BUSINESS is not doing well.
The Zimbabwe National Chamber of Commerce (ZNCC) second edition of its annual State of Industry and Commerce Survey for 2022 report, released recently, testifies to that.
This is because out of the 2 000 questionnaires sent out by ZNCC, from the 1 695 business responses, 74% found the ease of doing business as having deteriorated while 17% found it neutral.
Only 9% of the surveyed businesses thought Zimbabwe had a friendly business.
In fact, World Bank senior economist for Zimbabwe, Stella Illieva declared at the launch of the survey that the country has one of the lowest investments globally.
Fitch Solutions head of global operational risk research, trade and investment risk specialist, logistics specialist, Emerging Markets Chiedza Madzima said Zimbabwe ranked poorly in terms of its business climate.
“We rank markets based on the competitiveness of their business climate so out of 201 countries, Zimbabwe ranks 184th,” she said.
She warned that government’s reliance on agricultural and mining exports won’t cut it anymore owing to the whole world heading into a depressed economy next year.
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“There is this deep confidence gap to navigate especially in the foreign investor community and a lot of internal policy scepticism. But, if you bring that sort of global aspect into play, Zimbabwe is a country that cannot lie on its laurels anymore in terms of relying of the export of primary sector goods in agriculture, mining exports,” Madzima said.
She and Illieva called on the government to implement acceptable reforms quickly.
Fitch Solutions is an America-based global market research firm.
These rankings from global bodies do not bode well for the country as these institutions are some of the many that are used by investors to determine whether a market is safe to invest in.
What are the reasons behind the poor investment climate? According to the survey results, 94% of respondents noted costs brought by high levels of corruption, 93% the complex taxation system, 90% poor utility delivery (eg electricity, water, and sewage), and 80% policy inconsistency.
In fact, electricity shortages have worsened to such an extent that the country is now facing load shedding of up to 18 hours daily.
In some suburbs, people are reporting going for days without electricity which will make producers and retailers miss their targets at their busiest period of the year.
Eighty-one percent of respondents also noted the poor credit situation, tying into what both the World Bank and Fitch Solutions officials stated.
Zimbabwe lacks patient capital which is critical for the much-needed recapitalisation and retooling
“International lines of credit remain elusive given the country’s high sovereign risk. Moreover, the past four years have seen the promulgation of a plethora of statutory instruments which have had unintended destabilising effects on the economy. These are introduced with neither consultation with the business community nor impact analysis.”
However, ZNCC said that companies needed to explore borrowing in foreign currency where the interest rates have remained more attractive despite being higher.
The majority of stakeholders surveyed, 95%, ranked corruption as the major issue that needed to be dealt with towards the ease of doing business.
“The business confidence index (BCI) reflected by firms and the business community is generally negative for the upcoming year of 2023. The combined diffusion index of the BCI of industry and commerce decreased to minus 42 from a figure of 8 which was recorded in 2021,” ZNCC said.
“In fact, the general pessimism shown by the business confidence indicators reflect that stakeholders in ‘industry and commerce’ have no confidence in the government’s macroeconomic stabilisation policies in the coming year 2023, and in the international and domestic economic recovery.”
ZNCC continued: “A similar sentiment and conclusion was also observed and drawn from the purchasing manager index (PMI) which had a value of 13,5 (for PMI, values between 0 and 49 shows pessimism, while a value of 50 means no change and values above 50 means optimistic).”
The PMI tracks the direction of manufacturing and service sectors and represents the degree to which buying managers believe the market is expanding, remaining stable, or declining.
“The core problem in Zimbabwe is lack of investment. Investment comes from savings and savings have been decimated by hyperinflation. This is the direct relationship you need to keep in mind. Everything else is merely a symptom. Energy, water, health, schools crisis are mere symptoms,” economist Tinashe Murapata tweeted recently.
“We need at least nine years of economic stability to get investors, foreign and domestic, to invest. Payback period is long and cannot afford changes in currency and economic instability.”
Amid a lack of investment for both private and the public sector, the government has turned to debt financing through the issuances of Treasury Bills and now Zimbabwean dollar.
“Efforts to clear external debt arrears as well as re-engagement with international creditors and financiers should increase with a view to opening up international lines of credit. The country is in dire need of patient but cheap capital for recapitalisation across all sectors,” ZNCC said, based on survey findings.
ZNCC acknowledged efforts made by the government to clear its debt but found that the impact was yet to be seen or felt practically.
“Government should come up with a simplified tax regime that encourages formalisation of businesses given the high level of informality in the economy,” ZNCC said, based on the survey findings.
Reserve Bank of Zimbabwe deputy governor Innocent Matshe recently encouraged small businesses to register with the Collateral Registry to access credit for their business.
The registry allows movable assets to be officially listed by the borrower that lenders’ can use as collateral to loan out money to individuals or small businesses.
These efforts come as the central bank now estimates the informal sector to contribute up to 80% of economic activity, up from earlier estimates of between 60% and 70%.
“Government needs to resource entities which are responsible for providing sound infrastructure such as the Zimbabwe Electricity Supply Authority for electricity generation and supply; ministry or department responsible for roads for ensuring a sound road network and urban authorities for provision of clean water and refuse collection,” ZNCC said.
ZNCC said the central bank should work together with local banks to enhance the trading of forex on the foreign currency auction that has largely proven inefficient for exporters to source United States dollars to import critical raw materials.
The chamber also called for consultations between government and stakeholders before policy pronouncements.
Lastly, ZNCC called for fiscal discipline through enhanced expenditure rationalisation measures as the general elections draw nearer.
Typically, around elections, the government has sought to over-spend in order for candidates of the ruling Zanu PF party to entice the populace to vote for them, a strategy that continues to work.
However, with the low access to investments, this may hurt the country than help it as its total expenditure for the year 2023 is set at $4,5 trillion (US$6,95 billion), up 32,35% from pre-budget consultations and nearly 137% over 2022 comparative.
Thus, amid lower economic growth set at 3,8% in 2023, from 4% this year, debt financing is the government's only option. Debt financing, however, leads to money printing which then leads to high inflation as such government spending will lack economic growth to support it.
Government’s only solution is to heed business, whose capital requirement now stands at least US$2 billion. The government, on the other hand, failed to get anywhere close to US$8 063 788 836 needed for its infrastructure spending target for the year.
This article was first published in the Weekly Digest, an AMH digital publication
