THE Zimbabwe government opened the year by assuming fresh debt for 855 firms amounting to US$3,8 billion in blocked funds that the central bank failed to help repatriate externally on behalf of those companies.
The assumption of debt by the Treasury was done through Act No. 7 of 2021 that gives legal effect to the Reserve Bank of Zimbabwe (RBZ) paying off the 855 private firms whose monies are part of the blocked funds.
While the US$3,8 billion has been approved by the Treasury, it was from a total of US$6,3 billion worth of claims made by the 855 firms with the remainder still being disputed. The assumption of the debt was noted under section 52 of the Act titled “Assumption of obligations by the State”, wherein Treasury noted that:
“(1) Subject to the validation and reconciliation of the relevant claims under section 50, the minister shall, on behalf of the State, assume responsibility for the discharge of the outstanding blocked funds. (2) The terms and conditions under which the minister assumes responsibility in terms of subsection (1) for the discharge of any obligation with respect to the blocked funds shall be fixed by the minister.”
The blocked funds which the RBZ assumed were monies related to external obligations that could not be remitted between January 2016 and February 2019 on behalf of the 855 firms.
The Treasury went on to list the 855 firms in the Act under review which included fuel operators, airlines, banks, telecommunications, and even law firms which now taxpayers must pay adding to the government’s existing debt.
The two largest companies by market capitalisation on the Zimbabwe Stock Exchange, namely, Delta Corporation Limited and Econet Wireless Zimbabwe are owed US$184,2 million and US$150,7 million, respectively.
Of the monies owed to Delta, US$27,8 million are offshore loans while US$104,4 million are dividends as the company’s biggest shareholder is the Belgium-based brewer Anheuser Busch Inbev NV who owned a 24,2% stake as of 2020.
Concerning Econet, it had dividends worth US$48,3 million considering its biggest shareholder is Econet Global Limited with a 38,4% stake, headquartered in South Africa. The country’s biggest bank, CBZ Bank, is also on the list as it recorded offshore loans worth US$337,7 million that Treasury will now assume. The Treasury noted how it would pay for the outstanding blocked funds under section 52 of the law, through debt instruments denominated in foreign currency.
“(3) Outstanding blocked funds may be liquidated through the issuance of government-backed zero coupon or non-interest bearing foreign exchange savings bonds or such other debt instruments denominated in foreign currency. (4) No action or proceeding shall be commenced or continued against the Reserve Bank or any other banking institution in respect of liabilities arising from blocked funds assumed by the minister on behalf of the State, or any other obligation or claim in connection therewith or arising therefrom.”
In order to be compensated by the Treasury, the 855 firms must have submitted their claims on or before April 30, 2020, for validation by the RBZ.
These same companies were also expected to have remitted the equivalent Zimbabwe dollars, of the blocked funds forming the basis of the claim, to the central bank.
Economist Takudzwa Chisango said accumulation of blocked funds is a clear reflection that the government is not doing enough as a country in terms of enhancing our investment climate.
“Shockingly, this development is in stark contradiction with the Zimbabwe is open for business mantra being peddled by the government,” Chisango said.
“We shouldn’t be having such cases where offshore investors are struggling to have their dividends repatriated particularly when we are in dire need of investment into the country for various development purposes. So the net effect of this is that potential investors will continue shying away from Zimbabwe as it remains a hostile investment turf, and the worst case scenario is of capital flight, where those with investments in the country might relocate to safer destinations if this is to persist.”