SINCE the dramatic ouster of former president Robert Mugabe in November last year and the subsequent inauguration of President Emmerson Mnangagwa, there has been renewed hope that the ruined economy will now embark on a recovery path.
However, the wave of expectation has been tempered by increases in prices and the persistent liquidity challenges on the market. Business reporter Kudzai Kuwaza (KK) spoke to the Zimbabwe National Chamber of Commerce (ZNCC) president Divine Ndhlukula (DN) on the price hikes, efforts to stabilise the economy and Mnangagwa’s charm offensive to woo investors:
KK: Towards the end of last year, prices of basic commodities rose sharply, and thereafter, there were engagements between government, retailers, consumers and manufacturers. What was the outcome of those engagements?
DN: Note that price increases were not for basic commodities only, but a number of commodities, including construction. The engagements have been fruitful and from the deliberations, the private sector has shown commitment to continue engaging with government through the National Competitiveness Commission in order to address the major cost drivers weighing on industry.
This is evident in the private sector’s commitment to pass on to consumers its resultant cost savings in production and distribution of basic commodities following the reduction of excise duty on petrol and diesel by 6,5 cents and 7 cents, respectively, by government.
KK: What are the reasons that possibly explain the increase in prices?
DN: Unsustainable broad money supply growth has resulted in price increases and is the biggest threat to the parity between the United States dollar and bond note. The budget deficit shows that there is a mismatch between government expenditure and revenue. This means that government is financing the fiscal imbalances through issuance of Treasury Bills and overdrafts.
Broad money supply recorded an annual growth of 47,97%, from US$5 420,01 million in November 2016 to US$8 020,03 million in November 2017. This has been fuelling inflation, given that money supply is not backed by Grossd Domesti Product growth (estimated 3,7% in 2017, projected at 4,5% in 2018) with year-on-year inflation quoted at 3% in November 2017 and ending 2017 at 3.5% in December. As such, broad money supply growth has had an effect on weakening the parity of the US dollar and the bond note.
Foreign currency shortages have been a result of rising Real Time Gross Settlement balances which have resulted in the weakening of the parity between the US dollar and bond note. Banking sector deposits maintained an upward trajectory, increasing by 17,1%, from US$6,51 billion as at end December 2016, to US$7,62 billion as at end of September 2017. Meanwhile, about 90% of the products have an element of imports as an input (raw materials), hence the demand for foreign currency to import. The simple fact that the economy is immersed in biting forex shortages characterised by a multi-tier pricing system means the cost of money has become both unsustainable and unpredictable.
In addition, there has been an element of profiteering by some players in the private sector, in particular the informal traders, obviously taking advantage of the situation.
KK: Apart from the systematic increase in prices, what are the other consequences of foreign currency shortages to industry?
DN: We do not view them as systematic, but systemic because of a number of repel effects in the economy. Foreign currency shortages have resulted in a rise in the cost of doing business, lack of confidence in the banking sector, fuelling the black market and have had an impact on protectionist measures by government such as Statutory Instrument 64.
Industry is failing to import raw materials because of foreign currency shortages and this has an impact on production levels. Delays in the processing of foreign payments are being experienced and the foreign currency allocation framework is not efficient as business has to wait for months to be able to import.
KK: Do you see this situation self-correcting in the short-term or is there a need for a strong strategy on pricing stabilisation?
DN: Prices are a fundamental aspect of what is prevailing in the market. We expect the situation to improve, given the commitment made by government to improve the national macro-economic conditions and ensuring an improvement in the supply of scarce foreign currency resources required to stimulate domestic production and stabilise prices of basic commodities.
Renewed efforts towards improving business confidence and competitiveness in the domestic agricultural and manufacturing sectors by reducing the current regulatory cost of compliance by at least 50% is also a welcome development.
Business has also committed itself to exercising restraint in pricing their goods and services.
KK: Government has appointed a committee to address the issue of rising prices. Have you as the ZNCC interacted with this committee?
DN: We are an integral part of the committee and were involved in all the meetings of stakeholder engagements. The role of the committee is not to control, but monitor, so as to find a lasting solution to inflationary pressures on the economy.
KK: What is your position as the ZNCC on government’s initiative to regulate market prices?
DN: It is important to note that the private sector community has agreed to adopt global best practice by publishing the recommended wholesale and retail prices on either the product packages or in the media.
All that is needed is to allow market economy and enterprise to thrive. This can only take place without interventions. There is need to avoid price controls as these cannot be an option whatsoever given what has been experienced to date as a result of price controls, notably the price slash campaign of 2005. Such price controls must be avoided in both the goods market and the currency markets, given how Zimbabwe experienced acute foreign currency shortages when the central bank began to fix the Zimdollar exchange rate to the greenback.
KK: How do you see Zimbabwe’s economy shaping up after the World Economic Forum Davos experience and engagements?
DN: In business, after publicising oneself there are two things to expect: that is a positive reaction or no reaction (negative). However, the world had been waiting to see Zimbabwe change on policy implementation and ease of doing business.
All this has taken an affirmative step; expectations are that there will be more engagements with foreign investors expected to come and invest. In a nutshell, there is a bright future for Zimbabwe’s economy to be trending in a northward direction after the Davos experience. However, the Davos experience is not the solution, there is need to see the implementation engagement of Lima II.
KK: Can you say Davos was exactly the platform that Zimbabwe needed to market itself?
DN: Yes, since government has been preaching the ‘Zimbabwe is open for business’ campaign, the World Economic Forum platform could not have come at a better time as the message from the new administration had to be presented to the world leaders (heads of state, government and international organisations alongside leaders from business, civil society, academia, the arts and media).
I would like to also inform you that the ZNCC has embarked on a drive to market and promote Zimbabwe as an investment destination, having led business delegations to Rwanda from January 22 to 26 January 2018 in Kigali, and to India from the November 13 to 17 2017. There is also going to be a Zimbabwe business delegation to Italy on promoting Zimbabwe as an investment destination and as a trading partner to Italy. The scope of this mission, which will take place in Rome and Milan on February 21 and 22, 2018, is to provide a platform for Zimbabwean institutions and businesses, from which to present investment and commercial opportunities to Italian businesspersons, as well as to understand what may be required to facilitate the successful cooperation between Italian and Zimbabwean businesses.
KK: Most analysts have talked about the need to implement measures which have been pronounced by government with most saying government is moving slowly on this front. Do you agree?
DN: It will be unfair to evaluate implementation by the current government, given that it is less than 100 days after assuming office. Implementation has always been an issue in our country, but from what has been witnessed so far there is assurance from the government that this is a thing of the past. As has been reiterated by President Mnangagwa, that “let’s put the past behind us”, it is everyone’s hope that issues to do with sluggish movement towards implementation will be a thing of the past.
KK: Would you say the resignation of former president Mugabe in November has generated confidence within the business community?
DN: The issue was not about personalities but about policy direction. Investors are risk-averse and prefer to invest where policies are consistent.
Fact File: Divine Ndhlukula
- Founder and managing director of security firm Securicor; which employs over 3 800 workers
- Conferred with a Master of Business Administration (MBA) degree by the Women’s University in Africa in recognition of her business leadership and gender equity initiatives;
- Holds an Executive MBA from Midlands State University; and
- Won several awards, including the Empretec Zimbabwe, Entrepreneur of the Year and Institute of Directors of Zimbabwe Director of the Year accolades.