ZIMBABWE’S credit advances are skewed towards government expenditure despite repeated calls by analysts and industry for funding to retool and revamp the productive sectors, latest figures show.
By Taurai Mangudhla
Despite government’s track record for perennially defaulting on loans, to a point its global debt figure ballooned to US$11,2 billion as at October last year, banks continue to lend to government and public institutions while credit to the private sector shrink, according to the recently released 2016 4th quarter Treasury Bulletin.
According to the bulletin, domestic credit in 2016 increased by 15,3%, from US$5,53 billion in December 2015 to US$6,38 billion in December 2016. The increase was largely driven by a 61,9% upsurge in government credit, from US$1,56 billion in December 2015 to US$2,53 billion in December 2016.
“However, credit to private sector decreased by 4,8% from US$3,83 billion in December 2016 to US$3,65 billion in December 2015,” reads the bulletin, adding annual growth in money supply increased by 19,2%, to reach US$5,68 billion in December 2016 from US$4,77 billion in December 2015.
While government attributes the increase in money supply mainly to increased use of plastic money, analysts feel Treasury Bills that breached the US$2 billion mark at the end of 2016 and are still growing had a material impact on money supply.
The growth in government credit at the expense of the private sector comes as companies have been forced to downsize or shut down, sending thousands of workers onto the streets due to a generally uncompetitive environment as a result of a number of factors, including the high cost of utilities and unsustainable cost of money amid lack of long-term funding.
The manufacturing sector has been among the hardest hit by the cost of funding and other challenges that have rendered Zimbabwean companies uncompetitive.
A 2016 Confederation of Zimbabwe Industries (CZI) survey showed manufacturing sector capacity utilisation increased by 18% to 47,4% this year, but experts say this is largely due to distortions stemming from the closure of hundreds of companies that are no longer considered in a nationwide survey.
Despite an increase in capacity utilisation from 34,3% to 47,4%, industry remains subdued by corruption, policy inconsistency, lack of access to cheap finance, competition from imports and low demand for domestic products.
“The five hurdles when importing materials, according to the survey, were corruption at the border, import licencing requirements, Zimbabwe Revenue Authority system inefficiency, burdensome import procedures and delays caused by domestic transportation,” said CZI senior economist Dephine Mazambani Mutafera in a report accompanying the survey.
The CZI survey revealed that 21,7% companies were affected by low demand for domestic products, 14,2% liquidity crisis, 12,8% competition from imports competition and 11,4% from local producers drawbacks .
In 2016, more than 260 companies from various sectors closed shop as the economic crisis continued taking a toll.
According to statistics from the Zimbabwe Congress of Trade Unions, 229 companies closed shop in the first half of the year.
At least 81 companies folded in the first quarter of the year. The closures, in the first quarter, were from the hotel and catering sector, which was the hardest hit with 69 companies shutting down, mining sector (seven) and engineering (five), bringing the total to 81. In the second quarter of the year, 148 companies folded from three sectors, namely construction, clothing and motoring.