21 September 2012

Zimbabwe: Competitiveness Key to Zimdollar Return


Contrary to what a proud nation would do to re-establish its own strong national currency, a key feature of its identity, there is yet no serious debate about when and how the Zimbabwean dollar will be reintroduced, let alone the strategy. A blind eye is being turned to this urgent call.

A national currency represents the value of all activities and hence productivity undertaken by the nationals, as recorded and stored, at any given time, by its financial system.

The Ministry of Finance (MoF) therefore has the duty to modulate this system and motivate nationals into maximum productivity via appropriate monetary and other policies; and secondly to record, evaluate this productivity into a national value, and to issue currency representing this value for purposes of transacting. These responsibilities require the MoF to inculcate a culture of open competitiveness in all economic activity at all levels from Government level to business, right down to the individual economic agent.

The competitiveness necessary for a currency to be sustainable refers to zero-tolerance explicitly targeted performance, in all economic activity. Established performance measures for the economic sector, or discipline must be engaged - there is no economic activity or sector without such targets and established performance measures. It is an established fact of economics that the value of national currencies is in part influenced by national competitiveness.

The discernible lack of strategic direction to reintroduce a strong Zimdollar, may be an indication of a void in competitiveness in the MoF, necessary to undertake this job. In accordance with the Global Competitiveness Report 2012-2013 issued by the World Economic Forum, Zimbabwe's competitiveness ranks low due to weaknesses in public institutions occasioned by corruption, Government favouritism and concern over property rights. A high level evaluation of the MoF's competitiveness can shed light on its capacity to reintroduce a strong Zimdollar. The competitiveness of the key financial system sectors of the insurance, pensions and banking sectors, at the business level, and at the level of the regulator, is a good measure of the MoF competitiveness.

Banding together competitiveness assessment of the pensions and insurance sectors and starting with their front-end business level assessment, insurance companies fail, if their current stand-off with pensioners is anything to go by. The reader is spared the ubiquitous details of this current stand-off, suffice to note that any service provision and productivity thereof, is failed if business loses the trust of its clientele -- this taking note that trust in the competitiveness of financial service provider is critical in persuading consumers to commit large financial outlays, for very long periods. This conclusion invokes the zero-tolerance framework of assessment.

With regards to the back-end business level assessment for competitiveness, insurance companies in Zimbabwe are not known for their clarity and transparency in disclosures of their business operations, let alone for allowing accessibility of information. Established disclosure practices in thriving similar sectors, disclose both qualitative and quantitative information to the public in accordance with rigorous regulated disclosure standards.

Information disclosed include business performance in various areas including performance from activities of selling their products and services (underwriting activities), performance from investment activities, and performance in managing operating and other expenses, for both the holding companies and the subsidiaries.

The disclosures must be supported by related disclosures about business practices controlling mishaps (or risks) to which the business is exposed; and disclosures about the capital used to finance the operations, and that capital standing to meet obligations to pensioners and other policyholders.

The distinction between the capital types is a disclosure that ensures insurance companies have their own business capital to undertake pensions/insurance service provision, and that the companies can meet benefits as they fall due. There are other disclosures that have to be made.

Apart from minimising fraudulent service provision, disclosures in transparency, place information in the hands of the public, about the true quality of products and services offered by insurance companies, thereby building trust and rendering informed consumption. Disclosures and trust thereof, further ensure insurance companies play their macro-economic financial intermediary role and social protection role effectively, and competitively. Information asymmetry is therefore undesirable, if the sectors are to operate efficiently.

Information publicised by insurance companies in Zimbabwe is, however, typically for advertising or public relations purposes. It is not subject to rigorous standards of disclosure, unregulated and often misleading.

Afre, for instance, has in the recent past reported super profits and healthy retained earnings, creating the impression of capital self-sufficiency. Contrary to this created expectation, Afre has been planning to extract capital from shareholders via a rights issue, raising questions about the Afre disclosure reliability.

Questions have been raised about the accounting of property portfolios and excessive management/operating costs, with submissions that a remuneration system that rewards generously before proven performance cause excessive management costs.

The effect of a void in a rigorous regulated disclosure regime and the opaqueness thereof, has been to remove all transparency/accountability, to allow incompetence and to encourage a dereliction of obligations to pensioners -- hence the current stand-off and loss of trust. Productivity in these sectors has therefore been hampered and may not be at a level to facilitate the reintroduction of a strong Zimdollar.

Not much can be said in favour of the regulator competitiveness, Insurance and Pension Commission (IPEC), if insurance companies have conducted themselves to create the fiasco that the industries are in. By failing to intervene and resolve the disgruntlement by consumers, and to rein in the cowboy conduct of insurance companies, IPEC has failed in all its three primary regulatory duties. Curiously the publication of the "Report of the Registrar of Pension and Provident Funds", providing IPEC performance information appears to have been stopped. Competitiveness in this part of the MoF appears not to be at standards to reintroduce a strong Zimdollar.

Competitiveness in the minister's office still has to be demonstrated by how urgently he resolves this crisis, thereby rejuvenating pensions and insurance sectors competitiveness.

Banking sector competitiveness assessment, at the same levels, would lead to conclusions similar to those of pensions and insurance sectors, considering the crisis that the country underwent and leading to the suspension of the Zim$. The minister is advised to urgently set incentives for competitive financial services sector service provision if reintroduction of a strong Zimdollar is to materialise.

The writer is General Manager of Zimbabwe Pensions and Insurance Rights.

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