via Editorial Comment: Deal with reserved sectors’ racketeering | The Herald January 3, 2014
Revelations in The Herald Business’ New Year edition that companies operating in sectors reserved for locals by the country’s indigenisation laws are not banked indeed made frightening reading and smack of grand financial impropriety.
The National Indigenisation and Economic Empowerment Board discovered during a certification compliance evaluation process for both local and foreign-owned businesses that the majority of companies in reserved sectors do not have local bank accounts, meaning proceeds from their operations do not flow into our formal banking system.
Businesses and individuals alike have every right to privacy in terms of their financial affairs, but it becomes the Government’s duty to probe their activities when conduct potentially criminal and detrimental to the economy is suspected or unearthed.
In light of the findings, it could be worth Government’s while to launch extensive investigations into potential widespread and well-orchestrated externationalisation of proceeds from businesses domiciled in Zimbabwe. The fear is that while the country is battling one of the most crippling liquidity crises in its history, the businesses operating in reserved sectors could be contributing to the unwelcome state of affairs.
There are two very likely scenarios to the paradox: the first is that since the predominantly small businesses are not banked they are keeping proceeds generated from their operations stashed somewhere at their offices or at the owners’ homes; and the second being that considering the proliferation of foreign-owned businesses in reserved sectors, proceeds from their operations could be conveniently finding their way into secretive foreign bank accounts at Zimbabwe’s expense.
Cash is being smuggled out or lying idle somewhere thereby complicating Government efforts to put together pieces of Zimbabwe’s economic puzzle dismantled by a decade-long illegal economic embargo imposed on the country by Western states. The liquidity crunch is noted in long winding queues at banking halls and, in stances, rowdy behaviour by depositors frustrated by challenges in accessing their money. But in some, more grievous, instances companies have scaled down operations or closed, throwing thousands of people into joblessness.
Admittedly, confidence in the local banking system slumped during the hyperinflationary period, but a lot has been done to improve the supervision of banks since 2009 to ensure safety of the public’s hard-earned cash.
Beyond this, businesses and individuals resident in Zimbabwe need to realise that it is as much Government’s responsibility as it is theirs to prop up our national economy.
This is because it is now quite evident that Zimbabwe and its people are by and large aloof in as far as resolving the liquidity crisis and economic challenges are concerned, with multilateral financial institutions remote-controlled by Zimbabwe’s Western citing a litany of frivolous excuses not to do meaningful business with Zimbabwe.
As such, it could potentially be quite shocking when it is found out how much liquidity the economy has been deprived of over a long period of time if investigations are instituted into how proceeds from these businesses have been handled all along. Huge amounts of cash have not circulated freely to keep oiling the economy. That much liquidity has been cordoned off the formal banking system, and hence the rest of the economy, is potentially significant in light of findings of Finscope 2013 SMEs survey that the informal sector generates up to US$7,4 billion annually.
Surely, it is a no-brainer to visualise the extent to which US$7 billion would go to ease the liquidity crisis if it is all banked.
There is fertile possibility that the businesses engaged in criminal practice by smuggling proceeds from their oeprations without meeting their obligations to the tax payer at a time central Government is facing severe funding limitations.
The extent of this racketeering could be far beyond than what meets the eye considering that businesses in reserved areas such as saloons, retail, and commuter transport and agro-processing are predominantly small and informalised.
What is also somehow disturbing is the fact that it has taken authorities this long to discover the anomalies yet indigenisation has been on the conveyor belt for a good number of years already.