Tuesday, August 08, 2006

Sui Generis


After a brief period of uncertainty, the semester has begun on a slow note. The tension sparked by the fees hikes is gradually subsiding. Shockingly, the traditionally renowned “mother of all resistance” has become the mother of all High Schools, Some critics have actually labeled it the sister to Solusi Senior Adventist Secondary School.A prominent second year law student, Promise Mkwananzi, is reportedly at the center of a scathing war (more apparent than real) against the hikes… his chosen battlefield is STUDIO 7 (Voice of America) and endless workshops. Maybe he will come closer home and take the bull by the horns. In the meantime, sporadic lectures are taking place within the royal faculty amidst a lot of postponements as there is a continued low turnout of students, some are still paying, some are still selling the few livestock left at home to raise the required fees.

The grapevines have it that the ZILSA President who also doubles as the acting S.E.C. President has become an endangered specie following his perceived full scale support of the fees hikes(doubt). He has resultantly withdrawn from his usual socially mobile personality to an introvert. The grapevine also has it that at one time he was given maximum-security protection following several threats on him. It is even reported that a fellow law student, Cde. Mureza Muchena (Peter Thatchel?) delivered a washa geri style kick on the unsuspecting president. The President was not available for comments and Cde. Muchena could not be reached at his Prestage House base. You didn’t get this one from THE WATCH!!!!!!!!!!!!!!!!!.

Alarm bells that were sounding in respect of the Advanced Civil Procedure Examination results were effectively silenced. What with the “Operation MurambaUBA” that took place in the Great Hell! Seems like the examiners were lenient enough to launch “Operation pasai zvenyu but on merit” The usual number of casualties were witnessed across board. And the pass rate/ standard in Conveyancing did not change even after the Guide to Conveyancing was allowed into the examination room.

Well, well, well, our beloved Gift is not yet through with his bagful of surprises. After his full year of lukewarm leadership as S.E.C President for 2004-2005, he joined the pro-senate political trail in the MDC faction. But who ever thought he was eyeing the National Youth Chairmanship (or is it the National Youth Service) to rival the Kuwadzana legislator Nelson Chamisa in the opposite camp? Is it just another wave of opportunism or he really intends to turn the tables around?

A new computer section has been created specifically for the fourth years to enable them to work on their dissertations.

When asked how the vacation was, one student remarked, “it was fine until the dreadful two weeks beginning From February 7…” What hope is there for the semester, one wonders.

“What will happen when you give the control of the CIO to such people? WE WILL BE KILLED ALIVE COMRADES” Jobo Wiwa on MDC internal violence ZTV interview

Aetiology of Zimbabwe Banking Crisis 2003-4

Aetiology of Zimbabwe Banking Crisis 2003-04
Dr T. A. Makoni

Executive Summary
As a prelude to my research project on entrepreneurship in the Zimbabwean
banking industry for the period 1995 –2005, I review the aetiology of the
financial crisis in the light of other crises worldwide. The Reserve Bank of
Zimbabwe (RBZ) has placed the blame for the crisis on entrepreneurial bankers
while these blame the macroeconomic policies of the government. Others blame
the crisis on political interests or personal vendettas.Entrepreneurship in
financial services suffered a huge shock from a banking
crisis that started in December 2003. A number of indigenous banks collapsed as
a result. After an extensive analysis I argue that the fragility in the
Zimbabwean financial services was a result of mistakes (not criminal activity)
by all three stakeholders, namely borrowers, bankers and regulators, as they
navigated the uncharted waters of financial deregulation and liberalisation.
However the real cause and trigger of the banking crisis lies squarely at the
feet of the regulator. 1 BackgroundThe deregulation of the financial services
in the late 1990s resulted in an explosion of entrepreneurial activity leading
to the formation of banking institutions. This sector was hailed as the beacon
of Zimbabwean entrepreneurship and the glory of the nation in tough times. It
proved to be
highly profitable, with exponential market growth. However after a new governor
was appointed in December 2003, a change in the monetary policy stance
precipitated a banking crisis that resulted in bank collapses and closures. As
at 31 December 2003 there were forty banking institutions but a year later the
number had declined to twenty nine, comprising eleven commercial banks, five
merchant banks, five discount houses, four finance houses and four building
societies. The collapsed banks included nine institutions placed under
curatorship and three that were placed under final liquidation. This has
resulted in blame shifting between the affected bankers and the regulatory
authorities as to what triggered the crisis.Dermirg-Kunt et al (2000) define a
banking crisis as a period in which significant segments of the banking system
become illiquid and/ or insolvent. This is normally characterised by:
Bank failuresEnactment of emergency measures by regulatory authorities
significant deposit flights to perceived safer banks
High levels of non-performing loans andHuge bail out costs.After the December
2003 Monetary Policy Statement, and for the greater part of 2004, these signs
of a banking crisis were evident in Zimbabwe.Banking crises are not as
infrequent as may first appear. For example Glick et al (1999) carried out a
survey on ninety (90) banking and currency crises in both industrial and
developing countries from 1975 to 1997. In another paper (Beim, 2001) it is
noted that researchers from the World Bank have reported 113 banking crises in
93 countries for the period 1975-1999. That implies an average of five banking
crises per year over that time period. Numerous
research projects have been carried out in an attempt to identify the causes or
triggers of banking crises.2 Reserve Bank of Zimbabwe Attribution of CausesThe
RBZ argues that the key reasons for the crisis in the banking sector
are:Extensive diversion of management’s attention to other commercial
activities, rather than running their institutionsHigh prevalence of insider
loansFailure to diversify shareholding structures leading to undue influence by
owner managers Evasion of core banking business and engaging in speculative
activitiesInvolvement in parallel foreign currency dealings Poor corporate
governance epitomised by: inadequate or virtually non-functional board
oversight, and with weak controlsInadequate or poor risk management
systemsAbuse of holding and associate company structures to evade regulation
and channel depositors’ funds into non-registered entities e.g. asset
managersRapid and ill-planned expansion drives that overstretched their limited
resources and Misrepresentation and creative accounting.(RBZ, 2003, RBZ, 2004b:
37-42, and Zimbabwe Independent, 2005:B31)The affected bankers and analysts
have doubted this explanation as the main cause of the crisis. It should be
noted that there is an asymmetry of information as the central bank has access
to all media platforms while it has put a gag order on bankers speaking to the
press. From a purely theoretical perspective, causes of banking crises should
be both macroeconomic and microeconomic in nature.The one sided nature of the
blame attribution makes a case for the researcher to analyse other crises to
objectively establish possible causes.

3 The Framework of AnalysisBeim (2001:5)
posits that banks fail only when one or more major sources of funding are
withdrawn. He hypothesises that there are two phases to banking
crises and four sets of agents, namely depositors, government as guarantor,
private external lenders and intergovernmental financial institutions e.g. the
International Monetary Fund and World Bank. He labels the phases as:

Phase One:
The silent phase when vulnerability emerges. In this phase economic value is
destroyed due to numerous factors but this is not acknowledged and
hence quietly builds up eroding the banks’ capital. The phase is characterised
by increased non-performing loans (NPL).

Phase Two: In this critical stage it is
publicly acknowledged that banks are insolvent and the various agents attempt
to take action to remedy the situation. It is this stage that converts to a
full blown banking crisis.He uses the framework to review 113 systemic banking
crises originally identified by Caprio and Klingebiel (1999). Beim (ibid:2)
disagrees with Honohan (1997), who categorises causes of crises into
macroeconomic factors, microeconomic factors and factors endemic to government
dominated banking systems. He contends that these factors often occur in
combination and seem to provide little theoretical traction. I will base my
analysis of the aetiology of the Zimbabwean financial crisis on this

3.1 Phase OneThis phase has both macroeconomic and microeconomic
causes. It does not constitute a banking crisis but refers to factors that
create vulnerability and fragility in the sector. At this time there is no
public acknowledgement of the potential crisis.3.1.1 Macroeconomic factors
Honohan (1997:9) is sceptical that macroeconomic factors cause banking crises
since even countries whose macroeconomic fundamentals were strong, e.g. Brazil
and Malaysia, still had banking crises while others whose macro-fundamentals
were weak did not suffer any banking crises. However it can be argued that
these do create vulnerabilities in the sector.Market-oriented economic reforms
accompanied by financial liberalisation have been positively correlated to
banking crises, as they tend to result in an excessive build up of bank credit
and a lending boom, leading to asset price bubbles. (Burdisso et al, 2002,
Corsetti et al, 1999:24).

Zimbabwe has been through a structural economic
reform program since the early 1990s at the insistence of multi-lateral
lenders. It has been reported that financial liberalisation and deregulation
resulted in financial fragility due to inadequate bank regulation and
supervision in Asian Crisis (1997), and Mexican Crisis (1994). Deregulation
increased new entries into the banking sector and thus spread the available
pool of skilled bankers too thinly. This was compounded by the massive brain
drain as professionals emigrated to countries where salaries were more
competitive. Naturally this affects the risk assessment capability of the banks
as well as the managerial competences.

It should not surprise the regulators
when the quality of loan books deteriorates. Hawkins and Mihaljek (n.d., page
3) observe that deregulation reduces sources of cheap funds and thus reduce
profit margins, thereby straining the banks’ margin of safety that is generally
slim within a hyperinflationary environment.Hyperinflationary environments tend
to increase bank vulnerabilities to crises. Boyd et al (2000:12) argue that
inflation lowers the real rates of return resulting in a smaller pool of
savings while increasing the potential pool of borrowers. This happens because
lower real rates of return reduce the attractiveness of savings while
increasing the attractiveness of borrowing. Entrepreneurial bankers
aggressively promoted borrowing to fund consumer and corporate expenditure due
to the negative real interest rates in Zimbabwe between 1998 and 2003. This
increased the exposure of the banks as the creditworthiness of borrowers
declined and yet, due to strong competitive rivalry, aggressive lending was one
way of retaining market share. However, with lower savings and cheaper sources
of funds dissipated, the banks had to source expensive money to fund the
borrowings. Naturally investors and lenders started demanding higher rates of
return closer to the inflation rate. This meant bankers had to invest in high
risk, high return investments to meet the customer demand and also be able to
mobilise resources.

I therefore argue that the speculative investments engaged
in by the bankers was a reflection of market realities and also necessary for
the banks’ survival. These market realities were not caused by the bankers but
by macroeconomic policy makers. Hyperinflation lowers the real return on a
variety of assets e.g. deposits, treasury bills and equities. Consequently the
value of the banks’ equity capital is eroded by inflation.

When Zimbabwean
regulatory authorities in response increased the statutory reserves of banks in
this hyperinflationary environment, they reduced the real return to banks and
this was passed on as lower returns on deposits as well as increase in service
charges for previously “free services”. The Reserve Bank subsequently accused
the banks of extortion and directed that banks to remove the service charges as
well as increase the interests on deposits. This action further
exacerbated the vulnerability of banks by reducing their profit margin.
Burdisso (2002:18) contends that high inflation signals poor macroeconomic
and/or large fiscal imbalances. Yet the monetary authorities in Zimbabwe were
blaming the bankers for fuelling inflation.Corsetti et al (1999:8) found that
countries with huge current account deficits/imbalances based on balance of
payments develop an external competitiveness problem leading to a currency
crisis. They further argue that a currency depreciation and external imbalances
imply a causative role of current account problems in the banking crises.
Zimbabwe’s economy has been contracting for six successive years. The GDP
growth for years 2002-2004 was
negative. (RBZ, 2004). The country’s total external debt has been rising
annually due to failure to service it. For example the total external debt
increased from US$3.86 billion in 2003 to US$4.3 billion in 2004. (RBZ,
2004:27). Zimbabwe was in a CGP (Currency, Growth, Debt) trap where currency is
overvalued, growth is faltering and debt servicing is a challenge.

De la this
trap also adversely affected the Zimbabwean financial sector.For the six years
prior to December 2003, the Reserve Bank maintained a fixed rate of exchange
and yet there was an acute shortage of foreign currency. This resulted in
increased parallel market trading by banks with the complicity of the Reserve
Bank. Most of the country’s economic activities, including fuel and energy
procurement, parastatal requirements and the 2000 Election, were funded through
parallel market funding in which the RBZ played an active part.

However the RBZ used market players, mainly the commercial and merchant banks,
as agents in sourcing the foreign currency for them. Cunningly, the RBZ let the
banks carry the risk for foreign currency dealings and in some cases did not
repay the banks the foreign currency on time, leading to unnecessary exposure.
Even in 2005 the current governor of the RBZ resorted to the
parallel market to source funds for the reimbursement of the IMF loans. Given
the role of the RBZ in the parallel market, it can be argued that there was
tacit approval of this activity, and hence entrepreneurial bankers exploited
this and maintained large open foreign currency positions. It is hypocritical
to accuse bankers for trading on the “illegal” parallel market when it was the
only market available then. I argue that the whole economy at that stage was at
that stage could be viewed as a patriotic.

Then as now, government policy had virtually driven many aspects of the economy onto the parallel market.Some
bankers hedged against inflation through speculative foreign currency trading.
The fixing of the exchange rate in a hyperinflationary economy created huge
vulnerabilities for the banking sector. However the major adverse impact of
both inflation and poor exchange rate management systems by2 the
central bank was the immediate erosion of the capital value of the banks, which
led to under-capitalisation. prudential regulations and bank supervision, as
well as insufficient expertise in the regulatory institutions, increase the
probability of banking crises. As
has been noted in a previous paper, Zimbabwe did not have sufficient banking
regulations and expertise at bank supervision. The new Banking Act was enacted
in 1998 and subsequently reviewed about thrice since then. Prior to this a 1965
Banking Act governed the banking sector. The banking supervision department was
introduced in 1985 at RBZ and from then until 2000 it relied on
prudential guidelines and moral suasion to promote prudent risk taking within
banking sector. Basically the RBZ had no teeth and was learning the ropes along
the way. There is evidence to show that until the outbreak of the crisis,
banking supervision and surveillance were lax. As one banker said, “With the
frequent reports from banks, how was it possible for the the regulators in this
crisis.” It is thus evident that compliance and enforcement of official
prudential requirements, once these were legislated around 2000, were low.

3.1.2 Microeconomic factors

Due to the liberalisation of the economy there was
an excessive optimism about lending to rapidly expanding indigenous companies
and speculative property developers whose booming output and rapidly rising
collateral values gave
banks a false sense of security. Firms became highly geared. Bankers formed
self-fulfilling views of the creditworthiness of nvestments in the property and
equity markets. This led to a boom in lending and an increased demand of the
products, which resulted in an asset price bubble. However this credit
expansion was based on unrealistic prices and price trends of the assets, which
could be reversed by any macroeconomic downturn that would cause the asset
bubble bursting. Retrospectively, it is evident that banks riding on the wave
of optimism over-lend to projects with no long term prospects, increasing their
vulnerability. Of course we are all wiser in
retrospect, and hence it is easy to criticise these actions now. It is noted
that all economic players were praising the bankers in 2002-2003 as having kept
the economy vibrant. How fickle can market sentiment be?Honogan (1997:10)
argues that bankers “hunt in herds” and therefore adopt market norms to avoid
criticisms from shareholders, regulators and analysts for not exploiting

In mid-2003 a number of the conservative banks, especially
Commercial Bank of Zimbabwe (CBZ), came under fire from shareholders and
analysts for comparatively poor performance against the aggressive indigenous
banks. At the same time the foreign banks also came under the political
spotlight for their reluctance to lend money to the booming indigenous sector.
It follows that the banks that were conservative in lending to the indigenous
sector and taking low return investments, felt the need to conform in order to
avoid censure from stakeholders.The aggressive competition for market share
also led to excessive lending. Many bankers felt that if they lost this battle
they would become unviable. This competition reduced the stringent lending
regulations, increasing the
incidence of non-performing loans.The 1994 Mexican Crisis was partially
attributed to poor quality loans financing investments of dubious profitability
or speculative purchases of existing financial assets. The net result was a
high presence of non-
performing loans characterised by a high proportion of bad loans, excessive
exposure to the property sector and overly optimistic estimates of loans’
collateral. (Corsetti et al 1999:28). It is evident that in the last quarter of
2003 that there were significant speculative investments in land, property,
vehicles, stock at the ZSE and take-over of companies. However at that stage
this was a response to market demands for high return and high risk
investments. Inflation was galloping towards 600% and investors demanded above
or near inflation returns. The market cheered them on. It can be argued that at
this stage the level of non-performing loans was still low and the banks were
merely vulnerable but there was no crisis.In the Latvian Crisis it was observed
that some banks were created not primarily to service the banking needs of the
public and establish solid business relationships that could serve the long run
interests of the bank, but as a rent-seeking activity of oner mangers who
sought to maximise their wealth quickly. The loose legal and supervisory
framework governing the banking sector encouraged this. (Fleming and Talley,
1996). In some cases this
was also evident in the Zimbabwean. However from an entrepreneurial perspective
is it wrong to set up a business for wealth creation purposes? If there is no
value for the creators of the business then it eliminates one of the critical
incentives for entrepreneurial activity – the profit motive. Since when did
rent-seeking behaviour from entrepreneurs become criminal? Entrepreneurs by
nature seek to exploit loopholes to maximise the returns on their
investments.Similarly some banks were formed with the primary purpose of
providing cheaper sources of funds for the entrepreneurs’ other business
activities. This per se is neither criminal nor unethical as long as proper
procedures are followed. As Honohan (1997) argues concerning self-lending, “who
would not want to benefit from the asset price boom?” onogan (ibid:11)
describes a psychological phenomenon called “disaster myopia” as the tendency
to ignore potentially catastrophic events that have a small probability of
occurring and hence no contingency plans are crafted to minimise their adverse
impact. It does appear as if Zimbabwean bankers suffered from this syndrome.
It is difficult to imagine that few took steps to plan for the the consequences
of high risk investments in an unstable economy, especially considering that
the multi-national banks at the same time were downsizing, selling off non-
profitable branches and pursuing very conservative lending policies. They were
also moving away from high cost erve cash and reduce expenditure. Scenario
planning could have helped entrepreneurial bankers appreciate the weak
threatening signals from the environment.

Recklessness and fraud have also been
identified as factors that increase the vulnerability of the banking sector.
This is evident where adequate controls on risk and appropriate rewarding
structures are lacking. For example if but no meaningful penalties when they
are unsuccessful, then risk-preferring behaviour is noted. The same applies if
loan officers are rewarded for volumes of loans generated rather than loans
repaid. Inappropriate managerial incentives also cause vulnerability e.g. when
top managers are unduly concerned about growing the bank’s asset base. The
Z$200 billion to Z$800 billion, seems to fit into this category. It is also
noted that Trust lost a significant amount of money to internal fraud in late
2003, which made it vulnerable to the harsh economic environment. The twin
desires for growth and parochial self-interest of loan officers would lead to
insufficiently diversified loan book and poor credit assessment. The slim
skills base in the rapidly expanding banking sector further exacerbates this.
Consequently inexperienced bankers were now trusted with brokering huge deals,
thereby exposing the banks. An example of inappropriate reward and inadequate
control systems is how one dealer sank Baring Bank in 1995.Strangely, the
regulators did not seem concerned about the excessive growth of Trust Bank and
ENG Capital and yet reporters were questioning their exponential growth. The
wait and see laissez faire attitude of the central
bank is possibly responsible for increased financial fragility. Preventive
measures could have been taken earlier and the crisis might then have been
avoided. The factors in this phase did not of themselves cause the banking
crisis. They Fragility in the banking sector, like in Latvia, involved joint
vulnerabilities and joint liabilities of the industry stakeholders. Within the
stakeholders, namely the borrowers, the enterprising bankers and the
regulators, were all prone to mistakes and hence are jointly liable for the
banking crisis. Due to increased competition, the borrowers had easier access
to credit and consequently invested funds in speculative and non-productive
economic when their projects failed they exposed the banks as well. The
depositors demanded high returns from the banks, which encouraged banks to
engage in high return and high risk investments. Consequently they were also
assuming the risk in their investment prtfolios. Characteristically, many
depositors in 2003 avoided conservative banks and preferred the high interest
paying asset managers, micro-finance institutions and indigenous banks.The
bankers made their own mistakes, due to pressure from the increased
competition, shareholders, analysts as well as a poor skills base, that led to
poor lending and investment decisions resulting in more non-performing loans.
Banking supervisors and regulators were also learning their trade along the way
and consequently made their own mistakes. Indications of corruption from
banking supervision department were rampant at that time. In the Latvian
Crisis, poor surveillance and supervision by Central Bank led to the
resignation of the head of banking supervision, however in Zimbabwe the then
head of banking supervision was promoted to head a newly formed bank. This is
indicative of the way the Central Bank is biased in its view of the causes of
the banking crisis.A study of banking system failures in emerging economies by
Honohan (1997) concludes that for a banking crisis to occur there has to
be:errors in macroeconomic and monetary policy management and microeconomic
deficiencies in bank behaviour.It is therefore my considered view that the RBZ
view is partisan and a correct attribution of the causes of the banking crisis
includes all the banking sector stakeholders. Honohan (ibid:12) categorically
contends that a widespread banking crisis that is attributed to poor bank
management may as well be attributed to poor supervision and enforcement. This
view has been confirmed by legal precedence set in the Bank of Credit and
Commerce International (BCCI) case whereby in March 2001 the House of Lords in
the UK granted leave to its liquidators to sue the regulators, the Bank of
England, for up to GBP1 billion, for negligence, regulatory laxity and failure
to monitor BCCI effectively, leading to the crisis. This case confirms my
argument that the regulators and the bankers should be considered jointly
liable since they both made mistakes. However as Beim (2001) states, a banking
crisis occurs when one or more major sources of funding are withdrawn. As at
November 2003 there was no such activity in Zimbabwe and hence there was no
banking crisis but just a fragile financial sector. This was thus a silent
phase, which resulted in increased non-performing loans. So what triggered or
caused the banking crisis in Zimbabwe?3.2 Phase Two (The Crisis)
Beim (2001:5) contends that a banking crisis is triggered by an event that can
point. Malaysia had a solid financial sector and a strong economy that had been
expanding for the eight years prior to the crisis. However it was affected by
the currency crisis of the Thai baht and yet there were no apparent linkages
between these two economies. The trigger, however, was that major investors in
the alaysian economy where the same as in the Thailand economy so when the Thai
economy fell, these investors withdrew their funds and speculation increased.
The result was a massive depositor flight, leading to a banking crisis. In
Argentina, although the economy was robust and the banking sector was solid and
conformed to the Basle recommendations of prudential regulations, a banking
crisis erupted when the government, which had huge debt holdings, failed to pay
its debts and depositor flight resulted Depositors are content to leave their
money in banks if they have the security their investments are at risk, a bank
run occurs. In December 2003 the incoming governor introduced a stringent
monetary policy statement and intimated that the banking sector was in trouble.
He also clearly spelt out that some banks would fail and this led to panic in
the market. In a bid to be confidentiality and exposed the market to
information which it was not primed to process. As a result there was a massive
bank run on indigenous banks. A nder pressure for immediate registration with
stringent regulations. This arguable led to the collapse of ENG Capital and a
bank run as the market interpreted the governor’s statement to mean that
indigenous banks were not safe. A similar scenario occurred in Latvia when the
Central Bank insisted on audited financial statements from all financial
institutions in 1995, after a period of lax supervision. The largest bank,
subsequently led to its collapse and the resultant contagion effect. (Fleming
and Talley, 1996)The government, through the Reserve Bank, is the guarantor and
banker of last resort. However the governor withdrew the overnight
accommodation window and failed to assure the nation as guarantor. This exposed
the banks. The governor then directed banks to unwind their positions overnight
lest they find themselves in a liquidity crisis with high punitive
accommodation rates offered by the Reserve Bank backed by tough conditions.
Corporate accounts where withdrawn from entrepreneurial banks immediately and
a “flight to quality” was observed as money was moved to foreign owned banks
which were perceived as being safer. Access to the interbank market for the
affected banks was closed, as other banks feared a contagion effect and the RBZ
threatened to ring-fence the affected banks.
Intergovernmental lenders, e.g. the IMF and World Bank, and private external
lenders had given Zimbabwe a wide berth due to its skewed economic policies and
hence were not available as sources of funds.According to this model the
banking crisis was triggered by the massive depositor flight and the withdrawal
of the government as sources of funds,.Beim (2001) argues that a change in
leadership is one of the major triggers of banking crises. In most cases this
refers to change in political leadership. owever in the Zimbabwean scenario, I
argue that the change of leadership at the central bank was the trigger of the
banking crisis. The new leaders
observed the fragility of the industry and publicly acknowledgd and aimed to
clean up the pre-existing problem. In this way the new governor sought
political credit for solving the problem and hence avoided being blamed for
creating it. There have been unconfirmed reports that his motivation was to
create a platform for higher political office by solving the economic crisis
the country was going through. His sudden zeal and desire for unprecedented
transparency as to the financial crisis can be understood in this light.However
his good intentions seem to have ignored the interlinkages of the banking
sector as a system and hence led to what he was trying to prevent. In the next
section I analyse the steps taken by the new governor and their implications
for the ensuing banking crisis.3.2.1 Possible Aetiological Factors Underlying
Bank CrisisThe Central Bank accused bankers of speculative activities and
unethical behaviour and directed them to unwind their positions overnight. A
punitive overnight central bank accommodation at 400% p.a. was introduced.
However once the market players had been forced to unwind their positions
overnight, the offloading of their investments e.g. properties, land, vehicles,
stock exchange holdings, flooded the market leading to a crash of the stock
exchange and the property market. Economists call this an asset price burst.
This action has the following consequences, which are detrimental to banks’
health:Bankers sought to withdraw their investments with asset managers,
leading to the collapse of ENG and the other asset managers. The ensuing market
panic further increased the exposure of the banks.The value of collateral that
bankers held collapsed while the inflationary push and interest rate hike
increased their indebtedness. An asset-liability mismatch resulted. It can be
argued that until this stage there was minimal asset-liability mismatch in the
industry.The bankers had to withdraw credit or call in loans. However borrowers
were subject to the vagaries of a run away economy and most had no means to
either immediately repay the loans or increase their collateral. This
automatically increased the incidence of NPL (non-performing loans). Prior to
this action, the servicing of these loans had not been a problem.The credit
squeeze imposed by the governor led to a credit crunch, further
reducing the banks’ earning capacity.The resultant massive depositor flight
further worsened the banks’ liquidity
positions as no bank would have a near 100% liquidity cover.To survive the
liquidity crisis, the banks had no choice ut to resort to the
exorbitant central bank accommodation. The conditions for accessing this fund
of securities further reuced their earning capacity and hence compromised their
ability to pay back the loans. The forced departure of CEOs sent a wrong signal
to the market. How then could the bank mobilise deposits when messages were
being sent out by the regulator to say they were unsafe? How does a lender of
last resort claim to be trying to save a bank which has an liquidity crisis by
imposing harsher repayment terms than the market?
The Central Bank hiked interest rates resulting in commerce having difficulty
to obtain financing from commercial banks since an increase in the RBZ repo
rate translates into an across the board rate hike in the financial system. In
effect, it increases the cost of funds to bankers. Simultaneously the RBZ
offered the Productive Sector Financing at concessionary rates to industry at
30% p.a. compared to 400% p.a. from commercial banks. Consequently the central
bank became a competitor to the banks. The banks lost their best customers, the
corporate customers, to the RBZ and yet they had to survive the squeeze.
Consumer spending was restricted, with the net result that the banks’ income
windled. liquidity. (RBZ, 2003a:16). This statutory reserves means that one is
reducing the amount of depositor’s funds that the bank can invest profitably
since statutory reserves are monies surrendered to the reserve bank at zero
interest. This amounts to a significant withdrawal of funds from the financial
system during a liquidity crisis. Worse still, the Central Bank was getting
this money from banks at zero interest and robbing them of an earning capacity,
then lending it back to them as overnight accommodation at punitive rates of
400% p.a., or else using it as a competitive tool against the banks by lending
it to corporate customers as productive sector facility. This surely is
unethical. The higher the statutory reserves, the higher the percentage of
depositors’ funds that is unproductive, consequently banks are forced to lower
the interest rates on deposits and hence sabotage the deposit mobilisation
exercise that would improve their liquidity. Paradoxically, the Governor was at
the same time making noises about banks not passing on the profits from trading
to the
customers. This resulted in unnecessary losses being incurred by already
struggling banks. By forcing banks to lower their lending rates while
increasing the repo rate, the RBZ was actually narrowing the profit margins of
already constrained banks. equated to a significant erosion of the banks’
capitalisation. Consequently the governor increased the banks’ minimum capital
requirements. This put a further strain on the struggling banks. The governor
directed that there be a re-classification of non-performing loans from six
monhs to three months. This takes away the breathing space from borrowers and
has an adverse impact on their ability to pay back the
loans. Banks were simultaneously further burdened by the implementation of
effect reduces profitability for banks as well as increasing the burden on
commerce.The RBZ, citing international best practice, issued stringent
corporate governance directives that forced owner managers out of their
businesses despite the controversies, contradictions and lack of consensus that
fill the literature on corporate governance. Barth et al (2001:3), after
empirical research on bank regulation and supervision, categorically
state, “There is no evidence that the best practice currently being advocated
by international agencies are best, or even better than alternative standards,
in every country”. In simple language, best practice is not generalisable.
Worldwide there are numerous examples of banks with owner managers e.g. Sandy
Weil was a major shareholder and CEO of Citicorp, with strong managerial
control, for
years. Locally the RBZ itself has the Governor as both CEO and Board Chairman.
Currently the Board of Directors of the RBZ (RBZ, 2004) comprises four
executive directors (the governor and his three deputies) and four independent
directors. How then can the RBZ be modelling corporate governance to the
financial services to which they direct that good corporate governance requires
a preponderance of independent directors and a non-executive chairman of the
board? The RBZ has on numerous occasions violated issues of corporate
governance, e.g. by violating the laid down procedures for the Troubled Bank
Act, by not adhering to the schemes of meetings required before taking over
banks etcIn the Zimbabwe Allied Banking Group (ZABG) which was formed under the
auspices of the RBZ and appears to be basically controlled by it, corporate
governance issues are breached with impunity e.g. the RBZ directed that no one
involved in a failed bank should occupy a senior managerial role in the
financial services and yet about five top executives of ZABG, including the
CEO, were involved in so called failed banks. There are reports of directors of
ZABG who have or had running contracts with the bank, in contravention of the
guidelines on corporate governance. The heavy involvement of the governor in
ZABG when he represents the major shareholder is akin to the heavy
managerial control of owner managers that he deplores at indigenous banks.The
governor insisted on banks focusing on core business and issued stringent
guidelines. However Barth et al (1999:6-12), after carrying out an extensive
securities activities e.g.
real estate, insurance and securities, of commercial banks, have a higher
probability of suffering a major banking crisisThere were no beneficial effects
observed from restricting the mixing of banking and commerce. In actual fact,
forbidding this is associated with a
greater financial fragility and bank instability.Restricting banks to core
business raises the net interest margin, resulting in negative bank
efficiencies.In summary, it appears to me that the real trigger for the banking
crisis in Zimbabwe was the overzealous actions of the newly installed RBZ
governor. There have been allegations of personal agendas underlying his
motives. It’s
not easy to discount this when one considers the issues of unfair treatment of
banks in similar situations e.g. Metropolitan Bank has been implicated in
corporate governance failure and fraudulent activities through GMB bills but
nothing has happened to it. CFX was allowed to continue trading even though it
was under a curator. The formation of ZABG under the supervision of the
governor himself has been fraught with violations of the law and corporate
governance issues.I argue that, although the financial sector was fragile, it
would not have had to go through the crisis the way it did had the new governor
used a different approach. Unfortunately, he appeared to have been on a
warpath. For example in Malaysia and Norway the bad debts were ring-fenced and
acquired by a state
agency, which enabled the banks to survive and be re-capitalised. I further
contend that one does not help a wounded friend by offering an extortionary
loan that violates the laws of the land e.g. the prescribed rate of interest
and the in duplum rule.The regulatory authorities in Zimbabwe caused a
depositor flight, refused to accommodate banks, issued stringent regulations
and directives, which weakened the banks’ profit margins as well as restricting
their ability to mobilise resources. Theyfurther plunged the financial services
sector into chaos by withdrawing huge amounts of funds from the financial
market during a tight liquidity crisis, further worsening the situation. In
Zimbabwean jurisprudence the burden of proof lies with the prosecutor and not
the prosecuted i.e. people are assumed innocent until proven guilty. However
the RBZ approach has been to assume, before they were tried, that the owner
managers were guilty of fraud.. The RBZ acted in bad faith by penalising people
who were not proven guilty. Interestingly, since the first alleged bank fraud
involving United Merchant Bank (UMB) in 1995, there has been no successful
prosecution of any alleged managerial abuse in the banking sector.4 Summary
>From the above analysis, it seems that the financial fragility in Zimbabwe was
brought about by failure of all three stakeholders, namely borrowers, bankers
and regulators, who were learning the rules of the game as they went along, in
managing a transition. Unfortunately the regulators have attempted to absolve
themselves and penalise only the bankers.
The trigger of the financial crisis was arguably the change of leadership and
the way the new governor tried to clean up the mess without regard to the
interlinkages of the financial system and due process. I argue that an approach
that acknowledged the mistakes of all stakeholders and called on prevented the
crisis and limited the loss to the national economy.
…………………The End …………………….Citations
Reserve Bank of Zimbabwe, (1998) Annual Report and Statement of Accounts.
Harare, RBZ
Reserve Bank of Zimbabwe, (2000). Annual Report 2000. Harare, RBZ
Reserve Bank of Zimbabwe, (2001). Annual Report 2001. Harare, RBZ
Reserve Bank of Zimbabwe, (2002). Annual Report 2002. Harare, RBZ
Reserve Bank of Zimbabwe, (2003) Monetary Policy Statement, December 2003.
Harare, RBZ.
Reserve Bank of Zimbabwe, (2003). Annual Report 2003. Harare, RBZ
Reserve Bank of Zimbabwe, (2004). Annual Report 2004. Harare, RBZ
Reserve Bank of Zimbabwe. (2003b) Banking Supervision Annual Report. Harare,
Reserve Bank of Zimbabwe. (2004b) Banking Supervision Annual Report. Harare,
Zimbabwe Independent Newspaper, (2002). Banks and Banking 2002 Survey. Harare,
Zimbabwe Independent Supplement, 9 August, 2002.
Zimbabwe Independent Newspaper, (2003). Banks and Banking 2003 Survey. Harare,
Zimbabwe Independent Supplement, 31 October, 2003.
Zimbabwe Independent Newspaper, (2005). Banks and Banking 2005 Survey. Harare,
Zimbabwe Independent Supplement, 14 October, 2005.

Sui Generis Times: Facluty of Law Watch


After a brief period of uncertainty, the semester has begun on a slow note. The tension sparked by the fees hikes is gradually subsiding. Shockingly, the traditionally renowned “mother of all resistance” has become the mother of all High Schools, Some critics have actually labeled it the sister to Solusi Senior Adventist Secondary School.A prominent second year law student, Promise Mkwananzi, is reportedly at the center of a scathing war (more apparent than real) against the hikes… his chosen battlefield is STUDIO 7 (Voice of America) and endless workshops. Maybe he will come closer home and take the bull by the horns. In the meantime, sporadic lectures are taking place within the royal faculty amidst a lot of postponements as there is a continued low turnout of students, some are still paying, some are still selling the few livestock left at home to raise the required fees.

The grapevines have it that the ZILSA President who also doubles as the acting S.E.C. President has become an endangered specie following his perceived full scale support of the fees hikes(doubt). He has resultantly withdrawn from his usual socially mobile personality to an introvert. The grapevine also has it that at one time he was given maximum-security protection following several threats on him. It is even reported that a fellow law student, Cde. Mureza Muchena (Peter Thatchel?) delivered a washa geri style kick on the unsuspecting president. The President was not available for comments and Cde. Muchena could not be reached at his Prestage House base. You didn’t get this one from THE WATCH!!!!!!!!!!!!!!!!!.

Alarm bells that were sounding in respect of the Advanced Civil Procedure Examination results were effectively silenced. What with the “Operation MurambaUBA” that took place in the Great Hell! Seems like the examiners were lenient enough to launch “Operation pasai zvenyu but on merit” The usual number of casualties were witnessed across board. And the pass rate/ standard in Conveyancing did not change even after the Guide to Conveyancing was allowed into the examination room.

Well, well, well, our beloved Gift is not yet through with his bagful of surprises. After his full year of lukewarm leadership as S.E.C President for 2004-2005, he joined the pro-senate political trail in the MDC faction. But who ever thought he was eyeing the National Youth Chairmanship (or is it the National Youth Service) to rival the Kuwadzana legislator Nelson Chamisa in the opposite camp? Is it just another wave of opportunism or he really intends to turn the tables around?

A new computer section has been created specifically for the fourth years to enable them to work on their dissertations.

When asked how the vacation was, one student remarked, “it was fine until the dreadful two weeks beginning From February 7…” What hope is there for the semester, one wonders.

“What will happen when you give the control of the CIO to such people? WE WILL BE KILLED ALIVE COMRADES” Jobo Wiwa on MDC internal violence ZTV interview

Section 27 Companies Act Contract (archive)

Research Topic

Discuss the substantive nature of a contract embodied in Section 27, Companies Act in reference to decided cases.

Several theories have been put forward to fortify views on what a company is. Among these, the theory that propounds the contractual view has perhaps spawned the largest amount of debate on the subject and interested both sundry and leading minds in the field of company law. Such a premise follows directly from the abundance of literature on the topic. In this article, the author joins the debate, not to extend its ambit but to consider within confines of materials available on the subject, the real tenor of the section 27, which espouses the contract basis of companies in our jurisdiction.

As has been mooted in the preceding paragraph, the object of this article is to consider the different perspectives of writers, scholars, commentators, the judiciary and other players in the field on the contact basis of company law, with a view to demonstrating the real outlook of this contract.

The author of this article will, as a starting point, explore the general view of the company as a contract, and identify entities believed to be the parties to this contract. An incisive analysis of the input of various contributors on the subject will then be attempted, after which a reconciling statement will be given as a concluding remark.

Although literature and common law authority abound which mark out space for the contract view of a company in our legal system, it is proposed to refer much to section 27 of the Act, which places the issue on a solid statutory foundation. In other words, the author takes section 27 as a point of departure in this work. In terms thereof, members and the company become bound on the signing and subsequent registration of the companies’ memorandum.

Membership of a company which is necessary if contract between a person and a company is to exist is recognized to emanate from a number of situations. A person who subscribes to the memorandum, and whose name as a subscriber is entered in the company register becomes a member by virtue thereof. Similarly a person who agrees to be a member and has his name entered in the register obtains membership of the company. One may also apply for allotment and transfer of shares from an existing member and subsequently get his name entered in the register. Transmission of shares on the death or insolvency of an existing member has same effect of vesting membership on the person concerned. Yet another way of becoming a member of a company is by way of estoppel. In this case, one holding himself out to be a member and allowing his name to remain on the register will be precluded from averring the contrary.

Observations that section 27 creates a contract that enjoins a company and its members to follow provisions of its memorandum and articles have been scoffed at by those who envisage a narrow scope of the contract established. The later argue that the contract goes merely to the extent that regulation of rights and duties of members requires. In fact, this divergence of opinion is reflected in the notion that section 27 is divisible into two parts; one to the effect that the memorandum and articles of association shall bind the company and members thereof, and two, that the memorandum and articles of association binds members to the same extent as if it had been signed by each member. In other words, section 27 has been construed to set up a contract only in regard to the rights and obligations of members. However if the memorandum and articles provide for other matters, those matters would not form a part of the contract.

Suffice to mention at this moment, it is evident that the section 27 contract is one augmented by special features going beyond the ordinary spheres of contractual agreements. Thus Hickman v. Kent, which enunciates the classical formulation of the contract in section 27, mirrors this well when the court states that;
1. No article can constitute a contract between the company and a third party,
2. No right merely purporting to be given by an article to any third party can establish a contract between the company and that third party.

The proviso to section 27, to the effect that the contract concerned is “subject to the provisions of this Act” throws up a relational element to what is patently acknowledged to be a dynamic, ongoing and legally binding association of juristic entities. New advances in technologies, novel approaches to investment, and organization of production and selling may render a company’s founding documents an unworkable hindrance to the company’s ability to maneuver and tape new opportunities. Subject to the Act, therefore, alterations may be effected to the memorandum and the articles by due process as long as the amendments do not offset the balance required by Law (Act). The contract envisaged by section 27 is not a just one that provides for contingencies, but a sui generis agreement that hinges on an inherent flexibility. In other words, the section 27 contract is not cast in concrete!

It is also a particular instance of the company contract espoused above that alterations must inure to the benefit of the company as a whole, as opposed to a section of members concerned. In Brown v. British Abrasive Wheel Company Ltd 1919 (1) Ch 154, a purpoted alteration was set aside for an apprehension by the court that its purpose was to force the minority to dispose of the their shares to the majority. The minority had preliminary rejected a motion to buy shares hold by the minority.

Contemporary thinking in company law also takes it for granted, that is does not question seriously, the view that members are bound to each other to observe the memorandum and the articles so far as they relate to their duties and rights as members. Thus Rayfields v. Hands 1988 (2) WLR 851, to the end that a member could enforce a duty by the articles on fellow members who were directors, to purchase shares from him, when he wished to dispose them has been treated as unassailable authority for some time now.

Wedderburn writes that a member can compel the company not to depart from the contract with him under the articles and that each member has a prima facie right to enforce by injunction every provision of the contract found in the articles. This in effect, showed that a member had a personal right to require a company to act in accordance with the articles. Such a right could be enforced by the member to protect a right which was afforded him in some other capacity. This was as long as he sued qua member and not as an outsider.

Gower has maintained that section 27 confers contractual effect on the memorandum and articles only in so far as it affords rights on a member(s) qua member and not qua shareholder. So a member who is also a director or other officer in the company cannot enforce any rights purporting to be conferred by the articles on a director or concerned office. To give rise to enforceable rights, it is stated in Hickman v. Kent that an outsider to whom rights purport to be given by the articles in his capacity as such outsider whether he is or becomes a member cannot sue on the relevant articles treating them as contract between himself and the company to enforce rights. However it is agreed that each member is under an obligation to the company to act in accordance with the articles.

Some authorities have pointed that it is obvious in Quinn& Axtens v. Salmon that Salmon’s power to veto the proposal to dispose of certain assets was vested in him qua managing director. In other words, the point is an individual member should not be able to enforce rights relating to the views and interests of other members. The matter must be dealt just like any other issue of internal management by the members in the general meeting. Cases like Eley v. Positive 1875 1 Exch D 20 espouse a different view. It is said that the articles purport to give a right to an individual in a capacity other than as a member, for example solicitor. In that instance, then an individual will not be able to bring an action to enforce his right by claiming that the articles constitute a contract with him qua member. A similar line of thinking is reflected in the case of Browne v. La Trinidad, in which a director who was not a member was held to be precluded from suing company to interdict it from dismissing him despite that his term of office was still current. What is striking here is that Salmon’s case went through when he sued qua member, while Eley’s case, suing as a solicitor failed, and thus outside the auspices of section 27.

It has been pointed that an individual can enforce outsider rights if they are synonymous with the exercise of powers bestowed in a particular organ. This is a corollary of the view that a member has a right to have the affairs of the company conducted by the particular organ as specified in the Act. This view is in tandem with the ratio of cases regarding outsider rights. However problems arise when one looks at cases where the authorized organ is conducting company business in an improper manner. The issue then begs the question, can a member ensure that the designated organ observe the articles or has to stop short at ensuring that the relevant organ is the one in carrying out the task? Writers like Prentice have suggested that a member can sue a company to force it to observe its articles.

Professor Gower has argued that it is anomalous to treat directors as outsiders since the law recognizes them as such for most purposes. Thus illustrative is the case of Beattie v. F Beattie 1938 All E R 214, often cited as authority for the proposition that outsider rights are unenforceable under section 27. The defendant sharaeholder’s actions as a director and subsequent bringing of proceedings in capacity as director were in issue. It was held that he could not succeed unless the action was brought qua member. In Miller v. Miller 1963 R& N 60, an oversight of the need to proceed qua member was fatal to the action. What is clear is in the two cases is that outsider rights could have been enforced if only the actions had been brought qua member. Messrs Celliers and Benade also maintain that a company’s founding documents to not result in a contract between a company and a director and the latter must have a separate agreement drawn up that can be enforced against the company.

In Edward v. Haliwell 1950 (2) All ER 1064, plaintiffs sued both the Union and two member of the executive committee. They sought a declaration that a resolution was ineffective. This was granted by the court on the basis that members have personal rights that they could enforce against the company.

The case of Foss v. Harbottle enunciates a two-pronged principle; the proper plaintiff rule and the majority rule. In terms of the proper plaintiff rule, any irregularities complained of relates to internal management of the company. An individual member cannot therefore bring an action in his own name because the company is the proper plaintiff. The views of the majority then bear on the appropriate remedies to adopt.

The section 27 contract is the basis of a long-term dynamic relationship between the parties involved. It provides its own dispute solving mechanism to which must be referred all internal disputes. A member failing to secure a remedy from the provision can then avail himself of the personal, derivative and representative action.

It goes without saying from the discussion above that section 27 throws up a plethora of interpretations on its ambit. Ultimately two lines of thought can be gleaned; one that favors a narrow view to the effect that section 27 gives rights to members qua members (Gower), and a broader one that advocates rights attaching to outsiders like promoters and directors from the company contract, (Wedderburn). It is submitted that the broader view would open the floodgates and subject companies to inundative litigation by persons remotely associated with the enterprise so long as they can establish some firm dealing with it. It is also objectionable for its licentious approach that renders open indeterminate matters of scope of the contract.

Drury Cambridge Law Journal, (1986)
The Relative Nature of Shareholder’s Right to
Enforce a Company Contract 1986

Gower LCB Principles of Modern Company Law,
Sweet & Maxwell (1992), 5th Edition.

Cilliers and Benade Corporate Law, 2nd Edition, Butterworths.

Nkala and Nyapandi Zimbabwean Company Law

Farrar JN Farrar’s Company Law, 2nd Edition, 1988.

Sui Generis Times: faculty of Law

Sui Generis Times
No. 1 of 2006

Faculty of Law Rules the Roost
The S.E.C presidency has landed in the faculty of law following the victory of Tinaye TSUNAMI and Kingston Magaya as President and Vice President respectively. Depressingly, the faculty has had string of presidents in the name of Learnmore Jongwe, Emanuel Nyambuya , Gift Nyandoro and Eureka Ndhlovu.

Has the faculty recycled in the political turncoat KINSOLA who has joined the trail of disgruntled ZANU PF officials who decided to launch the UPM? And what of TSUNAMI? Will his stint at the GZU be an illuminating specter of change or he will lead the union into further subjugation?

SRA and S-G Elections
The Great Hall has proved to be a major political stew pot for the faculty of law. It has produced a president, is fielding candidates for the S-Gs elections, but it hasn’t finished yet. FW learnt that the elephant sized class has produced eight candidates to belt it out for the three seats in the SRA…The UZ Senate is considering declaring the class one of the wonders of the University since 1980.

ZILSA Elections
Tension brews…anxiety builds. Again, the Great Hall is intending to field a candidate for each and every existing ZILSA post. The ZILSA ELECTORAL COMMISSION has however stipulated that the top three ZILSA posts are only open to students who have previously held positions in ZILSA. This is not going down well with the Great Hall class, which has threatened to frustrate any plans to hold elections along these lines. According to one reliable source within the Great Hall class (who spoke on condition of anonymity), “… if the elections are held along these lines, we will drag the current ZILSA board to the Chief’s Court… we will not dignify ZILSA by taking it to the Supreme, High or even Magistrates Court… we will found jurisdiction in the Community Court at Fourth Street…”

The Zilsa Constitution
It has emerged that there is no written copy of the Zilsa constitution. The only copy known of the prized document has gone missing in the outgoing President’s bed. This has added onto the impasse over the conduct of the elections. The only electoral provisions known stipulate that the outgoing ZILSA regulates and determines the conduct of elections. In retaliation, the ZILSA CONSTITUTIONAL COMMISSION argues that the current ZILSA BOARD is the de jure governing body and is empowered to pass any by-laws governing ZILSA, and this includes ZILSA elections.

And Over the Holidays
FW is reliably informed that over the Holidays, an impassioned student, Cde. Mureza Muchena spanked the outgoing ZILSA President washa geri style at a period when the president, who also doubled as S.E.C President had been declared an endangered specie by the state security agents and received maximum security protection for some time soon after the announcement of the new fees structure.

The Dean’s Cry…
Some will remember the famous DEAN’S CRY made by USA losing Democrat candidate in the presidential by-election, Howard Dean. The Faculty of Law Executive Dean has repeatedly

If you have any interesting articles you wish to have included in the FACULTY WATCH, submit them to the ZILSA OFFICE or slip them under the door. Good Wishes. We will be back next week with more details.

Fees to Increase

There is fear that University Fees will going up any time soon.It is believed and rumoured that on the 16th of August,news on the lates development will be out.It is expected that accomodation fees will going as high as $80 million which is now $80 thousand as per current rate.We therefore advise All students to be prepared to pay or to go to the hunger square.

Ahoy Union.



Tuesday, March 07, 2006

Government to review Students' Allowances

Government to review students’ allowances

Sunday Mail Reporter -February 24

GOVERNMENT is reviewing university students’ allowances in order to cushion them against the recently hiked State university fees, the Secretary for Higher and Tertiary Education, Dr Washington Mbizvo, said on Friday.In an interview with The Sunday Mail, Dr Mbizvo said there has been deliberations on how Government could cushion students following the recent fees hike announced by State universities.He said ministry officials were working flat out on the reviews to enable the students to access the allowances in the coming weeks."We have had serious deliberations on how Government can cushion university students in view of the increased university fees. The Ministry of Finance had initially indicated to us that the funds to increase the students’ payouts were not available but I am glad to say after a series of meetings with them they have released additional funds that have enabled us to effect payout reviews," he said.Dr Mbizvo also said Cde Stan Mudenge had been concerned by the disparity created by the hiked fees and so had to seek clarification.Although Dr Mbizvo would not be drawn to reveal how much the students would get after the reviews, sources in the ministry said there had been proposals to match or slightly exceed the announced fees.In previous years it had been the norm for the loans and grants advanced to students to cover tuition and accommodation fees charged by the universities. Government recently increased university student allowances by about 90 percent but the new fees swallowed this up. Students studying humanities and social sciences had their allowances increased to $11,4 million while they are expected to pay $32 million as fees. Those in the engineering and applied sciences received $13,3 million but have to pay $40 million, while students studying medicine and veterinary science received $17,4 million while they have to fork out $48 million in fees.There has been an outcry after the announcement of the hiked fees, which forced the ministry to intervene with a proposal to stagger payment of fees. Opening of the University of Zimbabwe has also been delayed by a month to allow students enough time to source their fees.There have been fears of students dropping out of the State universities as most would not afford the hiked fees. A recent survey carried at the University of Zimbabwe revealed that 69 percent of the students were from poor backgrounds.Recently students at National University of Science and Technology went on a rampage, damaging property in protest over increased fees.

Suspended Student Leaders Reinstated

Suspended University Students' Leaders Reinstated

Monday, February 06 2006 @ 02:02 AM GMTContributed by: Reporter
Four of the five suspended University of Zimbabwe students’ leaders were reinstated on Tuesday January 31. The four, Mfundo Mlilo, Wellington Mahohoma, Collin Chibango and Garikai Kajawo were given the lifeline after losing a full semester. The leaders have indicated that they will sue the University vice chancellor, Levy Nyagura over the inconvenience caused in their academic pursuit. Nyagura ordered the University council to suspend the ‘thorn in the flesh’ leaders on 0ctober 21 2005, a move that saw the five missing their exams.“ We are going to sue him, he is the man behind our persecution”, said Mfundo Mlilo, Information and Publicity secretary for the union.Meanwhile, Hope Ngara, lawyer representing SRC President Hentchel Mavhuma, has ordered the University to write a letter confirming that his client will resume lessons this semester. Mavhuma was suspended together with the pardoned four, although he has an additional different case of proceeding to level two after failing examinations.

Academic Suicide By Chipo

Academic suicide
Now they have raised our fees again: this government has gone mad. We have no choice but to get involved in politics. We have to solve our problems politically in the end. It affects us all.

Our fees went up by 400% in January and now they have gone up 1000% in February. We cannot afford this as our parents salaries are not going up by this amount. Some of the students are radical and want to threaten the Principal but it is not his fault. It is the governemnt that is to blame!! We are told that they have reduced the subsidies and this is the result.

250 students were arrested at NUST university yesterday:

Students at the National University of Science and Technology yesterday went on the rampage and destroyed property worth billions of dollars in protest against an increase in tuition fees, which went up from $3 million to between $30 million and $90 million per semester.

But note that The Chronicle said 21!! Lies!!! We have heard that the Teachers College at Hillside is planning something today.

This IS Academic Suicide as most students will give up their studies.

· Tagged: Zimbabwe, education, teachers, university, school fees, inflation, protest

This entry was written by Chipo on Tuesday, February 21st, 2006 at 12:26 pm. You can follow any comments on this entry through the RSS 2.0 feed. You can leave a comment, or trackback from your own site.

One Response to “Academic suicide”
Global Voices Online » Blog Archive » Zimbabwe: increasing costs of univeristy
February 21st, 2006 19:19 1[…] This is Zimbabwe reports on the increasing costs of attending university in the country. In January fees went up 400% and now in February they have gone up a further 1000%! […]

Flash Network-Cathsoc Desk




AUG-NOV 2005


Tapera Masarakufa

FLASH NETWORK is a University of Zimbabwe Catholic Students based HIV/AIDS initiative with the aim of promoting behavioural change among students through Faith, Love, Abstinence, Status and Hope. It promotes and encourages healthy monogamous relationships on campus with main emphasis on sexual abstinence. It also encourages prayer in relationships.

In a bid to promote positive behaviour among students FLASH NETWORK saw it fit to provide a forum where discussions can be carried out freely, with both sexes benefiting from the views of the other sex.

The Sunday Flash Chat is held every Sunday evening at 1900hours at Prestage House, 50 Mt Pleasant Drive, Harare.

The need to have the Sunday FLASH Chat was highlighted by the Co-ordinating Executive after a survey that was undertaken by FLASH NETWORK in November 2004. This was ignited by the different perceptions (responses) that were given in the questionnaires by respondents. The Chat is an attempt to bring together the different perceptions and provide relevant information wherever possible, so that students will be in a better position to make informed decisions.

This is a social chat where everybody is allowed to come and participate freely without fear of victimization.

Ø To provide a forum or to initiate open discussions pertaining to challenges that students face in their relationships. Participants are also encouraged to be open about their relationships and to give practical or real personal experiences wherever possible.
Ø To facilitate the process of sharing knowledge and perceptions with other students
Ø To strengthen relationships
Ø To help students to identify their own strengths and weaknesses and to be in a position to make better decisions for their future.
Ø To provide awareness and information dissemination on HIV/AIDS and related issues.

A participatory process is adopted. The participative approach starts with participants suggesting topics to be discussed and then the Co-ordinating Executive could then select or arrange the topics. The topics are normally arranged in chronological order so that there is continuation of discussions and that issues raised in the previous discussion will be addressed. Volunteers are also asked for facilitation but sometimes a facilitator could be requested. During the Chat everybody is expected to participate, airing his/her views.

A summary of the progress that has been done during the semester in terms
of topics, moderators and attendance is shown in the table below:
28/ 08/ 05
Gold Rush
S. Meki
04/ 09/05
What to search for in a partner?
T. Tembe
11/ 09/ 05
Long distance relationships
RT. Gambe &
S. Dube
18/ 09/ 05
Threats to relationships
L. Mhangwa &
T. Chakabuda
25/ 09/ 05
Role of Christianity in fighting HIV/AIDS
Sr. Salome
02/ 10/ 05
Video discussion

09/ 10/ 05
NO CHAT- Mutemwa Pilgrimage

16/ 10/ 05
Dissatisfaction with a partner…. What to do?
P. Matsvimbo
23/ 10/ 05
Cheating in relationships
M. Themba &
T. Madzitire
30/ 10/ 05
The value of virginity
P. Baradza &
Y. Mutopo
06/ 11/ 05
Culture vs. HIV/AIDS
C. Zimunya &
T. Dzimbanhete
13/ 11/ 05
Condoms vs. Abstinence
M. Meki &
K. Gwaringa

This is a term used by students to describe the quick search for a partner during the Orientation Week of first year students and the following 2 or 3 weeks soon after the beginning of a new academic year. Generally the senior male students take advantage of the confusion within the female first years. The first years will not be used to the environment and often the guys who at the beginning may seem to be assisting, take them unaware. Some of the first years may also be too much overzealous by being at the University. Many students have been victims of this encounter in the previous years. Hence the aim of the topic was to make all the first years be aware of such circumstances and help them, so that informed decisions could be made.

In the chat the whole issue of Gold rush was elaborated to the participants. Senior students gave their experiences with it during their first years at the University and tries to clarify some of the misconceptions. Participants also try to find out ways of reducing its incidence.

The topic dealt with the qualities that people consider to be very important and to be possessed by their partners. The focus of the topic was to help each other in our search for lifelong partners and to see whether our expectations are worthwhile. The topic was done early well just after opening so that people could look for things which are realistic before they make the decisions about people to date with at the University.

The facilitator started by asking participants about why they should be in relationships. The discussion went on with participants giving qualities they expect and also supporting reasons why they think the qualities are important. It was important to learn how people value things differently and how our expectations differ.

The focus on the topic was to find out whether long distance relationships are worthwhile or not. This was mainly meant to first years who might have been separated with their partners because of their studies. Challenges faced by people in such affairs were brought to light and possible solutions were discussed.

In this topic, the main thrust was to identify what people regard as threats to their relationships. This was to help students in relationships to be able to know what other people consider as stumbling blocks in the future of their relationships. The aim was to help people to consider the feelings and views of others for the future of their relationships.

The topic aims at identifying the roles that Christianity play in intervening the issues of HIV/AIDS.

This was a session whereby participants were presented with some scenarios, which they will have to discuss. The scenarios were taken from a video called Scenarios from Africa. The scenarios were quite good at initiating discussions that were actually lively. This was also a way of considering what other countries are doing as well as their views.

This topic was aiming at identifying what people do when their partners dissatisfy them. During the discussion participants were able to evaluate some of the decisions that their counterparts make and may ask for clarifications or reasons for doing so. What dissatisfies a partner was the first thing to be discussed.

This topic looks at some of the reasons why people cheat in their relationships and also considers the effects of cheating. The other issue that was dealt with was the feeling of a partner after realising that he/she was cheated.

This topic tries to see whether people still value virginity as it used to be in the past. The participants generally agreed that it is very important for assurance of sexual purity, highly esteemed before God, best gift for partner after marriage and also a high probability to live an HIV negative life. On the issue of whether to disclose if one is not a virgin participants fail to reach a consensus.
Way forward suggested
Ø Destroy the desire to experiment [for virgins]
Ø For not virgins
-It’s not a curse
-It’s not too late, have secondary virginity
-Life goes on even after it has been lost

The topic aims at looking at the effects of culture on HIV/AIDS both negative and positive. The issues discussed were culture in general, culture in Zimbabwe and culture at the University of Zimbabwe. Some of the issues discussed pertaining to culture at the University of Zimbabwe include a confusing culture (a mixture of different cultures), gold rush, semesterisation of relationships, period of payout release, issue of USAs Vs NABAs, UBAs Vs pornography, influential people and “ fraud”.


Govt Moots Ways to alleviate Plight of Students

Govt moots ways to alleviate plight of students
By Morris Mkwate-Sunday Mail 19 February 2006

CONCERNED by university and tertiary students’ failure to meet high tuition fees that higher learning institutions recently set, the Government is working to review the students’ allowances and to introduce a provisional fee payment system.Last week, Government increased student allowances by 90 percent to enable them to meet the new tuition charges. However, the fees immediately swallowed up the allowances, a situation that left authorities seeking ways to assist the students meet the escalating cost of education.In an interview on Friday, the Secretary for Higher and Tertiary Education, Dr Washington Mbizvo, said his ministry was working to secure additional funds from the Ministry of Finance with a view to reviewing the students’ allowances."We are going back to Finance to press for a review of the students’ allowances. I have spoken to the Minister (of Higher and Tertiary Education Dr Stan Mudenge) and he is deeply concerned about the situation."What we want is for Finance to be able to make available more funds in order to help the students meet the new fee structure," said Dr Mbizvo.Government’s efforts to assist the students come amid concerns that most of them would be unable to meet the new fees.Although the Government had initially announced new allowance levels that were meant to help cover the fee increase, the amounts fell far short of the students’ needs. According to the new fee structure, students studying humanities are required to pay $32 million per year, those in engineering and applied sciences $40 million and those studying medicine and veterinary science $48 million per year. However, degree aspirants in the humanities and social sciences department received allowances of $11,4 million while those in engineering and science got $13,3 million. Medical and veterinary students’ allowances were pegged at $17 480 000 while students pursuing degree programmes at polytechnics were each allocated $13,3 million.This left a huge gap between the allowances and the tuition fees, raising fears that many students would fail to raise the deficit.The situation was also compounded by demands that higher learning institutions were making for students to pay the fees before lectures begin.Dr Mbizvo said stakeholders, including student representatives, met last week and agreed that universities should, instead, stagger payment.Although the modalities of this arrangement are yet to be worked out, the ministry was by late Friday afternoon still communicating the position to the respective university vice-chancellors.Dr Mbizvo revealed that the ministry had since held discussions with University of Zimbabwe authorities, where it was agreed that the reopening of the higher learning institution should be delayed by a month.This was meant to allow students more time to adjust to the new tuition fee structure, he said."We met with members of the students’ representative council and agreed that universities should stagger the fee payment."They (universities) must admit as many students as they are. These are difficult times and the universities should understand the plight of the students," he said. In an earlier interview, UZ students’ executive council acting president Eureka Ndlovu said the tuition fees had completely wiped out the allowances, making them a drop in the ocean.He described the discussions with Government as "promising", emphasising the need for the release of additional funds and for university authorities to stagger the fee payment. The council would also soon request local firms to provide funding to enable them to embark on income-generating ventures. The students’ representative also applauded the postponement of the university reopening as limited time had initially been allowed between the notice of fee increase and the deadline for payment. "We are also concerned that some people who require accommodation at campus might fail to secure it as $24 million should be paid in advance," said Ndlovu

Sec and Zimsa Meeting With Dr.Mbizo



February 2006

It should be noted that the majority of the students cannot afford to pay required fees since their parents are peasant farmers with other children to support. Those whose parents are working cannot afford to pay the required fees considering their meagre salaries.

1. Government support should therefore cover the fees, hence there is need to increase student support rate as usual

2. If the Government cannot increase student support rate, then fees should be highly subsidized.

3. In future, Government should consult all stakeholders before increasing fees.

4. Has the Government Policy to fund education changed? If it changed then it should go through the normal channels of being published in the Gazette and enough notice given to stakeholders.

5. If the Government continues with this policy, we would want to assure the Ministry that many students will drop out of college because most of the students are either from poor backgrounds or orphans. What this effectively means, is that the poor will be deprived of the opportunity to access University education.


1. Eureka Ndhlovu President
2. Garikai Kajau Secretary General
3. Steipper Muponda Treasurer
4. Wellington Mahohoma Legal and Academic Secretary
5. Fortune Chigumira President, Zimbabwe Medical Students

Prof.Mutambara Elected for MDC or Robotics

Mutambara electedBy Political Editor Munyaradzi HuniFORMER president of the University of Zimbabwe Student Representative Council Professor Arthur Mutambara (39) yesterday took over as the MDC president after he was unanimously elected to the post during the opposition party’s national congress being held in Bulawayo.In a clear sign that the MDC is moving away from being a trade union-driven party, two former UZ SRC presidents were elected in the new MDC line-up.Mr Gift Nyandoro (SRC president 2004) was elected as the party national youth chairman while Mr Morgan Changamire (SRC president 1986) was nominated as a national executive member.The opposition party’s former deputy secretary-general, Mr Gift Chimanikire, who had expressed interest to contest for the party’s presidency, was unanimously elected as the national chairman of the MDC.Professor Welshman Ncube, widely believed to be the kingpin in this pro-Senate MDC faction, was retained as the opposition party’s secretary-general while Mr Gibson Sibanda also retained his deputy president post.Mrs Priscilla Misihairabwi-Mushonga was elected as the party’s deputy secretary-general after beating Ms Trudy Stevenson, who got one vote, and Ms Miriam Mushayi, who got two votes, from the party’s 12 provinces.Mr Fletcher Dulini-Ncube retained his post as party treasurer while Ms Miriam Mushayi became the party’s deputy treasurer-general.However, it is the election of Prof Mutambara to the party’s hot seat that is set to send tremors into the anti-Senate MDC faction led by Mr Morgan Tsvangirai. Prof Mutambara is set to be introduced to the MDC supporters at a rally scheduled for White City today.In an interview after the elections yesterday, the MDC spokesperson, Mr Paul Themba Nyathi, said the elections that were supposed to be held today were held yesterday because of the rally."The elections were held today (yesterday) after we realised that it was possible to expedite our programme. We have a rally tomorrow (today) at White City."This rally is important because the president of the party will be having his first opportunity to interact with the people of Zimbabwe," said Mr Nyathi.Asked whether this new-look MDC could stand its own against the anti-Senate faction, Mr Themba Nyathi said the leaders were elected on the basis of their competence and not on the basis of their ability to compete with Mr Tsvangirai."To begin with, we would be a crazy party that elects leaders on the basis of their ability to compete with Tsvangirai. "The leaders were chosen on the basis of their competence and this had nothing to do with Tsvangirai," he said.He said new members of the national executive and the party’s management committee had also been nominated at the congress.Prof Mutambara is mostly remembered for organising student demonstrations at the UZ in 1989 when he was the student leader at the institution.He has an illustrious academic career that saw him attaining a doctor of philosophy degree in Robotics and Mechanotronics, becoming the first Zimbabwean to achieve that feat.He was one of the two Zimbabweans to win the Rhodes scholarship to study at Oxford University in the UK in December 1990, eventually ending up on the selection committee that was usually reserved for whites.He was the first Zimbabwean to work at the nerve centre of American intelligence and technology, the National Aeronautics and Space Administration from 1996. Prof Mutambara is a permanent resident of the US as he holds a Green Card.He was once employed by the Standard Bank of South Africa. Currently, he is the chief executive officer and managing director of Africa Technology and Business Institute in South Africa.In an interview yesterday, the party’s new youth chairman, Mr Nyandoro, said the MDC has been suffering under the "puppetry jacket" and it’s time for an "ideological redefinition".He said this new MDC will recognise the importance of the liberation struggle and accepts that the struggle was fought to "reclaim our land"."We are Zimbabweans first, whether we call ourselves MDC or what, and we are not puppets of the British," he said.

Uz New Fees Structure

Break Down of NEW FEES

The New fees announced by government are as follows:

1) Arts and humanities (Per semester)
Tuition fees $15 million
Accommodation and meals $24 million
Total $ 39 million per student

Total per year is $39 m x 2= $78 million.

Government Grant/support is $11,4 million per year.

This leaves a deficit of $66,6 million that a student has to pay.

2) Engineering and Natural Sciences
Per Semester
Tuition fees $18.75 million
Accommodation and meals $24 million
Total $ 42.75 million per student

Total per year is $42.75 m x 2= $85.5 million.

Government Grant/support is $13,3 million per year.

this leaves a deficit of $72,2 million that a student has to pay.

3) Medicine and Veterinary sciences
Per Semester
Tuition fees $22.5 million
Accommodation and meals $24 million
Total $ 46.5 million per student

Total per year is $46.5 m x 2= $93 million.

Government Grant/support is $17,48 million per year.

This leaves a deficit of $75,52 million that a student has to pay.

UZ reopenning in doubt

UZ reopening in doubt as students threaten anarchy By Vusumuzi Sifile LECTURES at the University of Zimbabwe, which were supposed to begin tomorrow, are doubtful as students threaten to resist the new fees that were announced two weeks ago. The second semester for the 2005/2006 academic year was initially scheduled to begin on Monday 13 February, but was postponed to tomorrow to allow students to pay the new fees, which will see some students paying as much as $93 million in tuition and accommodation fees.
However, students have vowed not to pay the new fees, as they are "a direct threat to our fundamental right to education" and "a clear reversal of the gains of the revolution".
The Zimbabwe National Students' Union (ZINASU) and the UZ Students Executive Council have threatened to "make the UZ ungovernable" unless the authorities reverse the new fee structure.
ZINASU president, Washington Katema, said: "Once students succumb to this madness, they will have themselves to blame. We want to make the UZ ungovernable. We will make sure there are no lectures, no lecturers and that no students go to lecture rooms."
The Standard understands that by Friday, only slightly more than 500 students out of the university's 13 000 had paid fees. This, said an official at the university, was causing administrative problems for the university.
"The normal action to take would be to expel the students who fail to pay fees, but how can we expel 12 000 students and remain with only 1 000? It doesn't make any sense," said the official.
Meanwhile, the UZ appears to be backtracking on its hard stance on students who fail to pay the new fees, introducing a new staggered payment option where students pay 50% of the semester tuition fees at registration, and pay the remainder in instalments. There is also an arrangement for those "in extreme difficulties" to apply for "an alternative payment plan".
Last week, the students petitioned Higher and Tertiary Education Minister, Dr Stan Mudenge, to "uphold the fundamentals of democracy and if possible step down if you have failed". They said a 5000% increase in tuition fees, compared with a 90% increase in grants would make students destitute.

SRC-----2006 Electoral Commission Set


To: The Union

Cc: Vice Chancellor
Dean of Students
SEC President
SEC Members

From:SRA Chairman

Date : 6 April 2006

RE: SRC 2006 Electoral Commission

The University Community is hereby being advised that an Electoral Commision has been appointed to run the 2006 SRC Elections, in accordance with Schedule A of the Students Union Constitution as last amended in August 1997, there shall be an Electoral Commission to run the SRC elections a month after Second Semester opening.

The Electoral Commsion is constituted as follows.

Commission Chairman: Arthur Masuka [SRA Chairman]
Vice Chairperson: Veronica Gundu (SRA)
Treasurer Tichivanhu Nickson (SRA)
Ex Officio Eureka Ndhlovu ( SRC President)
Secretary Mashinge Alice (CCJP)
Member Innocent Kasiyano (ZSCM)
SEC Staiper Muponda

The Scheduled elections have been temporary set for the following dates:

Presidential: Thursday 6 April 2006
Secretarial: Wednesday 12 April 2006
SRA Thursday 13 April 2006

Nomination of Candidates shall be done in due course.

SEC-Former Uz SRC Presidents in Action

Election of Mutambara set to revive student Activism

By Everson Moyo.

The Election of FORMER president of the University of Zimbabwe Student Representative Council Professor Arthur Mutambara (39) who took over as the MDC president after he was unanimously elected to the post during the opposition party’s national congress held in Bulawayo.It is a clear sign that the MDC is fortifying its efforts to dominate both Students Politics and National Politics as two former UZ SRC presidents were elected in the new MDC line-up.Mr Gift Nyandoro (SRC president 2004) was elected as the party national youth chairman while Mr Morgan Changamire (SRC president 1986) was nominated as a national executive member. Mr Gift Nyandoro is well known of his oratory prowess and is set to be spearheading SRC campaigns set for End of March.Mr Nyandoro is still a student at the University of Zimbabwe in his fourth year Bachelor of Laws Honours (LLBS).

The Election of Gift Nyandoro is likely to boost the membership of the Pro Senate Faction at the University of Zimbabwe. It is understood that the MDC Mutambara led has budgeted Millions for the SRC Elections to be held at the end of March at UZ as part of its membership drive. This move is believed to be championed by the Former SRC Leaders in the Party as a way of establishing its narrow political base in Harare, which is dominated by the Anti-Pro senate faction.
Prof Mutambara is mostly remembered for organising student demonstrations at the UZ in 1989 when he was the student leader at the institution. He is celebatrated by Students at the Institution has been for long regarded as a student hero who championed the cause of students without fear or victimisation. He has an illustrious academic career that saw him attaining a doctor of philosophy degree in Robotics and Mechanotronics, becoming the first Zimbabwean to achieve that feat.He was one of the two Zimbabweans to win the Rhodes scholarship to study at Oxford University in the UK in December 1990, eventually ending up on the selection committee that was usually reserved for whites.

Mutambara’s victory is set to revive students Activism in Zimbabwe as he has become the talk of the day.