BACOSSI, ASPEF, PLARP: Refresher on quasi-fiscal activities during Gideon Gono`s RBZ Reign of Terror

“Quasi-fiscal” interventions by central banks might be something that came in vogue, post the 2008 global financial crisis, with both the US Fed`s and the European Central Bank`s quantitative easing programs – code for printing money.  At its peak, the US Fed in particular was pumping $85 billion a month into the US economy. For Zimbabwe however, quasi-fiscal activities are something that we are all too familiar with, largely thanks to one Gideon Gono.

“Gee-Gee” as he is otherwise known made sure that the mention of his name would inevitably be followed by the phrase “quasi-fiscal.” He financed the purchase of cars, generators, ploughs and even scotch carts, through a broad range of quasi-fiscal activities. In fact, Gono created FISCORP (Pvt) Ltd, an RBZ subsidiary to oversee the central bank`s quasi-fiscal activities. The man clearly wasn`t mucking around!

These quasi-fiscal activities drew the ire of most economic watchers, so much so, the IMF`s Article IV consulting mission in 2005 said, “the RBZ needed to focus on its core function of ensuring price stability and rapidly phase out the many quasi-fiscal activities that fuel money growth and inflation.” What the IMF saw as a deviation from the core functions of the RBZ however, President Robert Mugabe saw a solution to Zimbabwe`s woes. 

Scolding then finance minister Herbert Murerwa who had criticised Gono`s quasi-fiscal ruckus, President Mugabe said in 2005, “They have this word they like using; quasi, quasi. But I tell them that this is the expenditure that we need. We are under sanctions, and there is no room for the type of bookish economics we have at the Ministry of Finance.”

More recently, in an attempt to avert fuel shortages in December 2016, John Mangudya, announced the RBZ had entered into an agreement with Sakunda to import and supply 260 million litres of fuel at a cost of $24 million. To some, this might well signal the RBZ`s renewed foray into the world of quasi-fiscal interventions, especially in the context of the looming basic commodities shortages and other structural economic challenges. 

The extent to which John Mangudya, will follow Gono`s well-trodden path of quasi-fiscal interventions remains to be seen. While the jury is still out on this, below is a refresher of some of Gideon Gono`s quasi fiscal activities:

ASPEF (Agricultural Sector Productivity Enhancement Facility)

Introduced in June 2005, Gideon Gono argued this facility was meant to resuscitate the agricultural sector which had been negatively affected by the reluctance of banks to lend to it after the implementation of the fast track land reform. ASPEF had four objectives, which included, providing low cost funding to targeted primary producers; enhancing capacity utilization, infrastructure development and output; ensuring food security and enabling import substitution; and generating foreign currency. By and large, equipment supplied under the program such as tractors, irrigation implements and various other inputs were looted and this policy did little to achieve its intended effects, and instead left debts on the RBZ`s balance sheet.

BACOSSI (Basic Commodities Supply-Side Intervention Facility)

Perhaps this was the most popular intervention of Gideon Gono`s tenure, under which primary, secondary and tertiary producers and suppliers in targeted key sectors were to have access to concessional production-linked financial support for working capital requirements. Against the backdrop of a Social Contract entered into between labour, business and government to arrest continued price increases BACOSSI was introduced as a price stabilisation measure in July 2007. However, even Gono himself later admitted that this undertaking had unintended consequences which led to disappearance of goods from the shops, only to reappear on the parallel market. 

Manufacturers also faced viability challenges making it difficult for them to produce goods.  Most might remember the National Incomes and Pricing Commission (NIPC) chaired by Godwills Masimirembwa struggling to peg the prices of basic commodities when prices were rising so quick that Gono said, “the level of extortion actually frightens even the devil himself.” At the time, a 750ml bottle of cooking oil cost ZW$200 billion on the parallel market, while Gono argued that the price should have been ZW$12 billion, equivalent to about R12 then. Cheap groceries were provided to people under this scheme through “People`s Shops,” and interestingly, RBZ officials jostled to be posted to rural areas as shopkeepers at these shops, all in the hopes of getting ZW$20 trillion in allowances for five days` worth of work.

PLARP (Parastatals and Local Authorities Reorientation Program)

PLARP was put in place in January 2005, with the objective of designing and implementing strategies for addressing the operational and financial challenges parastatals and public entities. Through this intervention, the RBZ paid off expensive overdrafts and creditors in order to reduce interest costs; and normalize relations with key suppliers respectively. This is how some of the RBZ debt of around US$1.3 billion was raked, which debt, would eventually be passed onto the tax-payer through the RBZ Debt Assumption Bill in 2015. Again, through activities such as these, the RBZ stood as a direct competitor to the commercial banks which it was meant to supervise and regulate, through lending at interest rates much lower than those offered by banks.

Of course, the RBZ could afford this because it printed the currency of the day at will. In fact, at the time Gono complained that Germany unilaterally cut a 50-year old contract to supply Zimbabwe with currency printing paper, machinery, spare parts and inks without notice. Fidelity Printers and Refiners` printing press capacity then, was fixed at 2 million pieces per day and changing this would require US$500 million in investment costs and a minimum lead time of 24 months. Small wonder then, that Gono resorted to printing higher denominations of money, faced with the daily fixed 2 million-piece limit, and growing demand for currency.

(TFCBS) Tradable Foreign Currency Balances System

To deal with significant foreign currency shortages prevailing in Zimbabwe, on 21 October 2005, the TFCBS was introduced by the RBZ. Under TFCBS, a dual exchange rate system prevailed with market transactions being conducted at the inter-bank market exchange rate and critical Government payments being conducted at the official exchange rate. At the time, banks that had cut their foreign currency departments or had phased them out completely, were caught unawares by the new policy and had to either move personnel to reconstitute the department or recruit new staff after. Without enough liquidity in the market to buy foreign currency at very high market rates, this system was eventually discontinued in 2006, to be replaced by a volume based exchange rate system.

JATROPHA

Sorry, to disappoint, this is not an acronym for anything, but instead is a plant which underpinned Gideon Gono`s bio-diesel initiative. In order to ensure the full utilization of the distributed engine driven farm implements and reduce the country's dependency on imported fuel, the Central Bank commissioned a Bio-diesel plant in 2007. This plant was said to be the first of its kind in Africa, and the country was told that it had a capacity to produce 100,000 litres of diesel annually. In the RBZ`s calculations, this plant was expected to reduce the Zimbabwe's fuel imports by US$80 million and restrain the inflationary pressures in the economy. Land was availed for growing the Jatropha plant in Mutoko, and plans at the time were to allocate at least one farm in each of the country's 10 provinces for the growing of Jatropha, following a visit to a bio-diesel plant in Korea in 2006 by a local delegation. 

Somebody forgot however, to tell this delegation that bio-diesel from a Jatropha plant cannot be run sustainably on a commercial basis, and resultantly, the plant in Harare`s Mt Hampden area remains a white elephant to this day. Ishmael Machiya, a director of Finealt Engineering, a government-owned company in charge of the bio-diesel project told the Parliamentary Portfolio Committee on Higher Education, Science and Technology Development in 2016 that Finealt had in excess of 30,000 litres of produced diesel awaiting blending for public usage and 100 tonnes of Jatropha still to be processed due to lack of funding to blend the bio-diesel for public consumption. Some estimates say that at least US$11,7 million is required to get the plant sustainably running.

Well into his retirement since stepping down as RBZ governor, Gono will quite easily be one of the central bank governors who will be difficult to forget. Some see him as the person who singlehandedly facilitated the plunder of Zimbabwe`s resources through his quasi-fiscal activities. Gideon Gono, however was aware this tag would follow him well after his tenure and said in a January 2009 Monetary Policy Statement, “If it makes people feel better and as a precondition for the country to move forward, I accept blame in full for our economic crisis to the extent that no one else in the private sector, the international community, no one in our parastatal and local-authorities’ leadership are prepared to accept blame.”