Business confidence at all-time low
REQUISITE of economic stability and growth is that the business community be endowed with confidence as to the economy’s future, the security of investments, and the existence and continuance of good governance.
When business confidence is high, an economy expands, for there is then a willingness to develop and diversify existing business and to invest in new ventures. Employment opportunities are created, downstream spending in the economy increases, enhanced profits result in greater revenue flows to the fiscus, import substitution and export generation intensifies and national economic wellbeing becomes greater.
Sound levels of business confidence also become stimulants for foreign direct investment, for foreign investors become motivated to invest in an environment where the local business community is instilled with a sense of conviction that all is well with the economy and that that economy will sustain continuing stability and growth.
Where high levels of business confidence prevail, the potential foreign investor is attracted as magnetically to the investment opportunities as is the domestic investor. But when business confidence is depressed, foreign investors are the first to discard any concepts of investment in the economy which is driven downwards by that low level of confidence, and look for opportunities elsewhere.
The domestic investor has a like reluctance to invest in any new enterprise, or to diversify and expand any existing ventures, believing that the economic environment renders any investment insecure or unproductive.
Because business confidence is so essential for a sound economy, the future of the Zimbabwean economy presently appears to be very bleak, for rarely has the level of business confidence in Zimbabwe been so depressed. With very rare exception, the business community’s confidence levels have plummeted to an all-time low.
Almost all businesses are endowed with deep-seated doom and gloom, their prognostications being that all that can possibly lie ahead are even greater economic ills than presently confront them. Many suggest that those ills are already of such magnitude as place the economy beyond redemption.
Such negative perceptions are gross exaggerations of the morass that is the Zimbabwean economy of today, and are formulated by having regard only to the adverse conditions that prevail, without striking a balance by giving recognition also to positive developments and to prospects of future change. And yet, the present adversities are so very great that it is not surprising that so many cannot foresee anything other than further economic decline.
The erosion of business confidence began when the government embarked upon its land acquisition, redistribution and resettlement programme in ways which had a total disregard for justice, equity, preservation of agricultural viability and economic repercussions. Instead, the programme was wholly driven by political objectives, ra-cism, bigotry, self-interest anddetermination to stamp authoritarian control upon the country as a whole.
The consequences have been devastating.
First and foremost, the entire economy was, almost instantly, converted from one of increasing virility to one of extreme fragility, for agriculture was the foundation upon which almost the entire economy was built. In a period of only four years, the government successfully reduced the agricultural sector’s contribution to the economy by almost two-thirds.
It rendered over 300 000 farm workers unemployed, subjected them and over a million dependants to poverty and misery. It decimated one of the country’s principal sources of much-needed foreign currency, causing frequent and massive shortages of many essentials and fuelling rampant inflation.
And the “botched-up” implementation of the land reform programme became an immediate deterrent to potential investors in other economic sectors, for an almost instantaneous fear developed that if the government was willing so arbitrarily to expropriate farms, it could well decide to do likewise in the future in respect of mines, industries, commercial enterprises, tourism facilities and urban properties.
Widespread concerns developed that the government would, when it suited its own ends, unhesitatingly resort to “nationalisation” of any investments that it deemed fit. After all, it had blatantly disregarded all fundamentals of justice in its determined pursuit of displacement of whites from the ownership of their farms, even to the extent of breaching bilateral investment protection agreements that it had entered into with many of the countries of the international community.
Therefore, the business and investor communities understandably feared that equally oppressive, iniquitous and discriminatory actions could be afflicted upon them in the future. That first loss of business confidence was compounded by wide-ranging and unhindered abuses of law and order.
Without even spurious authorisation of land acquisition in terms of the oppressive Land Acquisition Act, thousands invaded farms, intimidated and assaulted farmers — and, in some instances, murdered them — vandalised the properties, misappropriated moveables and livestock, and almost always did so without any endeavour whatsoever by the authorities to contain the breakdown of law and order.
Instead, the government worked vigorously to modify those laws which restricted its actions, even if only in theory in view of the inactivity of the supposed guardians of the law, and to rid itself of those judges as were not prepared to be accomplices to the government’s abuses of justice.
The business world knows that sound and just law, and uncontained enforcement of such law, is essential for any economy to survive. So as the infrastructure of Zimbabwean justice was progressively weakened by the state, so too was business confidence.
This sorry state worsened further as the government steadily and increasingly adopted a stance of confrontation with much of the international community. The government contemptuously failed to implement its agreements with that community, such as the Paris Donor Accord of 1998 on land reform and the subsequent Abuja Agreement in 2001, intended to address a constructive land reform programme.
It failed to honour obligations to the International Monetary Fund, the World Bank, and other international creditors. It embarked upon a continuing and intensifying path of denigration and contemptuous abuse of those organisations, and of many of the donor states that had long befriended Zimbabwe.
The country became increasingly isolated, relying only upon its membership of the United Nations and the African Union and like organisations to create a veneer of ongoing cordial international relationships, but in practice becoming an ever-greater pariah and leper in the world community.
Business and investors have been inevitably conscious that the growing isolation impacts more and more, in a deleterious manner, upon lines of credit, export and import trade, technology transfer and many other essentials for a thriving economy. Business confidence continued to fall.
Temporarily, this year, there was some limited upturn in the perspectives of the business community, when it witnessed the willingness of new Reserve Bank governor Gideon Gono to restore economic fundamentals, to combat inflation, to restore probity to the financial sector and to attempt to influence the government towards solid fiscal policies and effective governance.
But that partial restoration of business confidence was short-lived. On the one hand, an obdurate, bigoted and destructive approach by the Ministry of Education, Sport and Culture on issues of fees had devastating effects upon the continuance of operations and maintenance of standards of many independent schools, resulting in a very marked escalation in the migration of essential skills from Zimbabwe.
On the other hand and at the same time, undoubtedly with an eye on forthcoming elections, the government continued its policies of land acquisition with even greater vigour and with intensified racist rhetoric, despite having acquired far more than its own determined hectarage. That did naught to revive business confidence. Instead, that compliance was undermined further.
And then the first half of 2004 was characterised by a witch-hunt by the authorities against businessmen who had traded foreign currencies within what had become known as “the parallel market”. It was clearly of no consequence to the authorities that most of those who had done so had been so engaged not in order to externalise wealth, but in order to keep their businesses operational, their staff employed, the economy active.
It was irrelevant to the authorities that those businessmen had only done that which the government itself had done, and as had been resorted to recurrently by many of its parastatals. It was equally irrelevant to them that in a majority of instances the transactions had been effected through, or with the assistance of, registered banks who, as authorised dealers of the Reserve Bank, were effectively its agents.
Similarly, of apparently no concern was that such banks had, in effect, been pardoned for theirinvolvements, having fines imposed upon them refunded and licences reinstated. But those who were in many instances their partners in the transactions, have not been pardoned, and instead face aggressive investigations, prosecu-tions and potentially destroying punishment.
The business community sees itself as being harshly victimised and, therefore, it is not surprising that what little confidence that remained has been wiped out.
With these and many other factors business confidence is at an all-time low, which bodes ill for the emaciated residue of the economy, unless the government immediately pursues a comprehensive about-turn on its policies and actions.