Gideon Gono

From The Herald
2 February 2012

GOVERNMENT has approved the establishment of an international financial centre in the resort town of Victoria Falls in an effort to attract scarce liquidity and investment into the country.

Presenting the 2012 Monetary Policy Statement in Harare on Tuesday, Reserve Bank Governor Dr Gideon Gono said they have already embarked on crafting modalities for the IFC.

“It is pleasing to note that Government has already agreed to the establishment of an international financial centre. In this respect the Ministry of Finance together with the Reserve Bank are seized with drafting of the legal and administrative framework,” said Dr Gono.

The central bank governor said the IFC would provide perfect conditions for the country to attract foreign direct investment through the free flow of capital and improved market liquidity.

Finance Minister Tendai Biti last week said the IFC to be set up in Victoria Falls would allow foreign financial institutions to set up base without too many restrictive regulations or conditions.

An International Financial Centre is a geographical area with the concentration of most financial services as well as conditions and peculiar regulations favouring inflow and exit of funding.

It must be able to support foreign trade, currency exchange, transfer of funds across political boundaries, facilitate foreign borrowing and lending and advance foreign direct investment.

There are four main types of IFCs, namely primary, funding, booking and collection centres. They are differentiated by their operations in terms of the origin of the clientele they deal with.

Primary financial centres are the hub of international banking and finance in their market area and offer a wide variety of financial services. They play a dominant intermediary role in their market.

Booking centres channel outside funds. They play an intermediation role only for non-residents.

They only need to meet basic financial infrastructure as they are drawn to good tax laws.

Funding centres channel outside funds to local markets. Collection centres accumulate and channel funding from within to outside areas.

Another type of an IFC is the host centre – this attracts a large number of financial institutions from other countries – enhancing their own infrastructure.

A host centre is not an isolated category. A regional, national or international centre may become a host centre.

Zimbabwe has been battling a choking liquidity crisis caused by a decade of economic instability that decimated companies’ ability to produce and regenerate their production systems.

Little foreign direct investment due to illegal sanctions and other negatively viewed policies such as indigenisation have significantly limited the flow of foreign funds into Zimbabwe.