Zimbabwe: Cashing out

via Zimbabwe: Cashing out | The Economist Dec 17th 2013, 15:48 by J.O’S.

BANKS are brittle institutions. Their business is making loans that cannot be recalled quickly from deposits that can vanish in a trice. And banking is a particularly precarious calling in Zimbabwe, where the US dollar has been the main currency since 2009. Depositors typically dip into savings at Christmas, but not all banks have been able to meet the extra demand for dollars. A few have put a daily cap on withdrawals. Queues are common. Savers are testy. Yesterday a security guard at a bank branch in Bulawayo, Zimbabwe’s second city, reportedly used teargas to quell angry depositors.

Zimbabwe counts on a continuous flow of dollars from abroad to keep its economy ticking over. Perhaps because of this reliance, the ruling Zanu-PF party, which won a landslide victory at disputed elections in July, has seemed to be less noisily committed to its indigenisation policy, which requires foreign and white-owned companies to hand over at least 51% of their business to black locals. When President Robert Mugabe formed his new cabinet in September, he put Francis Nhema, a moderate, in charge of indigenisation. The main local stockmarket index started to rise again almost immediately.

Yet even as some foreign money was pulled back into Zimbabwe’s stocks, banks had to deal with a shortage of dollars. A rise in long-term interest rates in America has made it harder for Zimbabwe’s banks to attract dollar deposits from overseas. And the slowdown in deposits has worked like a monetary tightening. Firms such as Delta, the main brewery, and OK Zimbabwe, a retailer, have reported tougher trading conditions. The economy looks shakier than at any time since the US dollar was adopted.

Nor are the country’s politics all that stable. Mr Mugabe will be 90 in February and there are doubts about whether he can fulfil his five-year term of office. Allies of his vice-president, Joice Mujuru, were recently elected to head the local party in nine out of Zimbabwe’s ten provinces. The victories have given Mrs Mujuru the edge over Emmerson Mnangagwa, the justice minister, who is her main rival to succeed Mr Mugabe as president. But it is only an edge. Mrs Mujuru has greater support with the party’s grassroots, but Mr Mnangagwa has powerful allies within the security services.

It its not in Mr Mugabe’s interests for either of his would-be successors to be seen already as the likely victor. “We cannot build a united party when we divide people into camps of those who belong to so and so and those who belong to so and so,” he told delegates to the party’s annual conference, according to the AFP news agency. He is clearly perturbed by the factionalism within his party. But the fragility of Zimbabwe’s banks and its weakening economy may be bigger threats to his presidency.