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‘Zimbabwe Worse Than War-Torn Iraq’

DOING business in Zimbabwe is tougher than doing business in Iraq. At least that is what the World Bank says in its 2008 “Doing Business” report.

The report ranks Iraq higher than Zimbabwe on the main indicator, “Ease of doing business”, with Iraq placed at 142 while Zimbabwe is a distant 153 out of 178 countries.

The two countries are both tied at 107 on the indicator “protecting investors”.

Despite the exploding bombs, war-torn Iraq has been doing much better than Zimbabwe on almost all counts. It was ranked higher than Zimbabwe in most areas – licencing, employment, registering properties and paying taxes.

Even its 2007 year-on-year inflation rate was much lower than Zimbabwe’s staggering 100 580%. Iraq recorded an inflation rate of 65% during the same period.

“It has been a very difficult environment for us as the business community to work in this country,” said Zimbabwe National Chamber of Commerce (ZNCC) president Marah Hativagone.

“We have been living from hand to mouth trying to get by in a hostile environment.”

With critical foreign currency shortages, price controls, declining manufacturing and mining capacity, soaring unemployment, policy incongruence and high skills flight, Zimbabwe smacks of the stuff most international investors would shun.

And they have done so and in the process, greatly reduced their risk.

University of Zimbabwe (UZ) business lecturer, Professor Tony Hawkins said investors could not be blamed for avoiding Zimbabwe.

“If you have record high inflation, a collapsing currency and inconsistent government policies that threaten to indigenise all companies, why would anyone invest in such a country? Investors would be forgiven if they fled and watched from a safe distance,” said Hawkins. But for those already with investments in the country, the economic environment has been an absolute nightmare, which has been worsened by the uncertainty surrounding the country’s elections.

Amongst the setbacks suffered by business has been the recent seizure of funds in Foreign Currency Accounts (FCAs) by the Reserve Bank to fund the election and grabbing of farms by war veterans which has also affected confidence levels.

“When investors see farms and FCAs being seized they tend to hold on to their money and hold it quite dearly,” said Harare-based economist, John Robertson.

“It is no different from farm seizures, there can be no investor confidence in such a climate.”

The economic crisis has affected all and sundry, including organisations with an international footing and decades of experience in specific sectors. Their performance has been a far cry from companies of their pedigree and size.

International banking giants with a foothold in Zimbabwe, Standard Chartered and Barclays Bank, performed rather dismally. So did local banks.

Standard Chartered Zimbabwe posted a 2007 year-end after profit of $13,6 trillion while Barclays’ net income stood at $15,5 trillion.

This was only sufficient to buy an average of nine houses in Harare’s upmarket suburbs last December.

At current rates, each bank’s net income would be inadequate to buy a single house in Harare’s leafy suburb of Gunhill. Other companies have experienced worse misfortunes, posting losses. The profits have continued to dwindle in value with each passing day, making it not only difficult to plan but also next to impossible to grow any business.

Companies have pointed to an extremely hostile operating environment caused by “inflationary pressures”, shortages of foreign currency and erratic power and water supplies.

But Robertson said it was abnormal for big companies like Stanchart, CBZ and Barclays to register poor results as they did for 2007.

“Ideally, they should be making much more than that,” Robertson said.

 “The trillions of dollars they are making are worthless; in real terms it is not surprising to find that the value of their investments has been declining in US dollar terms.”

Not only have companies been shortchanged by the environment, even individuals have been victims with properties currently undervalued. In January 2007, a house in Avondale was worth $850 billion (US$425 000 at the prevailing parallel market rate).

Today, a similar house in the same neighbourhood is worth $8 trillion (US$114 000).

A house in Mufakose high-density suburb cost $120 billion (US$60 000) in January. It now costs $1,5 trillion (US$21 000). Economic analyst, Daniel Ndlela said running a business in Zimbabwe was next to impossible and that only big companies with external links could survive the economic crisis.

“Big companies, which are part of international conglomerates, have survived,” Ndlela said. “They are waiting for things to get right and are not making any money by their standards; they are just hanging in the balance and keeping their heads above water.”

Zimbabwe’s manufacturing sector is currently producing at all-time lows of 5% capacity utilisation.

Widespread food and basic commodity shortages have set in forcing businesses to import commodities.

The 2007/8 agricultural season is set to be the worst the country has experienced since Independence.

Only 300 000 tonnes of maize are expected meaning more food imports.

However, to import food and other commodities, both government and the business community need foreign currency which is only available on the parallel market. Government has denied buying foreign currency on the parallel market. Instead, it has accused the business community of actively dealing in this market.

“We hardly have raw materials. We are forced to rely on the parallel market and cross border traders to survive,” said Hativagone, who accused government of also sourcing foreign currency on the parallel market.

Ndlela said business was fighting against a predatory state bent on self-enrichment.

“The Zimbabwean currency is not overvalued even by overvaluation standards. That is a gross misstatement. It is grossly misaligned and a product of a distorted exchange rate. We have class interests owing to a predatory state preying on a national purse,” Ndlela said.
 

By Kuda Chikwanda/Bernard Mpofu

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