Double-edged sword of SI 64 repeal

GOVERNMENT’S decision to relax and repeal Statutory Instrument 64 is an indication that it is bowing down to pressure from ordinary citizens, although the move will widen the trade deficit.

By Hazel Ndebele

The move is also an admission that the foreign currency shortages are worsening ahead of the festive season.

Prices of basic commodities have been escalating in the past two months due to an acute forex shortage that has seen manufacturers struggling to get raw materials for production. Manufacturers of basic commodities have not been spared by the foreign currency scarcity, resulting in them turning to the black-market.

The price hikes and forex shortages have forced government to relax import restrictions for individuals and companies. Industry and Commerce minister Mike Bimha this week announced that individuals and companies with free funds can import basic commodities upon obtaining permits and licences. The move has been welcomed by many ordinary citizens who, in fact, want all importation restrictions lifted.

On the other hand, however, government is creating another problem of a widening trade deficit at a time the country is grappling with low production.

Trade statistics by the Zimbabwe National Statistics Agency (Zimstat) show that the trade deficit from January to September stood at US$1,4 billion and is most likely going to increase before year end. In those months Zimbabwe imported goods worth US$4 billion, while its exports were only worth US$2,5 billion.

For a long time Zimbabwe has been relying on imports due to the collapse of its industries. Decline in capacity utilisation which is currently at 45% is evidence that the country is struggling to produce, meaning the ability to earn foreign currency is reduced. Over-reliance on imports due to low capacity utilisation has worsened the trade deficit which, in turn, has aggravated the country’s liquidity crunch. The greenback disappeared from the market as a result.

Due to limited foreign currency, the Reserve Bank of Zimbabwe has introduced a priority list for disbursing forex to individuals and companies with intent to import or make foreign payments.

The central bank has, however, been struggling to avail forex to companies on the priority list, and it is therefore not a surprise that the government is asking people with “free funds” to obtain permits and licences in order to import basic commodities.

Bimha said his ministry was ready to process permits and licences for both individual and companies who wish to import.

“What we would want to announce today is that, we want to call upon companies and individuals who have free funds to import basic commodities and my ministry is ready to process permits and licences to that effect. You will recall that some of the basic commodities were removed from the Open General Import Licence and were now covered under various Statutory Instruments including SI 64 of 2016,” said Bimha.

“But as we had said time and time again these SIs such SI 64 of 2016 were not intended to ban the importation of products but were intended to regulate their importation and where we believe that there is demand exceeding supply we will obviously want to facilitate the importation of such commodities which is the case in point because of the demand as a result of the coming festive season and again because of the limited foreign currency available to local producers we would want to make sure that those with free funds be they individuals or companies they should come forward to obtain the necessary permits and licences to bring products into the market.”

Bimha’s announcement is ample evidence that government has bowed down to pressure. He said although government supports local industry, it would not hesitate to take action against those who are raising prices without just cause.

However, analysts have warned that although it is a positive thing that government has taken into consideration the ordinary Zimbabwean, the move will also widen the trade deficit. Analysts also said the requirement for permits and licences for imports are not necessary as almost everyone feels the need to import and some are already doing it without those licences.

Government’s relaxation of import restrictions is also seen as a form of revising Statutory Instrument 64.

Economist John Robertson said the imports will not only widen trade deficit, but will certainly worsen the foreign currency cash shortages as the money will be going out and rarely coming in. He said it is not surprising that government has realised that restricting the importation of basic commodities was wrong, although the move could also have been informed by the need to raise revenue through import duty.

“Cross-borders were already importing these basic commodities anywhere. Import licences were already a privilege to those connected politically and those in the ruling part Zanu PF, therefore goods were being smuggled to escape duty. It is messy because government has now realised that it is forfeiting revenue and is now looking for revenue which it will get through the import surcharge,” said Robertson.

“The original decision to introduce SI 64 was wrong because government did not set the conditions in which manufacturers should be motivated to produce and very few resumed operations because of the instrument. Zimbabwe is dependent on agriculture and there is no activity in agriculture hence the manufactures could have not started work too.

“Government has also recognised that they need to submit to the pressures of market behaviour and they know that people need to import. The businesspeople are skilled people and know what they need to do in order to continue business and they do not need government to tell them what to do as all government has done is to interfere in business and this has always been a problem,” he added.

Bulawayo-based economist Eddie Cross said the relaxing of import controls is an acknowledgement by government of their failure to providing adequate foreign currency for industry.

“This is recognition by government that they do not have the capacity to provide foreign currency to importers,” he said.

“It is a question of control. Whenever there is control, we have shortages, when there are no controls we do not have shortages so we should do away with controls.”

Cross called for the scrapping of SI 64 and a return to pre-market conditions.

Economist and Buy Zimbabwe executive Oswell Binha pointed out that the relaxation of import controls shows government confusion. “We do not know our economy in terms of economic planning. We are shooting in the dark,” Binha said. “If we put up a policy and revise it before it matures, it shows there is something wrong.”

He said after all the “gymnastics” Binha had undergone to introduce SI 64, he should be enjoying the benefits of the policy but it instead was causing problems for the sector.