Gloomy outlook for Zimbabwe in 2019

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BUSINESS must brace for tougher times this year as the difficult economic conditions experienced in the country last year are showing no signs of letting up any time soon, analysts have warned.
This comes after 2018 was characterised by a sharp increase in inflation, rising prices of goods and services, acute shortages of foreign currency and fuel, and growing labour unrest, among many other challenges, which worsened the ease of doing business in the country.
Trust Chikohora, a former Zimbabwe National Chamber of Commerce (ZNCC) president, told The Financial Gazette this week that so gloomy was the 2019 outlook that the first quarter of the year was likely to see more companies closing shop, as well as increased industrial action.
“Government must move fast to ensure efficient use of foreign currency in order to stabilise the economy. Any other economic policy can only work where there is stability. In economics, without stability you have nothing,” he said.
Sonny Mabheju, a former economic consultant for the World Bank, concurred saying, “Businesses and industry must not expect meaningful improvement during the first quarter, unless certain fundamentals are correctly handled”.
“Government and the private sector should adopt a common approach underpinned by effective collaboration and consultation on the key issues of economic policy reform, development and implementation,” he said.
“Both sectors must aim to address the root causes of the challenges rather than spend time, effort and resources on symptoms,” he said.
Mabheju, who is also a former chief executive of the Institute of Chartered Accountants of Zimbabwe (ICAZ), said government needed to play its key role of creating a conducive environment for business to operate in.
“This includes improving economic governance, the business environment, and the investment climate necessary to invite high quality investment,” he added.
“The private sector must also play the game with full understanding of the current country context that is characterised by challenges that may not be resolved overnight,” Mabheju said.
Eddie Cross, an economist and a former legislator, said the local economic crisis had been worsened by government’s continued denial that bond notes — which were introduced by authorities in 2016 as part of desperate efforts to curb the country’s crippling cash shortages — had lost ground significantly versus the US dollar.
“As a result, some businesses, including schools, are now demanding hard currency. The fuel industry is in complete shambles, with some outlets selling fuel only to card holders or asking for hard currency,” he said.
“Yet the state denies there is a problem. Are they nuts?” Cross remarked.
The former Bulawayo South legislator also called for the liberalisation of the foreign currency market, as had been done in February 2009 when government abolished exchange controls to enable businesses to access foreign currency.
“In 10 days (after removal of exchange controls) the fuel queues vanished. In a month you could buy whatever you wanted at market driven prices, in the currency of your choice,” Cross said.
“In six months we were nearly fully dollarised and inflation was close to zero. Revenues to the state grew by 70 percent per annum and standards of living improved every year,” he said.
Brains Muchemwa, the Oxlink Capital chief executive, weighed in, saying government needed to understand that austerity measures alone would not stabilise the economy without decisive action being taken on the country’s currency regime.
“Without adopting a flexible currency regime, corporates will find it very difficult to preserve jobs and working capital,” he said.
“While the short term pains of floating the exchange rate will entail loss of value and spikes in the prices of basic commodities, the medium to long term benefits far outweigh the short term worries and put the economy on a sustainable footing,” Muchemwa said.
“While it is a fact that common sense will eventually prevail over political fears, and that government will eventually abandon the 1:1 policy, it would be wiser if government makes a move earlier before much harm is done to business and the general populace as was the case in the 2005 to 2008 era,” the trained economist said.
Another economist, John Robertson, said the central bank and Treasury appear to be debating the issues affecting the supply and transferability of foreign currency and whether the country should accept a formal exchange rate policy that will govern or regulate the exchange rate between the billions in RTGS balances and scarce US dollars.
“While these are still being debated, the country runs the risk of failing to meet payments for essential imports. We therefore run the risk of experiencing more shortages of essentials, such as fuel and bread, and some of the less essential items are also likely to be affected. Hopefully, by the end of the first quarter, the needed decisions will have been made,” he said.
“Government’s main contribution to a good outcome in these debates will be to speed up requests for investment permits and project approvals. Investment inflows are awaiting nothing more than government signatures and the delays appear to be related to issues that are in no way helpful to the economy. Government should also support initiatives that are designed to reduce production costs and improve the investment environment. Everything possible should be done to settle the doctors’ strike and to avert any further labour or social unrest,” Robertson added.
Businessman Shingi Munyeza noted that the excess liquidity and the shortage of foreign currency will cause havoc to business as the country comes to grips with an economy that is dollarising.
“Pricing of goods and services will be a nightmare to configure and implement. Furthermore, our inability to secure new lines of foreign credit will make it difficult for importers of raw materials, thus affecting productivity across the board. The El Niño induced drought, as forecasted will make it even more difficult for our agro-based industries, making us import basic food and commodities. The silver lining should be in mining, services and tourism, which continue to grow,” he said.
The former African Sun chief executive further indicated that government will have to show strong leadership in implementing a binding social contract as a start, which will immediately stabilise prices and incomes.
“This also means all stakeholders in the nation have to engage so that we are united in finding lasting solutions. We need a robust and urgent monetary policy to deal with excess liquidity, equitably manage the scarce foreign currency, the disparity between interest rates and inflation through possible inflation targeting. Government has to outline the road map for introducing our own currency, which would be backed by the requisite confidence and reserves,” he said.
Confederation of Zimbabwe Industries president Sifelani Jabangwe said “re-dollarising the economy was counter-productive as this would stifle growth and possibly halve the size of the economy”.
“We see more companies wanting to sell in US dollars, but the issue is that we don’t need dollarisation as an economy. The economy will shrink by as much as 50 percent if we dollarise. For me, it is not the right way to go,” he said.
“We have seen it in the past. We won’t be competitive when using the US dollar,” he said.
Denford Mutashu, the Confederation of Zimbabwe Retailers president, said some of the key expectations by business and industry during this year’s first quarter was the elimination of official forex market distortions, which had resulted in multi-tier pricing of goods.
“A market where others are allowed to price in US dollars while some are not causes confusion and disaffection. Pricing should be standard and based on reality. The foreign currency situation should improve for the better,” he said.
Mutashu also said that government must support foreign currency generators, promote import substitution and grow exports through beneficiation and value addition.
“A deliberate push towards increasing production would see prices falling in the short to medium term,” he added.
In the meantime, Zimbabwe’s economy is forecast to grow by 3,1 percent this year, down from 2018’s four percent — dragged down by the anticipated poor performance of the agricultural sector and the generally unstable economic conditions.
In his 2019 national budget, Finance minister Mthuli Ncube said: “Growth projection in 2019 … is slightly lower than … 2018, reflecting the impact of unfavourable weather on agriculture and macro-fiscal vulnerabilities from previous unsustainable fiscal and current account deficits”.