eBusiness Weekly
Chris Chenga
In a candid interview earlier this year, former Finance Minister Chinamasa gave a nuanced perspective to fighting corruption supposedly within the mining sector. He shifted the narrative from one where there is impunity or lax prosecution of offenders, to one which questions whether or not public institutions and regulators especially, are capacitated to bring strong cases against offenders in the first place?
More precisely, do regulators have the necessary technical capacity to understand the nature of actual offenses themselves so as to draw legal credibility for punishment?
A few months after the interview, a number of employees at the Ministry of Finance signed up for classes on Transfer Pricing, Multinational Taxation, and Mineral Value Chains, all with the purpose of enhancing their regulatory comprehension in a key sector that has been said to deprive national revenues.
Crucial as it may be, public institutions and regulators are not rigidly established to fight corruption, as per wide assumption for other entities such as the Auditor-General’s office for example. In fact, corruption is probably a second order agenda, or even lower. There is a greater challenge than fighting corruption.
Public institutions and regulators have increasingly faced the burden of identifying and deterring the risks that have come with globalisation and greater convergence in the world of commerce today; corruption is merely just one of those risks.
Public institutions and regulators must stay ahead of a fast paced global environment where the lines between jurisdictions are becoming blurred. Those which succeed at this, inherently address the mitigation of exposure to corruption as well.
Globalisation and standard convergence is desirable along multiple facets. Capital market convergence, for instance, has been vouched for by a number of companies pursuing dual listings to tap into more liquid markets than their operating environments.
Governments themselves must perceive capital market convergence as desirable as their economies find an avenue for capital inflows.
Capital market convergence generally inspires raised levels of corporate structuring and governance standards within local companies, as they are pressured to comply with developed market listing rules and standards of financial reporting and information disclosure.
This may be a good thing, however, that means that local regulators must also then inform themselves on the developed market standards and benchmarks and areas which may not find precise parity with local benchmarks; otherwise a margin of exposure is created by mismatched regulations between local and foreign capital market requirements. This is a theory of “regulatory parity” and expands across more sectors than just capital markets.
Consider recently as the Broadcast Authority of Zimbabwe (BAZ) has pursued digitisation and subtle liberalisation of the broadcasting sector. Local entities within the sector such as TelOne and Kwese may indeed be trying to structure themselves for local market share, but their eventual organizational structures are inherently going to be of a foreign interpretation.
A less overt challenge in this sector is that broadcasting in Zimbabwe is much more exposed to global dynamics than local factors.
All potential entrants, even the regulators, are technical adopters of global benchmarks and will for the foreseeable future remain exposed to derivatives of global occurrences beyond the local industry’s control.
For instance, key broadcast infrastructure used by our local regulator and market participants is either outsourced to foreign entities, or contracted to foreign operators.
All these foreign entities that are outsourced or contracted abide their operations in accordance with foreign standards and rules.
So then, how does a local regulator enforce a sector completely dependent on foreign jurisdiction frameworks, and moreover, how does the regulator retain identify fair competition by participants without enhancing its own literacy to foreign frameworks?
The local regulator is in fact playing catch up to reach regulatory parity to global standards.
For instance, whatever legislation is to be passed in the ongoing debate on net neutrality will have an effect on the competitive landscape of local market participants, but our local public institutions and regulators have no influence on that legislative debate.
The notion then of regulatory parity is clearly a first order agenda for public institutions and regulators. This not limited to fair competition or mitigating exposure to corruption.
Regulatory parity is maybe a more significant concern as far as it relates to national policy making.
At the recent IMF conference in Harare, deputy governor of the Reserve Bank of Zimbabwe Charity Dhliwayo, raised firm arguments towards the increased risk of global financial convergence. She further suggested at the unfair implications that convergence may have on developing economies.
When global institutions such as the Bank of International Settlements pass certain guidelines, these guidelines often-times have limited potent relevance to Africa’s emerging and frontier markets and sometimes may even be harmful.
Consider that the BIS is on Basel 3, a set of guidelines in which central banks have to abide by in their respective jurisdictions.
Yet, most of Sub-Sahara African central banks monitor banking sectors that are unable to even comply with Basel 1. These regulations pressures banks to reach certain capitalisation benchmarks, yet our economies are not as liquid as say the European Union where most banks are able to source such capital requirements.
This then harms national policy because banking sectors are not designed to achieve the socio-economic objectives that are deemed necessary by our current levels of development.
Hence, another less overt risk of globalisation and standard convergence is that of constraining respective national policy making.
How does a developing economy balance out its monetary policy when convergence is tugging the inverse direction?
This regulatory mismatch also exposes our economies to exogenous risks. When our struggle to balance national policy with global regulatory compliance, instances such as de-risking by developed world banks end up having significant effect on dependent countries such as ourselves.
As Western banks cyclically de-risk, it leaves our economies vulnerable to loss of correspondent banks.
The effect being less foreign currency reserves undercapitalised financial sectors and higher transaction costs that deprive us from competitive participation in global commerce.
Accordingly, regulators must stay ahead of globalisation and standard convergence as these brings as many risks as they do opportunities.
Literate public institutions and regulators are a modern day front line to sovereign protection. Corruption, fair competition, policy potency are all facets that will be determined by the quality of our institutional and regulatory authorities.
Feedback — @ChrisChenga
