In December 2015, Zimbabwe’s banking sector suddenly stopped being able to make foreign payments. Within a couple of weeks, it had recovered – but it was the first real sign that Zimbabwe had begun to run out of foreign currency. It was also the first tentative rumblings of zollarisation.

The macro-background

By December 2015, Zimbabwe was firmly teetering on the edge of a Balance of Payments crisis. Since 2009, the country had become increasingly reliant on imports. And the US dollars to pay for these imports came from three places:

  1. Export proceeds
  2. Foreign investment
  3. Remittances sent home to Zimbabwe from the diaspora.

To be clear: I’m referring here to the flow of money. Of course, in business, the importers actually paid for their imports. But they did so by instructing their banks to take the money from their local Zimbabwean bank accounts, and transfer it into the foreign bank accounts of their suppliers. That local-foreign transfer requires the banking sector to have foreign money available – and that foreign money *came from* those three places on the list above.

The trouble is: in 2013, the Rand had started depreciating (and the Dollar had started strengthening) with the tapering of Quantitative Easing. Those currency movements peaked in late 2015, when the Rand hit more than R16 to the dollar. At the same time, global commodity markets were crashing. This had four impacts:

  1. Manufactured Zimbabwean exports suddenly became very expensive in the region.
  2. The value of mining exports fell with the collapse of the commodity markets.
  3. Foreign investment in those industries slowed.
  4. The value of remittances from the South African diaspora fell in real terms (even if they’d stayed constant in Rand terms).

This was partially offset by the fact that imports from Zimbabwe’s main trading partner, South Africa, were suddenly a lot cheaper. And the cost of imported fuel had also fallen.

But even so, Zimbabwe’s banking sector was becoming increasingly fragile.

And there was government borrowing

At the same time that waves of QE cash were crashing across the global economy, Zimbabwe had an election. The Government of National Unity came to an end in mid-2013 – and in a stroke of electioneering, the public sector wage bill had been virtually doubled overnight (according to the outgoing finance minister).

This wage bill was financed by government borrowing. Government treasury bills were issued, and local banks were “obliged” to take them up. Depositor balances were essentially transferred to government accounts, where they were immediately cashed in by civil servants on pay day.

So where did the cash come from?

Well, the Reserve Bank of Zimbabwe would obtain the cash by withdrawing it from the Federal Reserve, and importing it into Zimbabwe.

And what funded the bank account with the Federal Reserve?

Three things:

  1. Export proceeds
  2. Foreign investment
  3. Remittances sent home to Zimbabwe by the diaspora.
The search for foreign loans

In the face of this looming crisis, the Finance Minister, Patrick Chinamasa, and Reserve Bank governor, John Mangudya, went in search of foreign loans. They put in place a payment plan to take Zimbabwe out of its arrears with the IMF, the World Bank and the Africa Development Bank. That plan was approved in October 2015 at the IMF/World Bank Annual Conference in Lima. The plan included a comprehensive financing plan that would follow once the arrears were cleared (which was meant to be in April 2016).

The hope: if Zimbabwe could get through that 6 to 12 month window, and repay those loans, it would be able to bail out its banking sector and fix the balance of payments crisis.

And while I’m here, let me re-iterate that it needed to repay those arrears with foreign money. Which came from those same three places:

  1. Export proceeds
  2. Foreign investment
  3. Remittances sent home to Zimbabwe by the diaspora.
Only, Zimbabwe didn’t make it through that window

Here are some events:

  • In late September 2015, Patrick Zhuwao was appointed to the post of Minister of Indigenisation. He announced: “I was once a deputy minister but I never had the pride that I now have as a full minister. You should watch me when I am walking. I now walk with a spring in my step. I no longer open the car door for myself; I wait for the aides to open for me. Oh! I feel so important!”
  • He then openly threatened to revoke the operating licences of any company (banks included) that had not fully indigenized by 31 December 2015.
  • He announced a ‘10% indigenisation levy’ on foreign-owned companies – but no one knew whether he was talking about 10% of value, or 10% of revenue, or 10% of profits.
  • A host of statutory instruments were released, retracted and re-released. They all had retrospective application (“You should have complied with this law before we even told you what the law was!”)
  • When pressed into a public spat with the Minister of Finance, he declared that the health of the economy was not his concern: his only mandate was to enforce indigenisation.
  • Foreign capital fled. As did the credit lifelines extended by the international banks to their Zimbabwean subsidiary banks.

Let me give you a quote from a Financial Gazette article that came out on 17 December 2015 (at which point, the new indigenisation laws had not been published – although they were to be effective two weeks later):

Youth, Indigenisation and Economic Empowerment Minister, Patrick Zhuwao, says he has finalised plans to implement the contentious indigenisation and economic empowerment policy, with proposals for hefty penalties against defaulting firms.
The new measures are expected to be gazetted before Christmas and are likely to apply in retrospect, he said.
Cabinet recently tasked Zhuwao, who was appointed to run the portfolio four months ago, to clarify the implementation of the populist policy, which has largely contributed to the destabilisation of the country’s economy and divided President Robert Mugabe’s ruling ZANU-PF party and government.
The Financial Gazette’s Companies & Markets (C&M) can reveal that although many hoped there was going to be flexibility in the new framework for implementing the policy in other areas outside the resources sector, a situation that would promote investments, Zhuwao, in a shocking move, insisted he would vigorously push for a 51/49 percent shareholding in favour of black Zimbabweans for both the resources and non-resources sectors.
The only exception, he said, would be the technology sector, where partners are free to make their own decisions on shareholding structures.
Foreign-owned companies had been given ultimatums to comply with the law before the end of this year or risk nationalisation.
All foreign-owned companies operating in the country but yet to comply with the indigenisation law would be slapped with hefty penalties in 2016, as government seeks to raise at least US$100 million, which Zhuwao said would be used to create 2,265 million jobs by 2018.
“I have been recently tasked by Cabinet to clarify the framework for implementing the indigenisation and empowerment policies before Christmas,” Zhuwao told C&M on the sidelines of a recent Zimbabwe National Chamber of Commerce Business Review Conference.
“When it comes to natural resources, the Act is very clear, setting 51 percent indigenous shareholding. All mergers, restructurings, unbundling of businesses, demergers, relinquishment of a controlling interest shall comply with the 51 percent indigenous ownership requirement.”
The same applies to sectors apart from the resources sectors, he said.
“(But) when it comes to technology, you cannot apply the same principle. You can go for 50/50 or you can agree on a ratio which is sustainable and equitable.
“Let me tell you this: As Minister of Indigenisation and Economic Empowerment, I have a product to sell. I have a mandate that I need to renew in the next two and a half years (when the country holds its next elections). So don’t tell me to understand business. Deal with your ease of doing business, your foreign direct investment (FDIs), it makes better business sense to you. To me, this does not solve my problem as the National Economic Empowerment Strategy (NEES) seeks to create 2,265 million jobs that we require by 2018,” Zhuwao told business executives and owners.
“Remember that I am a politician and my stock of trade is votes. I have to make vote-sense as well. Creating these jobs is in the ZANU-PF manifesto, which I understand because I contributed in the writing of this document. In fact, it costs US$678 405,53 to create one job in Africa from FDI, according to a research done by a reputable accounting firm Ernst & Young.
“I tell you, there is a high level of non-compliance and I want to thank the Minister of Finance and Economic Development, Patrick Chinamasa, who has availed US$10 million under Localised Economic Empowerment Facility (LEAF). This facility will be accessed by youth who borrowed and paid back the previous loans. But we are going to enhance this fund to at least US$100 million by end of next year.
“Our strategy recognises the constrained fiscal space. Therefore, the US$100 million to create jobs is not going to be funded by Treasury but is going to be raised from companies refusing to comply (with the Indigenisation Act).”

Within weeks, foreign payments were temporarily suspended due to a lack of foreign funds.

And the foreign investment part of the Balance of Payments equation disappeared indefinitely.


In early 2016, the foreign payment crisis became the permanent status quo, and the US dollar in Zimbabwe literally tore itself in two.

Suddenly, we had:

  1. Dollars – being cash and foreign money, which were the ‘real’ US dollars; and
  2. Zollars – being RTGS money (or bank money, which was not freely convertible into ‘real’ US dollars.

The RBZ tried to address the cash bleed from the system by introducing bond notes (“Bollars”) – but by then, it was already too late.


Rolling Alpha posts opinions on finance, economics, and sometimes things that are only loosely related. Follow me on Twitter @RollingAlpha, and on Facebook at Also, check out the RA podcast on iTunes: The Story of Money.