GIVEN the already negative sentiments about the country, the latest World Bank Ease of Doing Business Report has further dampened the country’s appeal among investors.
Financial Matters with Shingai Moyo
According to the latest 2017 Ease of Doing Business Report, Zimbabwe’s overall rank fell from 157 to 161. The country lost footing in six of the 10 indicators which include starting a business, getting electricity, protection of minority investors, paying taxes and trading across borders. Of significance was the decline in trading across borders from 103 to 148 following the introduction of a mandatory pre-shipment inspection for imported products.
Government protectionist policies such as Statutory Instrument 64 are also making trading across borders difficult, increasing the cost of doing business for the country. However, the instrument has benefitted the country in increased government revenue and manufacturing output despite increasing costs in cross-border trading. Government revenue improved to US$222 million in the third quarter from US$194 million in the second quarter.
The manufacturing sector grew by 30% to 50% in the last three months, benefitting from the instrument which removed 42 commodities from the general import licence.
Foreign payments gridlocks as a result of nostro depletions are also adding to the adverse ranking. Companies are struggling to make foreign payments to suppliers of capital goods and services. Banks have long outstanding foreign payments which they are failing to process due to these nostro depletions. Perennial current account deficit and externalisation are the main causes of nostro depletions. Retailers are reportedly fretting over delays in processing their payments to foreign suppliers as they are affecting their ability to restock. Econet, for example, announced that it has been unable to meet debt repayments.
This situation has been true for many manufacturers and service providers, making the country not lucrative for business and foreign investments. To address this, the Reserve Bank of Zimbabwe announced that it has secured a line of credit to assist in foreign payments. The apex bank announced that it had secured a US$545 million nostro stabilisation facility. The facility may not be enough as capital continues to flow out of the market. However, with the coming in of bond notes, the situation might marginally improve, but businesses will continue to struggle to acquire the dollars required to bring in goods and services from abroad.
On paying taxes, the country slipped from 163 to 164 despite government efforts to sophisticate the tax payment system and compliance. Since 2011, the government reduced the corporate income tax rate from 30% to 25%, lowered the capital gains tax from 20% to 5% and simplified the payment of corporate income tax by allowing quarterly payment through commercial banks. The country also moved adversely in terms of minority investor protection.
The country, which was ranked 97 last year, slipped to 102. Issues to do with the indigenisation and economic empowerment law fall under this measure. Although President Robert Mugabe clarified the government’s position on indigenisation after fierce public battles between the responsible Indeginisation minister Patrick Zhuwawo and his finance counterpart Patrick Chinamasa, the policy is yet to be gazetted, which raises concerns among businesses and potential investors. The indigenisation laws are considered an albatross to investment by foreigners.
Delays in implementing key reforms and policies are limiting the country’s potential. Positive strides were recorded in dealing with construction permits, registering property and resolving insolvency. On resolving insolvency, the country ranks 145 out of 190, a positive move from the 150 last year. In the short term, policymakers may need to expedite the ongoing implementation of business reforms meant to ease the cost of doing business.
Given the elevated levels of political risk and the current entrenched liquidity shortage, key economic reforms are really needed to improve the country’s perception in the eyes of both foreign and domestic investors.
Moyo is an economic and financial consultant.