the remittance systems that exist. Up to US$1,5 million per day find their way into Zimbabwe via many hundreds of transmitters from across the world. Western Union remains the largest, and they can only operate with the blessing of the Reserve Bank. Most of these companies operate on the ‘parallel’ market, meaning the financial market running at the true value of the Zimbabwean dollar, rather than the declared Government rate of exchange which today remains about 50% of the market rate, though shadows its progress. Three weeks ago, the parallel rate was around ZW$ 560 million to US$1. Today, it is around ZW$7 billion to US$1. It means that daily, the ZWD is loosing 5-10% of its value. At various times, the Government has tried to block the movement of remittances on the parallel market but it has always failed, but now they allow it to run unhindered as they realise that it not only keeps the country on its feet, but that it is also currently one of the easiest ways for them to acquire badlyneeded forex. Thus they have made deals with many of the remitters who now sell their forex to the Reserve Bank directly, in exchange for ZW dollars at exceptionally good rates - in effect, they are now colluding with those they sought to destroy.

Here in England, we believe that between 40 and 50% of all remitters to Zimbabwe are illegally trading (completely unregulated) and many of these deal directly with the Reserve Bank.

The Future

Those companies that are regulated and follow correct procedures have lost huge swathes of their regular clients as a result of the new regulations brought in on 15th December 2007. The requirement for ID docs from senders has driven many Zimbabwean clients away as they worry that these details are being sent back to Zimbabwe. They have run straight into the hands of the illegal operators who of course do not ask questions, forcing the regulated Zimbabwe operators into a slump at this time. The authorities here in the UK seem less concerned with those who don’t comply and more concerned with checking that those who are regulated are doing the right thing. It would be very gratifying if they would make some effort to stop the illegal operators from trading.

As far as the future of money transfer goes, it depends very much on the longevity of the Mugabe Govt. If he wins the run-off (as he himself has informed us he will) then we will continue to operate as we are – with a dramatically moving rate and no end in sight. If on the other hand enough pressure can be brought to bear on the current regime over the coming months and we see a new Government emerging, then the situation could change almost overnight.

It is anticipated that the ZW dollar will be floated against the US dollar, and overnight we will see the whole structure of the Industry change. Money will pour back into the country as people buy properties and build on land they have held for a while whilst they waited for change. There will be an entirely different approach to sending, as people move from sending the minimum needed for survival to the maximum needed for development of their own futures back home. In the mean time, we watch closely to see what will happen over the next few weeks. Discussions at the recent Money Transfers Dubai Conference 2008, organised by IAMTN, reveal that the UAE is satisfied with its current legal framework regarding money transfer systems.

Keynote speaker, Asst Executive Director of the Central Bank of UAE and President of MENA.