THE CURRENCY PRONOUNCEMENTS AND THE AFTER EFFECTS ON ZIMBABWEAN BUSINESSES


First Published: September 5, 2019

THE CURRENCY PRONOUCEMENTS AND THE AFTER EFFECTS ON ZIMBABWEAN BUSINESSES

By: Prince Kanokanga


INTRODUCTION

 

The Government of Zimbabwe (hereafter called the Government) on the 12th April 2009 suspended the Zimbabwe Dollar (hereafter the ZWL) as functional and presentation currency and adopted a multi-currency regime.[1]

It goes without saying that the multi-currency regime which adopted the United States Dollar, the South African Rand, the British Pound Sterling and other currencies brought about financial stability and ease to budgeting, accounting and financial reporting.

 

TRANSITIONAL STABLISATION PROGRAMME

Following the political reforms in Zimbabwe which ushered in a ‘New Dispensation’ or ‘Second Republic’[2] the government on the 05th October 2018 adopted a Transitional Stabilisation Programme (TSP) aimed “Towards a Prosperous and Empowered Upper Middle-Income Society by 2030”.

The TSP reform agenda priorities fiscal consolidations, economic stabilisation, stimulation of growth, creation of employment, the ease of doing business, improving competitiveness and opening the country to international investors and financiers.

STATUTORY INSTRUMENT 33 OF 2019

On the 22nd February 2019 a ‘new baby currency’ code-named Real Time Gross Settlement Electronic Dollar (herein RTGS Dollars) was birthed to give official existence to the new currency, for the purposes of pricing of goods and services, record debts, accounting and settlement of domestic transactions in Zimbabwe.[3]

The ‘new baby currency’ was enacted into law through Statutory Instrument 33 of 2019.[4]

After the introduction of SI 33 of 2019 many entities convened meetings and sought expert advise as the ‘new currency’ certainly introduced accounting challenges to say the least.

The most controversial part of SI 33 of 2019 was section 4 (1) (d) which reads as follows:

“(d) that for accounting and other purposes, all assets and liabilities that were immediately before the effective date valued and expressed in United States dollars (other than assets and liabilities referred to in Section 44C (2) of the principal Act) shall on and after the effective date be deemed to be valued in RTGS dollars, at a rate of one-to-one to the United States dollar, and”

The High Court in Cheuke v Mafenya & 3 Ors[5] interpreted the above sections and adopted the definition of the Thesaurus Learners Dictionary which defines the word ‘asset’ to mean:

“(a) a single item of ownership having exchange value or items of ownership convertible into cash, total resources of a person or business, as cash, notes and accounts receivable, securities, inventories, goodwill, fixtures, machinery or real estate (opposed to liabilities)

(b) Accounting, the items detailed on a balance sheet, especially in relation to liabilities and capital.

(c) All the property available for the payment of debts, especially of a bankrupt or insolvent firm or person.

(d) Law property in the hands of an heir, executor or administrator, that is sufficient to pay the debts or legacies of a deceased person.”

The same dictionary defines the word ‘liability’ to refer to:

“(i) moneys owed, debts or pecuniary obligations (opposed to assets)

(ii) accounting – liabilities as detailed on a balance sheet, especially in relation to assets and capital.”

Due to the fact that SI 33 of 2019 was introduced into law through the Presidential Powers (Temporary Measures) Act [Chapter 10:20] in compliance with section 6 of the Presidential Powers (Temporary Measures) Act [Chapter 10:20] the statutory instrument expired on the 21st August 2019.

STATUTORY INSTRUMENT 142 OF 2019

The government on the 24th June 2019 through the Reserve Bank of Zimbabwe (Legal Tender) Regulations, 2019 banned the use of the multi-currency system in Zimbabwe (save for a few instances)[6] and officially reintroduced the ZWL as the sole legal tender. The ZWL includes the RTGS Dollars, Bond Notes and Bond Coins already in circulation.[7]

FINANCE (No. 2) ACT OF 2019

In line with its reform agenda, the government again on the 21st August 2019 passed into law the Finance (No. 2) Act of 2019 which re-enacts both SI 33 of 2019 and SI 142 of 2019. The Finance Act among other issues now provides that that the ZWL will be the sole currency for legal tender purposes, the Finance Act also provides for issuance and legal tender of electronic currency.[8]

Section 22 (4) of the Finance Act 2019 provides as follows:

“(4) For the purposes of this section: –

(a) it is declared that for the avoidance of doubt that financial or contractual obligations concluded or incurred before the first effective date, that were value and expressed in United States dollars (other than assets and liabilities referred to in section 44C (2) of the principal Act) shall on the first effective date be deemed to be values in RTGS dollars at a rate one-to-one to the United States dollar;”

Essentially, with the introduction of section 22 (4) of the Finance Act 2019 into law the government has converted financial or contractual obligations which were concluded or incurred before the 22nd February 2019 and that were valued and expressed in USD to RTGS Dollars at the rate of 1:1. It must be pointed out that the Finance Act defines financial or contractual obligations to include judgment debts.

The Finance Act defines a ‘judgment debt’ to mean a decision of a court of law upon relief claimed in an action or application which, in the case of money, refers to the amount in respect of which execution can be levied by the judgment creditor; and in the case of any other debt, refers to any other steps that can be taken by the judgment creditor to obtain satisfaction of the debt (but does not include a judgment debt that has prescribed, been abandoned or compromised)

For a full appreciation of the above, if A was advanced a loan in the sum of USD$1 000 000.00 by a local financial institution on the 02nd January 2019, in terms of section 22 (4) of the Finance Act 2019 the US$1 000 000.00 which A was advanced would be payable as ZWL$1 000 000.00

If B sold their house to C for US$500 000.00 on a Deed of Sale on 10th December 2018 and C has so far paid US$100 000.00, the balance in the sum of US$400 000.00 is payable as ZWL$400 000.00

Essentially, section 22 (4) (a) of the Finance (No. 2) Act, 2019 does away with the doctrine of the sanctity of contracts. It converts USD contracts into RTGS contracts. It also interferes with court orders or court judgments granted before 22nd February 2019 converting any such court orders or judgments which are expressed in USD to RTGS dollars. Talk of the separation of powers.

It should be noted that section 22 (4) of the Finance Act 2019 affects local financial or contractual obligations and not foreign financial or contractual obligations in terms of section 44 C (2) of the Finance Act.

IMPACT OF CURRENCY DEVELOPMENTS ON FINANCIAL REPORT

The above pronouncements have an effect on exchange rates on accounting information and account reporting.

The Public Accountants and Auditors Board (PAAB) on the 21st March 2019 issued guidelines on financial reporting and auditing on currency considerations with regards to the current environment prevailing.[9]

PAAB has advises that at a minimum, in the notes of financial statements to include addition sets of statements of financial positions. The elements of the statement of financial position should be analysed into three categories namely:

  • Monetary assets and liabilities (Nostro FCS US$);
  • Monetary assets and liabilities (RTGS FCA US$);
  • Non-monetary assets and liabilities (whose underlying values or amounts are denominated in US$)

 

IMPACT OF CURRENCY DEVELOPMENTS ON COMPANY SHAREHOLDING

In 2009 when the government introduced the multi-currency regime, shareholding in companies had to be re-denominated from ZWL to USD which was deemed the functional currency in Zimbabwe until recently.

Whether it is in line with the ease of doing business or not, all locally incorporated companies are expected to ensure that their share capital is re-denominated from USD to ZWL this is known as the re-denomination of company share capital.

In order to ensure compliance with the Companies Act [Chapter 24:03] it is important for the Board of Directors in terms of section 136 of the Companies Act [Chapter 24:03] to pass a Special Resolution for the re-denomination of share capital from USD to ZWL when filing their annual returns with the Registrar of Companies. This essentially means that the company will have to also submit a CR 11 Form with the new share capital, and any other shareholding changes with the Registrar of Companies.

 

 


[1] Joseph Noko, Dollarization: The Case of Zimbabwe, Cato Journal at page 349

[2] A Second Republic is a systematic structural departure from a preceding political dispensation.

[3] Cambria Africa PLC v Breastplate Services (Pvt) Ltd t/a Nemchem International HMT 55-19

[4] Presidential Powers (Temporary Measures) (Amendment of Reserve Bank of Zimbabwe Act and Issue of Real Time Gross Settlement Electronic Dollars (RTGS Dollars) Regulations 2019

[5] HH 516/19

[6] Nostro FCAs – foreign currency bank accounts that pertain to free funds, diaspora remittances, international organisation remittances, portfolio investment inflows, foreign loan proceeds and export and retention proceeds

[7] ZWL means the unit of currency of Zimbabwe and RTGS Dollar means any funds held as bank deposits under the Real Time Gross Settlement system,

[8] This does not affect funds held in Nostro Foreign Currency Accounts (FCAs), which shall continue to be designated in such foreign currencies; and foreign loans and foreign obligations denominated in any foreign currency, which shall continue to be payable in such foreign currencies

[9] See also ICAZ Paper on Reporting Change in Functional Currency and Presentation Currency in Zimbabwe 2018


Disclaimer:

While care has been taken to ensure that this publication is accurate, Kanokanga & Partners accepts no liability for any prejudice, loss or, damage of whatsoever nature which may arise from reliance on any of the information published herein. The contents of this publication are for general information purposes only. The purpose of this publication does NOT constitute our legal or professional advice. Readers are advised not to act on the basis of the information contained herein alone. Every situation depends on its own facts and circumstances.

 

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