Finance and Economic Development Minister Mthuli Ncube says Zimbabwe is “very serious” about establishing an Offshore Financial Centre (OFC) in the country, but analysts say given the country’s handling of foreign investments in the past few years the intention might as well be over ambitious, at least for now.
Offshore Financial Centres specialise in the provision of financial services to non-residents on a scale far exceeding the needs and the size of the hosting economies.
They provide a large range of financial services, including international banking, headquarter services, foreign direct investment, structured finance, insurance, collective investment schemes and so forth.
OFCs are seen as attractive intermediate destinations because of their numerous tax treaties, low or zero withholding taxes, strong legal systems and good reputations for enabling the quiet transfer of capital without taxation.
Countries that have popularised OFCs include, but are not limited to, The Bahamas, British Virgin Islands, Kazakhstan, Cayman Islands and in Africa there is Mauritius and Botswana.
Faced with lower growth and high rates of unemployment, Zimbabwe could be searching for new sources of growth, and is looking toward OFCs as one potential source of future growth, according to Minister Ncube.
“We are very serious about offshore financial centres in Zimbabwe to compete with Mauritius, Botswana and Kazakhstan. We want to target companies that are trying to invest in Africa, we want them to come through Zimbabwe as an offshore financial centre,” Minister Ncube told a post Mid-Term Budget Review breakfast meeting recently.
He said the country could leverage on the quality of its personnel and a well-organised financial service sector to run a vibrant OFC.
“Why am I optimistic about this? Because of the quality of the people in Zimbabwe, quality of personnel. Our financial sector, whatever you think, is well organised, it’s in line with international standards,” said Minister Ncube.
“We have got also the support of private sector institutions, the law society, the accountants to support the successful offshore financial service centres.”
Analysts, however, are of the opinion that the country’s financial troubles and inconsistent fiscal and monetary policies would make the country unattractive to non-residents.
“It is true Zimbabwe can be a significant financial hub in Africa and the private sector is ready to take up the challenge, but it will never happen, at least not until Government starts to respect the letter of the laws it enacts and starts to treat all people alike regardless of political or economic circumstances,” said analyst Walter Mandeya of Trigrams Investment.
He said potential users of any local OFC will focus on its history of honouring financial obligations to foreign investors and international institutions.
“In theory it is possible, but let’s look at Zimbabwe’s history of honouring financial obligations, the country is currently in default with all major lending institutions, the country has not once, not twice, but more wiped out people’s bank balances and savings.
“The country has on several occasions changed policy overnight with no compensation for those affected. In 2018 banks held capital in United States dollars (USD) and most banks had gone beyond the US$100 million minimum capital as stipulated by the Reserve Bank of Zimbabwe and this was over a 9 to 10-year period. Today, less than a year later, those banks now hold that capital in RTGS money and it is now worth 10 percent of what it was in USD terms because the authorities abandoned the USD in favour of a local currency.
“Which international investor is going to trust Zimbabwe with their money,” asked Mandeya.
Investments Professionals Association of Zimbabwe (IPAZ) board member and financial analyst Ranga Makwata, concurred and said the idea of having Zimbabwe as an offshore financial centre is such a high level aspiration, which is good but unrealistic given our struggles with fairly basic things like getting locals to save and eventually invest locally.
“Investor perception on the country’s respect for property rights is negative with fears of expropriation linked with how the land question was addressed and the indigenisation laws we had in the past.
“How do you even begin that conversation when those who were brave enough to invest in this country before are struggling to get their money out? The perception now is when money gets into Zimbabwe, there’s no way of getting it out.
“Policy inconsistencies and aggressive reactions to perceived threats like we saw with the restrictions on Old Mutual fungibility makes the country a least attractive investment destination let alone an offshore financial centre. Let’s get the basics right first before stretching our aspirations to high level goals,” said Makwata.
Zimbabwe Stock Exchange investors failed to access their funds from as far back as 2015 and related questions abound among investors and analysts. Are they going to continue investing in Zimbabwe? Delta, BAT, Old Mutual, shareholders for example have failed to access their dividends because of Government policy. Are they going to use Zimbabwe as a financial hub? How many international, regional or local companies have listed on the ZSE over the last 30 years? Compare that to Botswana and South Africa.
“Just take the last set of policy statements. Old Mutual shareholders have to wait 90 days to trade their shares. Are we really serious about wanting to be a financial hub?
Popular sentiment among analysts and commentators was that at the moment the country’s payment systems are inefficient.
“We do not seem to have strong anti-money laundering and anti-corruption systems, our tax systems and policies are complicated, opaque, and inefficient. The Finance Minister and his team should be thinking of how to better serve current citizens.”
Financial offshore centres work because property rights are guaranteed. I cannot say the same for Zimbabwe at the moment. We are struggling to attract investment and our banks are struggling to clear our own payments.
“There are major deficiencies that the Minister skirted over. Key of which is confidence, a surplus of foreign currency and reliable infrastructure.
“Remember the debacle with Paynet, or the currency write-offs for multinationals like Lafarge failing to get money out and hitting their balance sheets.”
However, another analyst with a local asset management company who cannot be named for professional reasons, said Minister Ncube has to put a brave face “as a captain of the ship and be optimistic.”
“Everyone starts somewhere. It’s the whole chicken and egg thing. Which comes first. I think he (Minister Ncube) more than most understands the limitations of our economic/financial infrastructure. Clearly, our path to health will not be paved by local tax revenue alone. There is a need for “new money” independent of our stretched citizens,” said the analyst.