In another aggressive move to protect its fledgling currency, the Zimbabwe Gold (ZiG), the Zimbabwean government has blacklisted 51 companies accused of diverting funds to the parallel market. This drastic action, while aimed at stabilising the ZiG, raises questions about the government’s long-term plan for the ZiG and its impact on the economy. There is also of course the question of whether this is the best way to go about defending and promoting usage of the ZiG. Already a lot of people have expressed unease with remarks from some officials who say the ZiG will be made the sole official currency in the very near future.

The ZiG’s Rocky Start

Introduced on 5 April 2024 by newly appointed Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mushayavanhu, the ZiG replaced the beleaguered Zimbabwean dollar (ZWL). This sudden currency shift came as a surprise to many, echoing Zimbabwe’s history of abrupt financial policy changes.

The ZiG, which is purportedly backed by gold and other assets, was touted as a “structured” currency to instil confidence. However, scepticism remains high due to the government’s lack of transparency regarding the exact composition and location of these backing assets. Claims that the bulk of the gold that is being used to back the ZiG is stored in an undisclosed foreign location for “safety” have only fueled public mistrust.

Currency Performance and Market Dynamics

Despite initial stability, the ZiG has faced challenges. Recent payments to government contractors led to increased demand for foreign currency on the black market, pushing the rate from 18 ZiG to 20 ZiG per USD. This volatility prompted the government’s punitive response.

The core issue lies in the lack of official channels for ZiG-to-USD conversion. Banks are chronically short of foreign currency, forcing businesses and individuals to rely on the informal market. This creates a self-perpetuating cycle of currency depreciation and economic instability.

The Blacklist: A Misguided Solution?

The government’s decision to blacklist 51 companies is a heavy-handed attempt to artificially suppress the exchange rate. However, this approach may prove ineffective and potentially counterproductive for several reasons:

1. Easy Workarounds: Many blacklisted companies are owned by well-connected individuals with multiple business entities. They can easily circumvent the ban by applying for contracts through other companies in their portfolio.
2. Low Barriers to Entry: Forming a new company in Zimbabwe is relatively inexpensive and quick. For around $100, one can establish a private limited company within a week, with additional certifications obtainable for a few hundred dollars more.
3. Systemic Issues Unaddressed: The blacklist fails to tackle the root causes of currency instability, such as lack of foreign currency availability through official channels and broader economic challenges.
4. Potential for Corruption: The opaque nature of government contracting in Zimbabwe means that even with new companies, the same individuals may continue to win bids through insider connections.

Table: Notable Blacklisted Companies

Here is a selection of 25 companies from the government’s blacklist. There are a total of 51 companies but we chose some of the notable 25:

Historical Context and Future Implications

Zimbabwe’s currency woes are not new. The introduction of the ZiG follows a long history of monetary experiments, including the hyperinflation era of the late 2000s and the subsequent adoption of a multi-currency system dominated by the US dollar.

The ZiG’s stability is crucial for economic recovery, but heavy-handed interventions like the recent blacklist may do more harm than good. By stifling legitimate business activities and failing to address structural economic issues, such measures risk further eroding confidence in the financial system. Moreover, the fear of sudden policy changes continues to loom large in the minds of businesses and individuals. This apprehension leads to a reluctance to hold large sums in ZiG, perpetuating dollarisation and undermining the very currency the government seeks to protect.

While the Zimbabwean government’s desire to stabilise the ZiG is understandable, its methods are questionable. The blacklisting of companies appears to be a short-sighted solution that fails to address the underlying economic challenges. For the ZiG to succeed, Zimbabwe needs comprehensive economic reforms that foster transparency, build trust in financial institutions, and create reliable mechanisms for foreign currency access. Without these fundamental changes, even the most aggressive defensive measures are likely to fall short, leaving the ZiG – and the broader economy – vulnerable to continued instability.

For more insights on Zimbabwe’s economic challenges, read our analysis of the country’s VAT policies and their impact on businesses.

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