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Economic crisis batters small business

Gift Phiri

IN February last year, Glen Norah furniture maker Panganai Gido drew up a plan to expand his enterprise to regional markets by the start of 2005, with the greater part of the investment coming fro

m a hard-won bank loan. But 11 months later, he has shelved export plans and cut staff by more than half to seven to survive.

“I didn’t know 11 months could make such a big difference in business. I’m almost bankrupt and yet at the beginning of last year I was financially stable,” he said, staring at bank correspondence demanding immediate repayment of the loan he had secured for the shelved furniture export project.

Gido, a carpenter-turned-entrepreneur, is in a situation many Zimbabwean businessmen find themselves in as the country grapples with its worst economic crisis in two decades.

Zimbabwe, with inflation hovering around 150% and interest rates of more

than 100% coupled with unemployment of over 70%, has the weakest economic fundamentals in the region, if not the whole of Africa.

Both the International Monetary Fund (IMF) and the World Bank, under pressure from the big Western nations, pulled the plug on Zimbabwe three years ago, accusing the government of not being committed to economic reform.

The IMF alone withdrew a balance-of-payments support package worth US$193 million, influencing several other multilateral and bilateral donors to similarly cut off aid to the country last year.

Unable to access cru-cial international funding, the economy has been in free-fall since, experiencing acute shortages of most imported products such as power and fuel which were rationed throughout 2004.

It declined by minus 4,2% last year, while the budget deficit ballooned to 23% from a projected 3,8%.

The sectoral slump was even worse. The manufacturing sector declined by 10,5%, tourism 16% and mining 14% in the four years since 2000.

Agriculture, once the mainstay of the economy, managed to claw back, growing by 3% last year, but not enough to stabilise the economy.

It is against this background that Gido and other Zimbabwean entrepreneurs are finding it increasingly difficult to keep their businesses afloat, let alone pursue expansion plans, however viable.

The Confederation of Zimbabwe Industries (CZI), the country’s main business representative body, says more than 800 companies in the manufacturing sector alone closed shop last year because of the unstable macro-economic situation, particularly shortage of foreign currency.

“Several companies have informed us that they are closing down for good or will re-open when the situation gets back to normal, but if things do not improve, even more companies will be forced to close their businesses,” a CZI business development manager told the Zimbabwe Independent.

“The issue of foreign currency needs to be addressed urgently. Companies do not have the money to import raw materials, so they are having to close their businesses,” he said.

A survey carried out by the CZI last year indicated most of its members were operating at a maximum of 50% of capacity due to myriad difficulties businesses faced in the country.

Its counterpart, the Employers Confederation of Zimbabwe, says more than 60 000 jobs in the formal sector were lost in the first 10 months of last year, and expects the figure to be much higher this year.

But the government, which is widely blamed for the economy’s troubles, says Zimbabwe’s difficulties are largely caused by external factors beyond its control, citing sanctions, inflation and low mineral prices, among others.

“A lot of inflation is not because of the goods we produce here. A lot of inflation is imported,” President Robert Mugabe told the nation recently.

He also blamed the economic crisis on low prices for Zimbabwe’s chief agricultural and mineral exports, and denied his government had mismanaged the economy.

“I know that there are areas where the government is being blamed for following wrong policies and that we are responsible for prices going up,” he said.

But critics of the government say top-level corruption in the public service and excessive state borrowing, among other factors, are chiefly responsible for the country’s economic ills.

Senior government officials allegedly siphoned billions of dollars from a state-owned oil company last year, while the cash-strapped administration is borrowing more than $2 billion a week on the local capital markets to finance its operations.

The government partly admits its rising domestic debt, estimated at more than $200 billion (US$4 billion), was crowding out the private sector from the capital markets and hardening interest rates.

“Government is increasingly spending beyond its means, for consumption, at the expense of capital investment,” opposition Movement for Democratic Change shadow finance minister Tendai Biti said in a critique of the 2005 budget in November.

Economists say they were pessimistic 2005 would be any better for the economy, unless the government restored links to international capital.

“Our long-term salvation lies in the government re-establishing contacts with the IMF, World Bank and other international financial players. We need their assistance desperately,” said a bank economist.

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