The macroeconomic environment in Zimbabwe remains a significant barrier to economic growth and competitiveness, with exchange rate instability, pricing distortions, and a lack of harmony between monetary and fiscal policies stifling business operations.
These challenges were at the forefront of discussions during the National Competitiveness Commission (NCC) Inaugural Competitiveness Summit held in Bulawayo on Wednesday.
Key concerns raised by the business sector was the confusion surrounding the exchange rate, the governmentโs insistence on collecting taxes in US dollars, and the reluctance of banks to lend in the local currency, ZiG, which seemed to be in short supply.
Christopher Mugaga, Chief Executive Officer of the Zimbabwe National Chamber of Commerce (ZNCC), one of the countryโs oldest private sector bodies with a 130 year history, did not mince words when addressing the exchange rate crisis.
โThe macroeconomic environment remains an issue. Obviously, itโs not unique to Zimbabwe only. But we continue pushing the government through the Central Bank, Treasury, the Ministry of Industry, Ministry of SMEs and regulatory bodies, to push for a pro-business environment,โ he said.
โAs ZNCC, we believe one of the major challenges we have is a controlled economy. Any basic economist in the room can tell you if you violate market forces, the consequences are so predictable.โ
The business person said if market forces were respected, โ75% of our problems will be solved.โ โAll the voluminous chapters on the fiscal policies, the monetary policies, will be irrelevant. Sometimes we are trying to cure a challenge whose underlying problem is the structural market forces violation.โ
Mugaga described this challenge as the โheart of the competitiveness issueโ in Zimbabweโs economy.
โThere is no rocket science on why you will see someone selling bread in the streets at a cheaper price than in one of the local retail chains. Itโs not making sense for an average person to walk into a shop and buy because of exchange rate confusion. Itโs a conundrum,โ Mugaga said.
โOne of the major crises in this economy is the exchange rate. Try to clean the exchange rate. You will be shocked.โ
Mugaga also criticised the governmentโs approach to taxation, which demands payments in US dollars despite the prevalence of the local currency in daily transactions.
โIf the exchange rate is correct, who cares if you pay in ZiG or US dollars? But because the market forces are threatening the price and possibly because we know very well that the price is wrong. So, the message is government, ministers, can you be the biggest promoters of our local currency?โ said the business person.
He argued no country has ever grown its economy using a borrowed currency.
โThere can be a veneer of stability, but itโs not sustainable. From 2009 to 2013, the only sector that was performing well was mining. Other sectors were struggling, and the goods in shops were mostly imported. This means jobs were being pushed out of the country. I would rather see empty shelves and know we have a domestic production problem than see shops stocked with foreign goods,โ Mugaga said
Mugaga also highlighted the challenges posed by the banking sectorโs cautious approach to lending in ZiG.
โAre banks comfortable lending in ZiG? Once a bank is cautious in lending in ZiG it simply means they have priced the future of ZiG. we have to sit down and ask why?โ he asked.
Mugaga also pointed out the disconnect between the governmentโs claims and the reality on the ground.
โIn the last monetary policy, Treasury and Central Bank says 30% of transactions are in ZiG, but in the past four weeks, I havenโt come across ZiG. Iโm still looking for it,โ Mugaga said
The lack of alignment between monetary and fiscal policies was another major concern raised at the summit.
Mugaga noted that the Treasuryโs focus on avoiding a fiscal deficit is at odds with the realities of an economy where 75% of activity is in the informal sector.
โI sympathise with (Finance Minister) Professor Mthuli Ncube, but the reality is that 75% of the economy is informal. And to worsen it as business persons we are afraid when we hear that in a budget there will be a 43% budget increase in revenue. Where will you get that revenue?โ he interrogated.
The businessperson also criticised the tight monetary policy, which includes high interest rates and stringent reserve requirements.
โBanks have to keep 30% of their reserves with the Central Bank, creating a liquidity crunch. This makes it difficult for businesses to access credit and compete globally.โ
Kipson Gundani, Chief Executive Officer of Africa Roundtable, echoed Mugagaโs concerns, adding that pricing issues are a major obstacle to competitiveness.
โWhat is hemorrhaging this economy is the pricing problem. Mugaga talked about it from an exchange rate point of view. Thatโs a pricing issue, where we put the wrong price for money. It also comes to the price of credit, which is interest rates,โ he said.
โCertainly, you cannot sufficiently borrow for retooling purposes at an interest rate that is above 20%. Because you cannot even get margins in terms of profits that can beat that.โ
Gundani called for a market-driven approach to address these challenges.
โThe tried and tested model is to simply allow the laws of economics to take place. That is, allow the market to function. And you can only intervene when there is failure,โ he said.
Meanwhile, Mugaga called for a review of the Competition Act, which he said is stifling business activity.
โThe notification fee for transactions is set at 1.5 million, which is too low. This makes it uncompetitive. We also need to look at the structure of the Competition and Tariff Commission (CTC). In South Africa, the competition authority makes decisions every three weeks. In Zimbabwe, you have to wait for a whole quarter where they choose whether to postpone making a decision or make it,โ he said.
