Synopsis: Tendai Biti has accused Finance Minister Patrick Chinamasa of ‘stealing’ money from the central bank to fund excessive expenditure by the regime, which caused crippling cash shortages. In an in-depth interview on the Hot Seat program with journalist Violet Gonda on the economic crisis in Zimbabwe, Biti talks about what he uncovered when he was finance minister in the coalition government from 2009 – 2012. He says President Robert Mugabe takes at least US$4million per foreign trip and his entourage has deliberately made him into a ‘permanent resident of the skies’ in order to loot Zimbabwe, with their own per diems. Biti warned Zimbabwe only has one week of import cover left, talks about illicit financial flows which hurt Zimbabwe, the parallel government structures used to siphon money, and explains in some detail what needs to happen to make Zimbabwe better again.
Welcome to Hot Seat with Violet Gonda. My guest today is former Finance minister and opposition leader Tendai Biti. In this first segment the focus is on Zimbabwe’s economic crisis. How bad is the crisis that has seen goats now being used as legal tender in some parts of the country? What did Mr. Biti learn about how State finances are run and if he was still in charge of the treasury, what would he have done differently to avoid the Bond notes. These and more questions covered on this episode of Hot Seat
Violet: Welcome Mr. Biti.
Tendai: Thank you Violet
Violet: Let’s start with this whole issue of the economic crisis, how bad is it really?
Tendai: Well it’s scandalously hopeless, it’s scandalously terrible these guys have failed and Patrick Chinamasa has failed. I call it voodoo economics being practiced by these ZANU zombies and Chinamasa is the chief zombie. The biggest challenge that they have is that the economy is not producing. Output has collapsed and collapsed completely. Aggregate demand has collapsed and collapsed completely, capacity utilisation has collapsed and collapsed completely, so we are in a recession. Since 2013 the economy has been on a downward spiral and this recession is fast tracking itself to an economic depression. Remember this is an economy that is very cyclical. This is an economy that moves from slumps and booms but its slumps tend to be elongated. Remember, the crisis last time from 1997 to 2008, lasted for 11 years. So, I think we are in the middle of another elongated depression which, unless corrective measures, decisive measures, are taken, we could be stuck in this rut for another 11 to 16 years.
Violet: What does the absence of a local currency actually mean to the grassroots?
Tendai: Remember the Zimbabwean public rejected the Zim dollar. Currency, at the end of the day, functions on confidence, functions on trust. So, if the citizens stops believing in its currency, then you have a problem. In Zimbabwe, one of the key things that has collapsed is confidence. We have lost confidence in this regime; we have lost trust in this regime. All societies function on trust; what philosophers call ‘the social contract’. In Zimbabwe the social contract has broken and when trust collapses, societies such as Zimbabwe, where there is no trust, become low trust high cost societies. And, societies that are functional are high trust, low cost societies.
So, coming to the issue of a currency specifically, Zimbabweans have got long memories, they remember how the Zimbabwean dollar was an instrument of arbitration – arbitrage. Zimbabweans know how the Zimbabwean dollar and hyper inflation stole away their wealth. Pensioners, up to date, have not recovered, asset managers, up to date, have not recovered, company balance sheets up to date, have not recovered because of the Zimbabwean dollar. What Zimbabweans want is a stable economy, and before we can even think of returning the Zimbabwean dollar, let’s produce, let’s export, let’s build foreign currency reserves of over US$5 Billion. And, to me, the Zimbabwean dollar is gone, it will never come back. There is no country in the world which has dollarized and which has managed to demonetise (the Zimbabwean dollar)… because it’s confidence. The Zimbabwean dollar was caught in flagrante by the people of Zimbabwe and you and I know what happens when someone is caught in flagrante – trust is gone and a divorce has to happen.
Violet: It’s really sad to hear that our own currency will never return, but we’ll come back to that issue of currencies and the cash crisis. Let’s just go back a bit to help us understand this crisis a bit more. What did you see in the GNU as finance minister… what were you able to uncover?
Tendai: Well, the most important thing about running an economy, running a government, running any organisation, is trust. The secret to a good economics is to live within one’s means and I popularised the phrase ‘you eat what you kill’. So, we ran a regime of austerity, we didn’t have money anyway. When I started, in February of 2009, there was $4million in the bank, in the government treasury. And the entire broad money supply circulating in the country was a mere US$ 250 million dollars, by the end of the year we had built that to $ 2.2 billion. So, the first thing is live within your means, eat what you kill. So we ran a strict regime of cash budgeting. We had a Budget Office, in respect of which, we all sat, officers sat and approved the priority of priorities, we did not borrow and we did not spend what we did not have. The problem with ZANU PF is that it suffers from a disease called fiscalitis, which is the fictitious belief that they think money grows on trees. As I am talking to you, right now, the budget deficit, as a percentage of GDP, is over 43%. Domestic debt, as a percentage of GDP is over 60%. So it’s absolutely ridiculous. They can’t run the economy. There is no fiscal discipline.
The second thing is that you have to create conditions for those that create wealth, to create wealth. An economy doesn’t run on controls, an economy doesn’t run on Statutory Instruments, an economy doesn’t run on dirigisme – you control everything. So we’ve got excessive taxes, we’ve got import restrictions; we’ve got Statutory Instrument 64 of 2016. Capital can’t breathe and if capital can’t breathe, capital will not produce.
Thirdly, we need to attract Foreign Direct Investment in this country. We can only attract Foreign Direct Investment if we are competitive – we are not competitive – our costs are too high. Look at the cost of our electricity, look at the premium put by corruption in this country because every business man who wants to invest in Zimbabwe, there’s a ZANU PF Minister who wants a huge cut from him. So capital is fickle, it will go to other places. Look at the gross effect of the Indigenisation and Empowerment Act. Who will invest $3 million when you are going to part with 51% of that? It doesn’t make sense. So, the long and short of it is that ZANU on their own can never run this economy, and it has been proved in the last 4 years that Chinamasa has been dawdling along as the Minister of Finance.
Violet: When you were Minister of Finance when you were in government, billions of dollars left the country or left the government. Can we unpack this issue of corruption that you mentioned briefly? What did you actually see and what terrible decisions did you have to make on this issue?
Tendai: Government receives money from taxes, so the most important organ from a revenue collection point of view is the Zimbabwe Revenue Authority, so we didn’t get a lot of money. In the first year we had US$ 900 million, in the second year the budget was US$ 2 billion, in the third year we tried to make it to US$4 billion. So money that is being stolen in Zimbabwe is not being stolen from Treasury. Treasury has got strict rules and Treasury is subject to parliamentary oversight. People steal money from parallel government operations, and ZANU deliberately ran parallel government operations as they are still doing today.
The biggest parallel government operations were diamonds in Chiadzwa, where ZANU placed Obert Mpofu, that grand thief, to basically circumvent diamond revenue coming to Treasury, and you and I know Mugabe admitted US$15 billion left the country. The parallel government was in the form of huge, huge parallel resources that ought to have gone to the Consolidated Revenue Fund that were not accounted for, this includes the money that Tobaiwa Mudede collects from passports, birth certificates and death certificates, this includes the huge – millions and millions of dollars – that Augustine Chihuri collects through penalties and fines from the Zimbabwe Republic Police. This includes huge fees that are collected from organs like EMA (Environment Management Agency) and National Parks. This includes millions and millions of dollars that are collected by POTRAZ, this includes millions and millions of dollars from tollgates that are collected by ZINARA, for instance. So ZANU deliberately ran a parallel government to deny Treasury money and in the process, to fund their nefarious patronage system which has kept them in power for the last 37 years.
Violet: There seemed to be no limits to how much people were taking out of the country… as you mentioned, the President himself admitted that US$15 billion dollars left the country. Looking back, when you were Finance Minister, do you wish that you had some exchange control for example?
Tendai: Exchange controls were always there. You cannot move money in Zimbabwe without the approval of the Reserve Bank, so capital accounts are there. I know where you are coming from: …the first thing we did was we had to liberalise the capital account. As I said, when we started there was a mere US$250 million in the system in the form of broad money supply. In order to attract capital, capital in the form of Foreign Direct Investment, capital in the form of diaspora remittances, capital in the form of Overseas Development Assistance, – we had to say anyone who wants to bring money, you can bring money because you can take it out. That’s why, by the end of 2009, US$ 2.2 billion were in the system. By the time I left, in 2013, there was US$ 5.5 billion in the system. We could only attract that because we allowed the capital account to be functional.
So, what has caused the shortage is not that people are taking out money. Remember, when you are taking out money, you are taking your money; you are not taking another person’s money, which is a myth that ZANU PF has. Separate the issue of illicit financial flows. Illicit financial flows never get into the system and the private sector is the number one perpetrator of illicit financial flows. So if you take platinum, for instance, when tonnes and tonnes of platinum metals are shipped out of Zimbabwe, there are about 10 derivatives, including palladium, for instance, that is not fully accounted for to Zimbabwe. So, there is what is called transfer pricing, there is what is called thin capitalisation and these are the things that are hurting Zimbabwe. This is what is known as illicit financial flows. On the African continent, almost yearly, more than a trillion dollars is leaving the African continent, and in fact, ironically, more money is leaving the African continent through illicit financial flows, than money that is coming to Africa in the form of Aid. So, this is a different debate to the narrow question of liberalising or not the capital account.
Violet: What did you learn about the political executive and their travelling habits with money?
Tendai: I used to expose it in my budget, it used to sadden me that the travelling budget was always more than what we put to education and there was one man who used to travel more than anyone else, and that was President Robert Mugabe. In one year, we spent US$ 28 million on travel alone and we spent other than education, we spent US$ 9 million on salaries, and that was criminal. In my time they would make requests of US$ 2 million, US$ 3 million, and I just cut that the travelling expense. I know that when I left, the taps are open, he goes away with US$ 4 million or with US$ 6 million.
And part of the problem is not just Robert Mugabe; part of the problem is the entourage around him which makes a killing when they travel with him because their per diems increase. So they deliberately create these trips, they deliberately make him a permanent resident of the skies in order to loot Zimbabwe. So it is the bureaucracy around him which is also culpable, but you know, in other countries, the issue of per diems that is given to a Head of State, must be returned when he comes, but one of the criminal things in Zimbabwe is that he takes US$ 4 million – he doesn’t bring it. So it’s really criminal that we have schools that have no lights in Zimbabwe, we have schools where students and pupils are sharing classrooms with animals, yet a single Presidential trip can cover more than 10 schools. It’s criminal and unacceptable.
Violet: But Mr Biti, was the President’s budget ever audited, if you say he takes at least US$ 4 million per trip, is it ever audited to find out what the money is spent on?
Tendai: The budget of the Office of the President and Cabinet (OPC) is never audited … thanks to British Westminster traditions. Remember the Prime Minister was the Executive, and under the Prime Minister the Intelligence operated, the CIO, just like MI5 operates in the UK and the false notion is that you don’t audit anything that the Intelligence has. This is criminal. So the office of the OPC basically runs a slush fund to oppress and repress the people of Zimbabwe and also to loot. I find this unacceptable and I think that one of the unfinished businesses of constitutional reform is to revisit Chapter 5 of our Constitution, the chapter that deals with the creation of the imperial Executive President which we created. That institution must be liquidated if we are going to have a President elected by Parliament as the South Africans do, so be it, if we are going to resort to a Westminster Prime Ministerial matrix, so be it, but a modern State like Zimbabwe, which has been abused by power, cannot allow, for all intents and purposes, the reproduction of an imperial President such as the one codified in Chapter 5 of our constitution.
Violet: If the President was spending at least $US 4 million per trip, the Prime Minister was also accused of globe-trotting. How much was he spending and did you audit his budget?
Tendai: The $US 4 million didn’t happen under my watch Violet, that is happening now, that didn’t happen under my watch. Under my watch we would restrict a trip to about US$ 1.2 million and much of that, about US$ 700 000 would actually go to the charter fees for Air Zimbabwe. So that didn’t happen under my watch, it is happening now. The party is on, Santa Claus is back in town thanks to Patrick Chinamasa and ZANU PF
Violet: But while you were in government, I understand you warned the President and you also warned Cabinet about senior government officials overspending on these foreign trips. What was the response from the Cabinet?
Tendai: What we did was, and we were very strict, what we did was that in every budget there was an amount for travel and once a Ministry exhausted that, that was the end of it, if you were going to go outside Zimbabwe, whoever was inviting you had to pay for your trip. And that worked, that worked. But part of the problem was that for any Minister to travel, he had to get Cabinet approval, in other words, the President has to approve. So you would get a situation where Ministers would then get Cabinet approvals, they would come to Treasury and we’d say ‘look my friend, you exhausted your money’. The other Ministers knew we were tough, so we didn’t have a fight. The one office which we had a problem with was of course the Office of the OPC because the President thought he had an entitlement to travel whenever he pleased, and of course there were constant fights during my four and a half year tenure in government
Violet: I understand that he’s got an overdraft facility with the CBZ? As Finance Minister, did you know how much the President’s overdraft was and who covers it?
Tendai: No, I didn’t know about that. Remember the relations between these – the CBZ is a commercial bank – so its relations with its customer are a matter of privilege. If he runs a personal account it’s a personal account. I have no idea about that. What I can tell you is that we were concerned about the levels of non-performing loans in the banking system which, at a certain stage, were over 30percent, so we put measures to ensure that non-performing loans were reduced. As to which characters banks were lending money to, I had no idea. But, what I can tell you, is that before the land reform programme, in 1999 – 2000, 74percent of bank lending was actually going to the farming sector and the biggest departments in every bank were agro-business departments. With the collapse of land as collateral following the land reform programme, it’s sad that 37 years after Independence, the biggest borrowers from the banks are actually individuals. And of course, when individuals borrow, you and I know that it’s not for production, it’s for buying flat-screen televisions, buying Mercedes Benz. And our economy is dead because banks don’t have attractive banking assets where they can lend to. And, if banks can’t lend, it means there is no re=generation of capital, it means there are no start-ups, it means there are no new business, and if you compound that with the challenge of the absence of foreign direct investment, you have the current situation which you have in Zimbabwe right now – which is zero, which is deflation, which is a stagnation, which is inertia, which is indifference, which is lackadaisicalness.
Violet: So coming back to the issue of the currency and cash crisis, do you regret choosing the US dollar and not the rand for example, since SA is Zimbabwe’s largest trading partner?
Tendai: Look, again I know where you are coming from. That question can’t arise because we adopted both the Rand and the US Dollars. We adopted a regime of multiple currencies, it was the market which determined which currency it preferred. And of course the predominant mode of exchange is the US Dollar. Even in South Africa itself, despite the fact that they use the Rand, they want importers to pay using the US Dollar, because the US Dollar is more stable and the Rand is volatile. So it was not government, it was not the Minister of Finance which determined the preference of a currency and remember, if you go to my statement of 17th March 2009 when I introduced STEP (Sustainable Tourism Enterprise Programme) and I revised the budget, I made it clear that the currency of reference was actually the Rand.
But to answer your next question which you haven’t asked, it doesn’t matter if we used the US Dollar, or the South African Rand, or the Chinese Renminbi, or the Nigerian Naira, unless we have the basics right, we will just bastardise that currency, the way we have bastardised the Zim. Dollar, the way we have bastardised the Bearer Cheque, the way we have bastardised the US Dollar, the way we have bastardised the Bond Note. We have to get the fundamentals right and the fundamentals are three things. Number one, we have to produce because when we produce we sell to other countries and when we sell to other countries, we accumulate reserves.
Right now we have got one week of import cover, which are SDR’s, Special Drawing Rights, that I left, which are in Washington DC at the IMF. We have no reserves, we have to build. Number two, we have to manage the economy well. If the government is bloated and spends too much money it will over borrow and when it over borrows, that will put pressure on the currency. So those are the things we have to do, and unless we attend to those fundamentals, it doesn’t matter which currency you can bring.
Violet: But, Mr Biti, some economists disagree with that because they say – yes the Rand was used, especially in Bulawayo, but the preferred currency was actually the Dollar, and this made it easier for corrupt elements to smuggle the US Dollar out of the country as the Rand would have been much harder to smuggle out of country.
Tendai: Why? How?
Violet: Because it is not an international currency… (interrupted)
Tendai: The Rand is an international currency. Who says the Rand is not an international currency?
Violet: … as compared to the US Dollar.
Tendai: Who says the Rand is not an international currency. These are fictitious arguments that are being used by people who have failed. The problem we have right now, the cash shortage, is not as a result of the currency which we are using. The problem which we are having, why people are sleeping in banks, is because Chinamasa has stolen money at the Central Bank. The government is maintaining an overdraft facility at the Central Bank. Since 2014 they’ve been stealing money at the Central Bank but the Central Bank doesn’t have money – IT’S BROKE! So in fact they’ve been stealing money in other people’s RTG’s balances, they’ve been stealing money in people’s Nostro accounts. So when you go and take your money, you won’t find it. So, assuming the theory is correct, that people are externalising, people are externalising what is theirs. So if I’ve got $100 and go to my bank and get $100 that shouldn’t affect you Violet, when you go to your bank and ask for $100. But if another person has come and raided your money and my money then we will have a problem. And this is what has happened. There’s been a bank robber, a modern Josey Wales, a modern outlaw in the form of Chinamasa, who has gone and raided the Central Bank to fund excessive government expenditure, to fund excessive recurrent expenditure, and that is the problem.
The issue of people getting money should have happened under my watch, because if people will always externalise, why didn’t they externalise between 2009 and 2013, money was still fungible, the Rand was fungible, and the Rand is an international currency.
Violet: Looking at the economy now in terms of Bond notes, banks failing to service people. If you were the Finance Minister, how would you advise the government and indeed the Reserve Bank Governor, Dr Mangudya.? What is the alternative, how can they get out of this?
Tendai: Firstly, they have to understand that it’s not a monetary issue, so the challenge is not with John Mangudya at all. It’s a fiscal issue, it’s a government issue, it’s a Treasury issue. So, number one, government must put into place conditions where companies are resuscitated, where companies can start producing again, where industry re-opens. There’s no substitute for that, and if it means that we have to go to the Afrexim Bank, if it means we have to go to the IFC if it means we have to go to the African Development Bank, to get at least a billion US dollars which we will put into DIMAF and ZETREF to resuscitate our companies, we have to do that.
Number two, the government itself has to be small; the problem is we’ve got this huge monster called the government, which is leaning on a tiny little productive sector. So, there has to be reform. We have to reform the public work sector. When I was Minister of Finance there were 236 000 public servants. Now, ZANU PF has employed – and there are now 550 000 – ghost workers. Those ghost workers have to go so that the genuine civil servant has to go. We have to trim government. Another form of reform; we have to get rid of these parastatals which we are only using to create jobs for our sons in law. Air Zimbabwe must go and a host of other parastatals that are a vehicle of patronage and arbitrage in our economy.
Number three, we have to come up with a new Diamond Act, because there is a mess in the diamond sector, we have to come up with a new Mines and Minerals Act because there’s a mess in our mining sector.
Number 4, we have to repeal the Indigenisation and Empowerment Act so that we can bring in foreign direct investment. So these are structural reforms.
Number 5, we have to deal with our debt. This country has got a sovereign debt of over US$ 10 billion and that debt is putting a premium on our country.
So we have to have a genuine debt cancellation programme with the World Bank, with the IMF. So these are a few of the things we have to do. But the biggest premium on our economy, the biggest sanction on our economy is ZANU PF so everything I am saying is technical, but the real elephant in the room is ZANU PF. The real solution to this country moving forward, the real solution to finding a sustainable solution, is how we deal with this creature called ZANU PF. So the question is not just about fiscal discipline, the question is ultimately about how we deal with the creature and monster called ZANU PF. It therefore becomes political not economical.
Violet: Well, that is the million dollar question and I hope we will be able to continue with this conversation where we will talk about the political situation in the country, the state of the opposition and coalitions, as political parties prepare for elections next year. Thank you very much Mr Tendai Biti for talking to us on the programme Hot Seat.