By Kudzai Kuwaza
THE year 2017 will be remembered as a period when the economic crisis deepened, characterised by a debilitating liquidity crunch, a severe cash shortage, dwindling investment inflows and massive job losses.
We look at some of the economic highlights of the year:
Budget of reforms
Finance minister Patrick Chinamasa, earlier this month, announced bold and far-reaching economic reforms, while spelling out a series of austerity measures which he hopes will spur sustainable economic recovery and growth.
The minister then came up with a series of reforms and austerity measures which he said could lead to a 4,5% growth in 2018. He said government will adopt a major policy shift to re-engage with the international community, international financial institutions and attract investors. He said the government would maintain a freeze on recruitments, abolish youth officer posts under the Youth ministry and cut the size of government executives as a way of lowering the wage bill.
The retirement of public servants will entail payment of a severance package estimated at US$8,7 million. Chinamasa said government’s decision would lower the wage bill to 65% of expenditure from around 85% in the prior year and will see annual saving of US$20 million. He added government was working on progressive reduction of the share of employment costs in the budget to initially 70% in 2018, 65% in 2019, and below 60% of total revenue by 2020 to create fiscal space.
An increase of the capital budget thresholds from the current 11% to 15% in 2018 and 25% by 2020 is expected.
The Finance minister revealed that government will also deal with vehicles issued to officials, fuel, foreign trips and business travel, the number of embassies and size of diplomatic missions and sub-contracting, among many other things.
Probably the most significant pronouncement from the budget was the overhaul of indigenisation policy as it moves to attract foreign direct investment (FDI) in the country as part of economic reforms spearheaded by President Emmerson Mnangagwa’s administration.
The regulations compelling investors to sell controlling equity stakes will now only apply to diamonds and platinum extraction while other sectors of the economy will be spared.
Government enacted the Indigenisation and Economic Empowerment Act in 2008 to empower the historically disadvantaged indigenous Zimbabweans which repelled investors and resulted in FDI plummeting from US$545 million in 2014 to US$319 million last year.
Bond notes, introduced initially to boost exports, but have now become the surrogate currency, worsened the economic crisis amid the proliferation of a thriving black market, the scarcity of fuel and basic commodities, among other challenges.
The resurgence of the black market this year with the surrogate currency trading at various prohibitive rates has clearly exposed the fallacy that the bond notes — a bad currency — would trade at par with the United States dollar, a good currency.
When the promissory currency was brought into circulation on November 28 last year, the Reserve Bank of Zimbabwe (RBZ) governor John Mangudya said bond notes would only be used as an export incentive and depositors would be able to go to the bank and get the currency of their choice, including the United States dollar.
As feared by many, the reality on the ground this year is far removed from Mangudya’s undertaking when he introduced the bond notes. Not only are depositors failing to access currencies of their choice as espoused by the central bank governor, but are also spending long hours in bank queues only to get as little as US$20 in bond notes or coins. Such has been the severity of the cash crisis that most banks are giving customers cash in denominations of 5,10,25 and 50 cent coins in plastic containers.
Controversy over bond notes have been aggravated by the RBZ’s failure to put in place an independent board as promised by Mangudya. However, the central bank governor changed his tune with an explanation in August this year that has found few takers. “What we have said is that we want a monetary committee, but upon going back to the board, we found out that within the board, there is an independent committee, composed of only independent board members called the bank audit and oversight committee for the RBZ, where auditors report to and we found out that committee’s mandate is to exactly do what we thought the oversight committee was going to do,” Mangudya said.
The problems brought about increasing calls for the country to adopt the South African Rand. It remains to be seen whether this will gain currency with new political dispensation of President Emmerson Mnangagwa.
The central bank came up with an import priority list for the efficient allocation of the scarce foreign currency last year. However, in 2017 the foreign currency allocation has hurtled from one challenge to another. Delays in the allocation of foreign currency have resulted in many companies facing closure as they fail to import critical inputs. Zimbabwe National Chamber of Commerce (ZNCC) president Divine Ndhlukula revealed the depth of the crisis when she told this paper in an interview in October this year that some companies have gone for more than a year without receiving their foreign currency allocation from the central bank.
“Business is failing to import raw materials because foreign payments are not being processed with some having been in the queue for over a year now. This has seen some cancelling orders due to these delays. Some local suppliers have even doubled prices to allow themselves to buy forex,” she said.
At the Employers Confederation of Zimbabwe collective bargaining summit last month Confederation of Zimbabwe Industries chief executive Clifford Sileya bemoaned the high levels of corruption in the country which has resulted in the diversion of foreign currency allocated to industry by the RBZ.
“One company which supplies oxygen to hospitals has not received allocation of foreign currency for three months,” Sileya said. “The Reserve Bank governor (John Mangudya) nearly fell off his chair when he heard this saying he sent an allocation weekly. Seriously this is corruption which is certainly murderous.”
The forex challenges have remained a major albatross for the country’s economy and one of the major issues the Mnangagwa regime should urgently address.
The economic crisis in 2017 characterised by a severe liquidity crunch and a severe cash shortage resulted in the haemorrhaging of jobs through retrenchments. More than 2 000 workers were retrenched in the first half of this year.
According to statistics compiled by Labour ministry, 1 300 workers have been retrenched from various sectors of the economy in the second quarter of 2017 with parastatals accounting for more than 60% of those laid off.
According to the statistics, a total of 1 282 workers were retrenched between the period of April to June 2017.
This is in addition to the 817 workers retrenched in the first quarter bringing the total of workers laid off in the first half of the year to 2 099.
Business meets Mugabe
Business sector representatives in September met then president Robert Mugabe at State House in Harare to propose measures to address the deepening economic crisis, including ensuring policy coherence and consistency.
In a 17-page document, which was prepared by business for the meeting with Mugabe, business membership organisations implored government to embrace critical reforms, among them improving the investment environment, fiscal sustainability and financial sector stability, state enterprise renewal and stamping out corruption in both the public and private sectors. It was the first meeting between Mugabe and the business sector in a decade.
The value of shares surged well over US$10 billion on the Zimbabwe Stock Exchange amid heightened inflation fears and deepening currency volatility. The bourse was valued at US$10,8 billion in mid-September, the highest since dollarisation.
In November, the ZSE mainstream index crashed, dropping 7,46% to 487,93 points, while the market saw its market value falling by US$1 billion as political tensions remained high after the military takeover of the country.
Within a week after military intervention, the ZSE lost in excess of US$5 billion as investors panicked.
Zimbabwe’s biggest bank by asset base, CBZ Bank, was slapped with a staggering US$3,8 billion fine by the United States Treasury’s Office of Foreign Assets Control for thousands of financial transactions done on behalf of ZB Bank then under economic sanctions imposed by the world’s largest economy. However, after mitigation and negotiations in recent months, the penalty has been reduced to US$385 million. The amount could still be further reduced as negotiations continue.
Barclays Plc sold its majority stake in its Zimbabwean operation to Malawi’s First Merchant Bank (FMB), putting an end to months of a fierce bidding war to take over one of the country’s iconic financial institutions.
The takeover was met with resistance, from some sections of the business sector who argued that it was against the letter and the spirit of the indigenisation law, which has since been whittled down. FMB forced out its managing director George Guvamatanga, sending him packing with a modest US$354 000 exit package. He was replaced by the bank’s chief finance officer, Sam Matsekete.