THE Zimbabwean government opened the year by assuming new debt for 855 companies amounting to $3.8 billion in frozen funds that the central bank did not help repatriate out on behalf of these companies.
The assumption of debt by the Treasury was done through Act No. 7 of 2021 which gives legal effect to the Reserve Bank of Zimbabwe (RBZ) which reimburses the 855 private companies whose funds make part of the blocked funds.
Although the US$3.8 billion was approved by the Treasury, it came from a total of US$6.3 billion in claims made by the 855 companies, with the rest still in dispute. The assumption of the debt was noted under article 52 of the law entitled “Assurance of obligations by the State”, in which the Treasury noted that:
“(1) Subject to the validation and reconciliation of the debts concerned under Article 50, the Minister assumes, on behalf of the State, the responsibility for clearing the blocked funds remaining to be liquidated. (2) The manner in which the Minister assumes responsibility under subsection (1) for the performance of any obligation in respect of blocked funds shall be determined by the Minister.
The blocked funds that the RBZ supported were sums related to external obligations that could not be disbursed between January 2016 and February 2019 on behalf of the 855 companies.
The Treasury then listed the 855 companies covered by the law under review, which included fuel operators, airlines, banks, telecommunications and even law firms that taxpayers must now pay, which s adds to existing government debt.
The two largest companies by market capitalization on the Zimbabwe Stock Exchange, namely Delta Corporation Limited and Econet Wireless Zimbabwe, owe $184.2 million and $150.7 million respectively.
Of the sums owed to Delta, US$27.8m are offshore loans while US$104.4m are dividends, with the company’s largest shareholder being Belgian brewer Anheuser Busch Inbev NV, which held a stake by 24.2% in 2020.
Regarding Econet, it received dividends worth $48.3 million, given that its major shareholder is Econet Global Limited with a 38.4% stake, headquartered in South Africa. The country’s largest bank, CBZ Bank, is also on the list as it has registered offshore loans worth $337.7 million which the Treasury will now assume. The Treasury has indicated how it will pay for funds blocked in circulation under Section 52 of the Act, through debt securities denominated in foreign currencies.
“(3) Outstanding blocked funds may be liquidated by the issuance of zero-coupon or non-interest bearing government-guaranteed foreign currency savings bonds or other debt instruments denominated in foreign currencies. (4) No action or proceeding shall be brought or continued against the Reserve Bank or any other banking institution in respect of debts arising out of blocked funds assumed by the Minister on behalf of the State, or any other obligation or claim in connection therewith or arising therefrom.
In order to be compensated by the Treasury, the 855 companies must have submitted their claims no later than April 30, 2020, for validation by the RBZ.
These same companies were also to remit to the central bank the equivalent in Zimbabwean dollars of the blocked funds at the basis of the claim.
Economist Takudzwa Chisango said the accumulation of blocked funds clearly reflects that the government is not doing enough as a country to improve our investment climate.
“Amazingly, this development is in stark contrast to Zimbabwe being open to the business mantras being peddled by the government,” Chisango said.
“We should not have such cases where foreign investors find it difficult to repatriate their dividends, especially when we urgently need investments in the country for various development purposes. So the net effect of this is that potential investors will continue to turn away from Zimbabwe as it remains a hostile investment territory, and the worst case scenario is capital flight, where those with investments in the country could relocate to safer destinations if it is to persist.”