/ 13 January 2008

Zimbabweans shun banks after cash shortages

Kennedy Tsambo’s faith in Zimbabwe’s banking system finally hit breaking point over Christmas when he spent an ultimately fruitless three days queuing to withdraw cash in order to buy a bus fare home.

”This was not a donation that I was queuing for, it’s my own money which I should be able to withdraw as and when I like,” said the 37-year-old, who works as a mechanic in Harare but whose family lives in eastern Nyanyadzi district.

”Now I am thinking of taking out all my money. I won’t deposit any more in the bank until this chaos is over.”

Tsambo is among tens of thousands of casualties of a cash crisis in inflation-ravaged Zimbabwe which has seen banks regularly run out of notes since mid-October.

Central back chief Gideon Gono blames the crisis on cash barons he says have been hoarding Zimbabwe dollars and exchanging them for scarce foreign currency.

Despite unveiling three new currency denominations last month in a bid to ease the shortages, winding queues are still a common feature at banks as the cash crisis persists.

Mairos Chigwada, a self-employed upholsterer, vowed he would ”never repeat that mistake again” after depositing all the money he had earned during the peak month of November into his bank account.

”Now I can’t withdraw the money,” says Chigwada standing near the tail-end of a queue outside a bank in Harare’s Samora Machel Avenue.

”It’s just not fair. It’s hard enough working for that money and it shouldn’t be another pain taking it out of the bank where I put it in the first place.”

With the cash crisis showing no sign of abating, many Zimbabweans are losing faith in the banking system, according to analysts, and could revert to the old days of stashing vast sums of money into pillow cases.

”Nobody in their sense would sell their goat, for example, and take the money to the bank when they are not sure they can withdraw it when they want it,” said Daniel Ndlela, an independent economist.

Godfrey Kanyenze, chief economist of the Zimbabwe Congress said depositors had no incentive to keep money in the bank.

”There is no incentive of keeping money in the bank any more,” said Kanyenze.

”There is a crisis, everything is now collapsing on its face. Ultimately, this is a national problem.”

A banking executive painted a gloomy picture of the sector, predicting massive withdrawals while potential depositors stashed their earnings at home.

”The sector is bound to face serious problems when it comes to deposits,” the executive said on condition of anonymity.

”Why would one go back to the bank after spending so many hours in the queue? These cash shortages are the sort of things which will cause people to riot in other countries,” he added.

The current cash shortages are a repeat of a similar crisis from May to September 2003 which prompted the central bank to introduce bearer cheques — temporary currency denominations with a short lifespan — as a stop-gap measure.

The country has 14 registered commercial banks, five merchant banks and four building societies, but Gono said the number of banks was too large for Zimbabwe’s economy.

”My view is that we have got too many banks relevant to the size of the economy,” Gono told reporters last week.

Two weeks ago, Gono was forced to extend the deadline to exchange bills of Z$200 000 (about $8) just hours before they were to cease being legal tender after chaotic scenes at banks across the country.

Gono said Zimbabwe had Z$100-trillion in circulation but analysts say the cash shortages were due to a combination of waning confidence in the banking system and a deliberate withholding of cash by the central bank.

But the Z$100-trillion which is in circulation could easily have been eroded by inflation. Assuming that the money was shared equally by six million economically active people, each person would get Z$16,6-million daily — just enough to buy one kilogram of beef.

Eric Bloch, an economist from the second city of Bulawayo, said although bank queues had eased, the shortages might recur within three to four months.

”The cash shortages led to a loss of confidence in the central bank and government,” he said.

”The government forgot that due to massive inflation, a person needed 25 times the money in December compared the previous year.”

Zimbabwe is in the throes of an economic crisis with annual inflation officially put at nearly 8 000% but economists say it could be nearer 50 000%.

Unemployment is running at around 80% while there have been widespread shortages of basic goods like sugar and the staple cornmeal. -AFP