1/

Zimbabwe - Afreximbank loans

On the 12th of Feb 2021, compelled by a court order, the MOF gazetted loans taken by RBZ it guaranteed.

It is very clear why RBZ & GOZ were secretive about these loans to the point of making its apologists deny the very existence of them.
2/
For example, over the last 3yrs it has been pointed out that;

(a) RBZ is involved in quasi fiscal activities
(b) GOZ treasury has no surplus

These two points are linked. RBZ comes directly under the Minister’s armpit. RBZ took over treasury responsibilities & its deficits.
3/
RBZ losses, are directly treasury’s losses & by law must be included in the consolidated revenues & expenditures. This never happened, so the right hand claimed it was clean, when all the time the stolen goods were in the left hand.
4/
The Gazette is revelatory in 3 distinct ways;

(i) Zim sanctions do not affect its ability to borrow & move money internationally

(ii) Interest on loans is more than 10% p.a

(iii) Zim is in a debt trap
5/
RBZ total foreign debt is US$5bn as of Sept 2020. 80% of which was assumed post coup of Nov 2017. OFAC would’ve seen & approved these transactions including anytime Zim made interest payments.

US$1.4bn from Afreximbank had GOZ guarantee. Meaning GOZ was a direct party...
6/
..to the transaction. At no point did OFAC raise a red flag. Or outright stop the transaction. It is very clear that Zim sanctions don’t affect its ability to transact with the world. Nor it’s ability to borrow. There are many international lenders to Zim, apparently.
7/
Chinamasa’s Lima plan of 2016 comprehensively addressed political & institutional reforms before tapping into international markets. Without reforms, immediately after a coup, GOZ started borrowing without any guiderails & none to stop profligacy.
8/
It’s a hard lesson to Zim & to Afreximbank & other lenders (China included) why Zim desperately requires deep political & institutional reforms. It’s for creditors own good. Treasury claims of surplus were not entirely for Zimbabwean ears but for foreign lenders.
9/
The first loan from Afreximbank was made on the 27th of Dec 2017. A 3yr loan that was due end of 2020.

Was it paid off?

All the evidence suggests otherwise.
10/
Zim has ZERO reserves. The 2020 budget did not have a sinking fund.

Afreximbank was aware that RBZ had zero reserves( see pic, Zim reserves position is at the bottom of the table)

Was the loan rolled over?
11/
The loans suggests a bullet payment at the end of the loan tenure and were not amortized. If the loan was amortized RBZ monthly reports would show this.
12/
The terms of loans are onerous. In Dec 2017, LIBOR was 2%.

RBZ own laws emphatically prohibit loans above LIBOR plus 7% without RBZ express approval. This is the reason for institutional reforms. Currently the regulator approves its own loan interest exemptions.
13/
LIBOR 2%. Interest 6.5%. other fees 3.75%. Total yr1 interest is 12.25%. Above the RBZ own rules.

This is a devastating revelation. Most Economists had assumed interest was less than 4%. What Afreximbank normally charges.
14/
Zimbabwe is highly profitable for Afreximbank. In its September 2020 results , interest & similar income was US$700m. On average (10%pa) on the US$1.4bn , Zim pays $140m a year.

This is 20% of Afreximbank interest income.
15/
If Zimbabwe is paying 10% on its RBZ debt ( US$5bn) that equates to US$500m interest payments a year.

This is 20% of 2020 GOZ budget expenditure. 25% of revenues.

The debt has grown through interest capitalization & not necessarily new debt.
16/
In theory. A debt trap is when Interest on loans (i) is greater than GDP growth (g).

i > g

This means interest payments become an albatross to any growth. Debt grows exponentially. RBZ loans interest of 10% when the economy is in decline of -15% is a debt trap.
17/
What does this mean for Zimbabwe?

Minister Mthuli is simply preparing Zimbabweans for the inevitable debt assumption Bill.

This will officially add US$5bn to the country’s foreign debt stock of US$9bn.

Ps. The farmers compensation of US$3.5bn is not yet official
18/
The good news is that Afreximbank & the Chinese creditors will now be at the fore front of calling for reforms.

The smuggling of gold & its quantum is NOT coincidental. It’s to avoid formal international channels where creditors have stop orders against Zim exports.
19/
The bad news is that the ruling class can survive on extractive industry rent. Especially during a commodity boom. Political scientist have pointed out, the ruling elite will not reform themselves out of power.

There is no credible reason why the ruling elite must reform.
20/
Sanctions have not stopped Zim from tapping international capital.

Economic mismanagement & corruption accelerated post coup of Nov 2017. Reversing the gains of the GNU.

ALL creditors want reforms.

Commodity boom & corruption provides a way out for the ruling elite.
Ambit ***

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More from @baba_nyenyedzi

6 Feb
1/
Not many countries in the world have a budget surplus. Not even fake surpluses. Well run countries found themselves in manageable deficits - without need to print. Borrowing directly from the market place.

Luxembourg is such an example- in normal years it runs a surplus.
2/
Mthuli made a mistake touting a surplus when it really wasn’t necessary to propagandize. The economy was already in a depression with the 2nd highest inflation in the world. GOZ domestic debt was being inflated away. Offering pensioners 8% interest when inflation was over 500%
3/
Perhaps his colleagues didn’t understand. They were happy to be told GOZ domestic debt was falling fast. Remember this was at a time the official ZWL inflation was banned.

The false euphoria resulted in 2 mistakes;
(I) Pension industry crushed to only $1bn.
Read 6 tweets
4 Feb
1/

I am of the strong view that the private sector should lead the vaccination program.

The insurance & pension industry must lead the private sector initiative. The NGO’s & aid agencies must support the private sector initiative- for free inoculation of the most vulnerable.
2/

Relying on a clueless GOZ will not solve the problem. But will perpetuate the endless lockdowns. Zim is already a laggard in the purchase of a vaccine. Israel made the order in April 2020. As of now, no order has been made by GOZ. Zero proof has been given
3/
Zimbabweans don’t realize how bankrupt the state is. And if the state was honest then the public would have been more sympathetic to Mthuli. Mthuli sees an opportunity to further fund raise. AIDS, rural electrification, Zinara levies go to central treasury & not intended uses
Read 7 tweets
1 Feb
The diamond/water paradox goes as such. Diamonds are of no use to human beings yet valuable because they’re scarce. A carat is 1/5th of a gram & can fetch up to $20k. While water which is life saving, which humans cannot do without is free to $1 per 0.5l. Because it’s not scarce
Therefore value is determined by scarcity. A painting can fetch up to $400m, yet no matter how much a farmer produce can save starving kids, maize will fetch $200 per ha.

This explains why an Actuary is better paid than a Doctor. An entrepreneur better rewarded than a manager.
As an anecdote, Aristotle failed to solve this problem. So many are in good company. Yet Hesiod a contemporary of Homer figured it out by just observing the price of produce during the seasons. He identified the scarcity problem.
Read 6 tweets
20 Jan
Thread
Wishing Biden well

1/
Back in 2017, today. People protested against President Trump. It continued throughout the weekend. Their message was simple enough. It even had a hashtag. “He is not my president”.
2/

Suppose others too were to protest today with the same hashtag #HeIsNotMyPresident. How will the media & world react? This is not a call of violence of any kind. But peaceful protest as were witnessed four years ago.
3/
For a president that was predicted to be kicked out of office before his term was done, President Trump did well. More than well infact. History will record his many wins.

Reducing the tax rate from 36% to 21%.USA oil independent. Peace in the Middle East. No new war started
Read 14 tweets
18 Jan
Tourism is a forgotten sector in Zimbabwe. Treated as a step child. Despite its forgotten status it contributed 6% to GDP.

This is the same as Mining, but requires far less capital.

In good years Tourism contributes 10% to GDP. 2% more than agriculture.
Zim tourism is almost exclusively driven by domestic clients & diaspora. Very little is being done to attract international visitors who tend to spend more.

This is a snapshot of room occupancy. The number of rooms has remained stagnant for ten years since 2011. Image
The policy problem in my view is moral hazard. In cabinet & civil service you have full time farmers who go out of their way to direct attention & spending towards Agric. Mining is rot with corruption hence its visibility.

A study funded by USAID identified the policy problem Image
Read 5 tweets
13 Jan
Thread

1/
The value of Information in Economics

A most egregious & patently false allegation was made by Zanu PF as it pertains to Old Mutual Implied Rate ( OMIR). Old Mutual was accused by Zanu PF of fueling the parallel market.

Zanu PF got its wish & OM was suspended.
2/
At the time Nick Mangwana GOZ perm sec of information called OM and other dual listed firms “ fake counters”.

Chinamasa speaking on behalf of Zanu PF said “ZSE should compulsorily de-list”.

In other words. Fake counters must be compulsorily delisted.

Duly ZSE delisted OM
3/
George Charamba the President’s spokesperson & former advisor to the President Chris Mutsvangwa were even more rabid. Chris alleged the OMIR & Ecocash were staging a “ coup”.

For Charamba it was an “illicit”, “outlaw” activity becoming a security threat for the state.
Read 22 tweets

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