The ruling by the Supreme Court of Zimbabwe this week declaring that a debt owed in United States dollars (US$) incurred on or before February 22, 2019 should be discharged in the local currency (Zimdollar) at the 1:1 rate has sounded the death knell for the country's investment prospects.
The ruling was delivered in favour of Zambezi Gas Zimbabwe (Pvt) Ltd in a matter involving NR Barber (Pvt) Ltd, which was owed over US$3 885 000 by the gas company before February 22, 2019, the effective date of Statutory Instrument (SI) 33/2019.
The bond note, a fiat currency, was introduced in 2016 by the Reserve Bank of Zimbabwe as part of measures to address the liquidity crisis and pegged at par with the United States dollar.
This has, however, worsened the distortions in the market and has instead fueled the black market as the disparity between the surrogate currency and the greenback continues to widen.
The ruling has major ramifications for companies owed money in United States dollars prior to February 22, 2019 amid fears the ruling will result in massive company closures and job losses in an economy characterised by a debilitating liquidity crunch, acute foreign currency shortage, prolonged power cuts, low capacity utilisation of less than 40% and runaway year-on-year inflation of more than 500%.
In the same week the Supreme Court delivered its landmark judgement, retail outlet Bhadhella Wholesalers announced it will be closing down today after being in operation for nearly 90 years, citing the adverse economic environment.
CEO Africa Roundtable chairman Oswell Binha said the judgement is in stark contrast to the declaration by President Emmerson Mnangagwa's government that the country is open for business.
"When government indicates that it is open for business and that we are an investment destination, proponents which are key to an investor are the property rights and protection by the judiciary.
"When one of the arms of the state makes such decisions, we can kiss investment goodbye," he said. "We might yet get to understand the background of the case but what we do know is that the ruling does not augur well for investment. When you talk about policy flip flops, this is a classic example."
Binha said the judgement is coming at a time his organisation has sent a delegation to the United States of America to talk up the country's investment prospects and the team is likely to face tough questions from prospective investors following the Supreme Court judgement. He said the ruling could be misunderstood by investors as judicial support for expropriation.
Zimbabwe Congress of Trade Unions president Peter Mutasa described the judgement as theft as well as the "final nail on the coffin of the Zimbabwean economy."
"The government has been using coercive power of statutes to literally steal from citizens. Unfortunately some businesses thought this would affect workers' salaries only and they supported such stupid policies," Mutasa said. "This judgement is the final nail in the coffin of Zimbabwean economy.
There are no foolish investors out there who will put money in a country where a single decree can wipe your millions away and dump useless balances in your account.
Sadly, the judiciary has further shown that there are no checks and balances in the exercise of power in this country. The judges showed everyone that the constitution does not matter when it comes to political decisions. This has a chilling effect on all economic agents and, more specifically, potential investors"
Mutasa said the judgement will result in the closure of companies, particularly those with foreign lines of credit."We are going to see companies folding, especially those that had foreign lines of credit but supplying other local entities.
These still have to pay back the loans in foreign currency but are forced to accept useless Zimbabwean dollars from their debtors. As a result, we must expect job losses," Mutasa pointed out.
"The country risk factor is going to increase, thereby causing serious economic and financial damage. What can be more senseless than such a policy?"
He said workers will have to unite to fight such destructive policies.
"For workers, we have no choice but to unite to fight back these policies that have brought massive suffering to the masses. Only a few elites are unaffected and benefitting tremendously from this heist," Mutasa said.
Business consultant Simon Kayereka said the ruling will have serious repercussions for those with external debts."The real issue is the deficit in governance where policies are implemented without consultation. The Supreme Court is just interpreting a policy which the executive promulgated," Kayereka noted.
"What this ruling has demonstrated is that the RTGS is not a store of value because if you lend money today you will collect less."While this ruling pleases domestic borrowers, it is bad news for those who have external debts."
He added that pensions will also be seriously eroded as a result of the judgement.