Institute for War and Peace Reporting | Giving Voice, Driving Change

Bank Governor “Worsens” Dire Economy

Gideon Gono’s initial popularity has waned as the country’s economy continues its record decline.
By Hativagone Mushonga
Since his appointment three years ago as Governor of the Reserve Bank of Zimbabwe, Gideon Gono has seen his once high public reputation fall as people accuse him of hurting the poor through what analysts describe as his "ambush economics" - policy decisions that take everyone by surprise.

Gono, related by marriage to President Robert Mugabe's wife, Grace, was chief executive of the Commercial Bank of Zimbabwe before he was appointed Reserve Bank governor. He was tasked by Mugabe with staving off the country's threatened expulsion from the International Monetary Fund and halting the drastic decline of an economy where inflation has topped 1200 per cent, unemployment runs at more than eighty per cent and the majority of the people are permanently hungry.

In the early days, he enthused about creating a "national spirit of recovery" and talked about the need to establish virtue and accountability in the Zimbabwean system. However, he avoided pointing a finger at just exactly who in the system was being dishonest and failing to be answerable.

And, although he embarked on a vigorous anti-graft campaign, it was noticeable that his targets had one thing in common: all had knowingly or unknowingly crossed Mugabe.

As time has passed, Gono's initial public popularity has waned and Zimbabwe has continued to maintain its unfortunate record for having the fastest declining economy in the world.

"His policies are not tackling real issues for the benefit of every Zimbabwean," a Harare-based political and economic analyst told IWPR. "Nearly every decision he has made has worsened the already dire situation in which ordinary people find themselves as they battle with skyrocketing prices, shortages of fuel, bread and other basic


Gono, who began as a humble tea boy before rising through the ranks to bank boardrooms, has enjoyed the limelight as governor, even being tipped in some quarters as a future state president. Some analysts say he is already the de facto prime minister of the country, filling the vacuum created by a president who has run out of ideas and an emasculated cabinet.

A low profile governorship is not for him, as illustrated by the fact that he unashamedly awarded himself an honorary degree when head of the University of Zimbabwe Council.

In 2004, he marked his Reserve Bank debut by closing down overnight a number of banks, discount houses, asset management companies and bureaux de change which had serious liquidity and other problems. He said his actions were necessary to bring sanity to the financial sector. But, as a result of this first bout of ambush economics, millions of hard working ordinary Zimbabweans woke up to find their life savings and investments trapped in closed financial institutions.

They had no immediate money to provide for their families or to pay school fees. Many lost their lifetime investments while the redundant bank and other institutional executives relocated to South Africa, the United Kingdom and the United States.

Maureen Chitapi, who lives in the middle-class Harare suburb of Cranborne, was one of the many whose life was terribly affected by Gono's closures.

In 2004 she had just taken early retirement as a result of ill health and invested all her severance money, amounting to ten million Zimbabwe dollars, enough at that time to buy a small car, in an investment services company called National Discount House.

National Discount House was one of the financial institutions closed by Gono, and it was only this year that Chitapi got her money back. But now, as a consequence of Zimbabwe's runaway inflation, that sum is enough only to buy ten loaves of bread. "I became a destitute overnight," Chitapi told IWPR. "All that I had I had invested with NDH. On the day of the closure the little money I had on me was all that I was left with. Imagine waking up and being told that the money you have on you is all that you are going to have? I was totally devastated."

One multi-millionaire commercial bank executive told IWPR he took to the bottle and became an alcoholic when his bank was shut down. "Imagine. When the bank was shut down in 2004 I had more than 200 million Zimbabwe dollars in my account. I was a devout Christian and had never taken alcohol in my 48 years of life.

"I sold my cars to cover my monthly obligations and then I had nothing. I started drinking spirits. I left the church. Gono destroyed me. When I finally got my cash years later, its value had been hopelessly eroded by inflation."

Nearly half of all commercial banks were forced to close their doors in 2004. This took 2.6 trillion of Zimbabwe's inflated currency out of private hands and left hundreds of thousands of depositors without reserves or even money to live on.

The assets of all the closed institutions have now been taken over by the amalgamated Zimbabwe Allied Banking Group.

In May 2005, Gono turned riot police loose in a five-day blitz on street vendors, flea market stalls and other informal businesses, accusing them of possessing foreign currency and fuelling the roaring black market. Stalls were torn apart and goods confiscated in what turned out to be the opening shots in Mugabe's Operation Murambatsvina (Operation Drive Out the Filth), in which the homes of close to a million people were bulldozed, sledge-hammered and burned to the ground by security forces.

Poor Zimbabweans are still reeling from the effects of Mugabe's and Gono's Murambatsvina war on the poor. The informal sector, which absorbed an estimated eighty per cent of the employable population, was snuffed out.

In 2006, he has struck again, not once but twice, in the name of fighting money launderers and cash barons whom he has accused of causing Zimbabwe's economic ruin by hoarding foreign currency and smuggling it abroad.

To make it easier for people to carry cash, and because computer systems unable to handle multi-digit transactions began crashing, Gono lopped three zeros off the currency in August, scrapped old banknotes as legal tender and issued a new family of "bearer cheques" as the new currency. Gono said the existing currency would be "useful only as manure".

The bearer cheques are printed on low-quality paper because the government no longer has enough foreign exchange to import the kind necessary for printing standard bank notes. They have no security and expire as a means of exchange beyond a date printed on them.

The changeover was vicious and militarised. Armed police, soldiers and Mugabe's youth militia subjected ordinary people, on Gono's instructions, to many hours of humiliating roadside searches. Individuals were allowed to deposit only 100 million Zimbabwe dollars (400 US dollars at the latest official exchange rate) a day in bank accounts, in exchange for the new bearer cheques, in an effort to flush out suspected money launderers and other alleged criminals. Anyone carrying in excess of that amount had the money confiscated unless they could show good reason for having it - for example, a legitimate transfer of company wages.

The military searches were draconian, with regular reports of women being stripped by militia members. Many trillions of Zimbabwe dollars in old notes were confiscated. Already, because of galloping inflation, two of the three removed zeros are back.

Three months later, Gono announced in November the closure of 16 money transfer agencies, MTAs, sending shockwaves through the country because many people depend on remittances from relatives working outside the country for their day-to-day survival.

Many thousands were left without means of support after Gono made his sudden ambush economics announcement that they would not be able to access their money through the MTAs. Gono accused the 16 MTAs, which included high profile banks like Standard Chartered, Stanbic, CBZ, Interfin and the Central Africa Building Society, of abusing their licences and doing deals on the black market - even though the black market has effectively become the official market. Out of necessity, everyone uses it because in the surreal world of Zimbabwe, the official exchange rate bears no relationship to harsh economic realities.

About three million people, a quarter of the country's population, now known as the “Zimbabwean Diaspora”, have left the country as economic refugees to seek work in South Africa, Botswana, Australia, Canada, the United States, the United Kingdom and elsewhere in the European Union. Most send back money to their families in Zimbabwe.

Although the official exchange rate is 250 Zimbabwe dollars to one US dollar, on the thriving parallel black market one US dollar buys 1600 Zimbabwe dollars, with rates fluctuating by the hour.

A study by the Geneva-based International Organisation for Migration on Zimbabwean expatriates in the United Kingdom and South Africa said, "Around three-quarters of respondents sent economic remittances, and of those that sent these remittances 85 per cent said the main reason was to support family members."

Eighteen per cent of respondents said they remitted on average 565 US dollars per month. Another 18 per cent said they sent between 377 and 563 US dollars. While thirty-seven per cent transferred between 188 and 375 US dollars.

Gono has decreed that all remittances from overseas must be channeled through the Reserve Bank's dedicated Homelink facility, which only trades foreign currency at the official exchange rate.

"Gono's decision lacks economic sense and is divorced from reality," said Dennis Ncube, a nurse working in England. "Zimbabwe has the highest inflation in the world and daily price increases are the order of the day. To continue to peg the US dollar to 250 Zimbabwe dollars, while on the parallel market it is more than five times the official value, shows that some economists do not know what is happening among the poor."

Stella Mbizi, a grandmother caring for her four grandchildren in Mabvuku, a poor suburb of Harare, relies on the remittances from her son and his wife working in South Africa to make it through each month. "The favourable rates that we were able to get from the MTAs enabled me to look after my grandchildren and my two other unemployed children reasonably. The controlled rates will mean we will benefit very little," she said.

Like many Zimbabweans with access to foreign exchange, she has been thinking of ways to outwit the authorities. "I will have to advise my son and his wife to personally bring the money to Zimbabwe, so that I can change it on the parallel market," she said.

Sharon Nzira's only source of money for medication, food and utility bills is her three children in the United Kingdom and the United States. "Instead of trying to make life easier for us ordinary Zimbabweans, Gono seems to be on a path to make it as difficult as possible," she told IWPR. "Gono knows that most Zimbabweans have been surviving because of the Diaspora support. Now he wants to close that channel.

"He doesn't worry about the cost of his policies. I believe that the decision to close the MTAs was harsh and he could have put in place other measures or mechanisms to deal with the indiscipline. But rich Gono does not look at the consequences of his policies for ordinary people."

Gono's home is a 112-room mansion, with four helipads, in Harare's plush northern suburb of Borrowdale. Among the other features are an art gallery, billiard room, library, a 60-guest dining room, servants' quarters, plasma televisions in virtually every room, and a swimming pool so large that it has three islands.

Gono has no lack of belief in his ability to turn Zimbabwe's economy around and perhaps become the next head of state. But Trust Shumba, a columnist with the weekly Standard, one of Zimbabwe's few remaining independent newspapers, probably has a more realistic view of his chances. "Does the Governor of the Reserve Bank really believe that economic development can take place in a distressed and hostile political environment such as Zimbabwe?" Shumba wrote recently, reflecting widespread Zimbabwean views.

"No matter how Dr Gideon Gono executes his monetary plans, all his efforts will come to nought or even exacerbate the problems bedevilling the nation ... The Governor's policies cannot work in a distressed political environment.

"In the three years or so of his tenure, the results of all his efforts and policies have impacted negatively on the lives of the people of this nation. None of his policies has ever had a positive effect. It's been a long time since the wheels have come off and the economy keeps hurtling down. The IMF must have also whispered this unpalatable truth in his ears a long time ago.”

Hativagone Mushonga is the pseudonym of an IWPR journalist in Zimbabwe.

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