Players in the financial services sector have started discussions towards development of a financial sector development strategy, it, being a key element for achievement of the National Development Strategy 1 (NDS1). The overarching goal of the NDS1 is to ensure high, accelerated, inclusive and sustainable economic growth as well as socio-economic transformation and development. Furthermore, the NDS1 endeavours to steer the economy onto a growth path to realise an average of five percent Gross Domestic Product (GDP) growth rate per annum over the Strategy Period.
However, the successful implementation of the NDS1 requires the implementation of a financial sector strategy whose objective is to expand financial intermediation and support maximum growth. Research confirms that a well-designed financial sector strategy, when implemented, can have a multiplier effect as it crowds in not only domestic resources but also external resources and support. Currently the local financial services sector does not have a coordinated approach in terms of financial intermediation and support of economic growth and development.
At best, the sector is individualistic or fragmented with some players such as banks falling under the regulatory arm of the Reserve Bank of Zimbabwe (RBZ), pension funds under the Insurance and Pensions Commission (IPEC) and capital markets under the Securities and Exchange Commission of Zimbabwe (SECZim). What is thus needed is a financial sector development strategy or plan, which will re-engineer the fragmented financial sector to enable it to support initiatives under the NDS1.
Part of NDS1 reads: “In order to chart the financial sector strategic direction, focus will be on the development and implementation of the financial sector strategy whose objective is to expand financial intermediation and support maximum growth.”
It is in that spirit, that economic development stakeholders, including the RBZ and IPEC have started informal conversations towards development of a financial sector development strategy or plan.
Interestingly, the financial services sector, despite being the engine of national economic development and growth, is one of the few sectors yet to come up with a national development strategy under the President Mnangagwa’s administration.
The mining sector has its “Strategic Road to the Achievement of $12 billion by 2023”, the tourism sector has its “National Tourism Recovery and Growth Strategy”, agriculture has the “Agriculture and Food Systems Transformation Strategy”, while the manufacturing sector has its “Zimbabwe National Industrial Development Policy (2019-2023)”.
Likewise, the financial services sector development strategy is needed in order for the country to have a financial system that is sound, stable and market-based and one that supports efficient resource mobilisation necessary for economic diversification and sustainable growth.
Speaking at a virtual meeting organised by the Zimbabwe Economic Society (ZES) last week, central bank governor Dr John Mangudya acknowledged the need to develop a National Financial Sector Development Plan (FSDP), saying it is “an essential tool to guide and accelerate the development of a country’s financial sector to efficiently mobilise savings to finance sustainable economic growth in the country”.
Dr Mangudya said bringing in all players in particular regulators of various financial services, will help in coordination, governance and harmonisation of laws and regulations so that the economy grows.
He said the banking sector on its own is mostly about short term money, the capital markets are about capital development while the pension funds are about long term savings. Dr Mangudya said what is required under the financial sector strategy is to ensure that the various players regulated under the RBZ, IPEC or SECZim coordinate activities under common working parties.
“For example when money is raised by pension funds there must be a clear strategic direction where the money should go. Under the NDS1 the idea is to grow the economy and growing an economy needs national savings which includes funds from the pension sector, funds raised from the capital markets, that should be our total savings. Therefore, coordination is very important.”
He said in the last couple years, the central bank had concentrated in the stability of the economy with regards the exchange rate and inflation.
For more than 6 months now, the exchange rate has been stable between 82 and 85 to the United States dollar, while inflation has slowed from a peak of 837 percent in July 2020 to 240 percent in March 2021.
But with the stability relatively now in place, Dr Mangudya said, there is now need for a financial sector development strategy.
“We are now saying how do we deepen this economy,” he said.
The next step would be identification of priority areas, formulation of strategies and the design of implementation frameworks that will lead to a dynamic and inclusive financial sector that supports all aspects of the economy.
“What we are trying to solve is the inclusivity of financial players so that at the end of the day resources are put in one envelope for the purposes of developing the economy in line with development strategies that have been defined” under NDS1.
Currently financial resources are scattered, according to Dr Mangudya, hence the need for the financial sector development strategy. Speaking at the same meeting, IPEC director pension supervision, Cuthbert Munjoma said a well-developed and functioning financial sector will support the attraction and mobilisation of savings and investments. Furthermore, a well-developed and functioning financial sector, will facilitate allocation of resources for development, build the trust and confidence of a wide and diversified consumer base and serves as a lifeblood of the economy due to its unique nature of financial intermediation as well as facilitating economic development, according to Munjoma.
He said given the emergency of fintechs, which have accelerated the integration of the financial services subsectors, calls for a more coordinated approach in setting the vision, goals and strategies of the financial services sector as part of national development efforts.
“Because of the integration of the different subsectors of the financial services sectors, developments in one subsector, will certainly affect the rest of the financial services sector.
“Our history has taught us that uncoordinated efforts be it at policy, legal and regulatory level, may have unintended consequences on the insurance and pensions industry and the rest of the financial sector,” Munjoma said.
Interestingly his observation comes after last year’s events, where instability in the monetary sector, resulted in the suspension of trading in the capital markets. The suspension of trading on the ZSE of listed entities Old Mutual and PPC Limited, has meant pension funds have no access to resources invested in those companies six months later and counting.
As a result, Munjoma said players in the sector under the various regulatory bodies need to come up with a shared vision for the financial services sector.
“We need to better coordinate our efforts as financial sector players including regulators and policy makers in central government.”
Munjoma also stressed that without a financial services development plan, there will be policy inconsistencies and disconnect between what Government is offering under various trade negotiations such as African Continental Free Trade Area (AfCFTA) and the country’s financial sector laws. – Business Weekly