Observations on Zim’s economy

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ZIMBABWE’S current fiscal and taxation policies are characterised by increasing tariffs, expanding the proportion of taxes, raising the cost of living, production and material rates. This has resulted in a sharp rise in inflation.

At the same time, the exchange rate of the rebirthed Zimbabwean dollar against the United States dollar has depreciated sharply and is failing to find stability. The consumption cost of citizens has risen sharply in a short period of time. As a result, the market demand becomes weaker, and inflation is higher. As production costs rise, businesses have encountered the double challenge of shrinking market demand, adding to their difficulties and worrying conditions.
Some businesses have stopped production or sought to withdraw from the local market or shifting focus towards regional markets, thus worsening the already high unemployment rate in the country.
Due to the poor economic performance and deviation of fiscal policy, Zimbabwe has encountered some serious problems, not least stagflation. The direct result of stagflation is a sharp decline in people’s income and a sharp increase in unemployment, as well as major problems in social stability. It seems Zimbabwe has entered a vicious circle of economic decline in investment, production, circulation, and consumption which, in turn, leads to both financial and economic crises.
At present, the response of the government is limited to short-term solutions, lacking long-term strategic vision. This is not desirable in any sense. Development needs to be carefully arranged and carried out in an orderly manner. At present, it is necessary to seriously study which industries are in line with the country’s national conditions and market needs. There is need to study, identify and consider which industries are in urgent need of the local market, which industries are conducive to the development of local resources and other factors, and rationally balance the interests.
Zimbabwe should take a comprehensive approach, and formulate a targeted medium and long-term (5-10 years) development plan. The continuation of good policies is the cornerstone of national development and can only be done if the country has a long-term policy. Let investors have no worries, rest assured that bold and active investment shall be made. Investment will bring advanced technology and good management experience and international markets. It will also provide a large number of jobs, promote business development, reduce dependence on imports, increase export opportunities, and increase national taxes so as to bring the country into a virtuous circle. Zimbabwe should study the surrounding countries that have done a good job of attracting investment.
Fiscal and tax policies that meet the country’s long-term interests should be formulated. Given the current economic conditions, top priority is to encourage economic development. In terms of taxation, expanding the tax base and reducing the tax rate are the need of the hour. A step-by-step tax policy that expands the tax base both by law and reasoning should be introduced. With the 2% tax, government did well in expanding the tax base. However, the tax burden is too high, killing both production and consumption.
In addition, in the current dismal economic environment, the production businesses should be given appropriate tax reduction support, so as to help the products to enter circulation as soon as possible, promote the market recovery, increase consumption, and increase the employment rate.
If government can attract more overseas investment, it can get more tax revenue from the increase of the scale of production, operation and transportation of businesses. Specific measures include reducing tariffs on raw materials and spare parts to help businesses reduce production costs, simplifying the process of administrative examination and approval of businesses, delegating responsibilities to relevant ministries, establishing one-stop services, and so on.

Tinashe Kaduwo is a researcher and economist. — kaduwot@gmail.com

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