FOLLOWING months of spirited propaganda and claims that drawdowns of a Covid-19 stimulus package announced in May had kicked off, industrialists have told Finance minister Mthuli Ncube to come out clean on the strain such a rescue package would place on the government’s finances.
The Confederation of Zimbabwe Industries (CZI) said in a paper submitted to the minister this week they understood he has little room to manoeuvre and he has to decide whether to inject the ZW$18 billion into the economy and face a possible hyperinflationary scourge, or withhold the stimulus and suffocate an already struggling industry.
Industrialists felt that Ncube had chosen not to come clean on the issue by making it clear business was on its own in the battle to save companies as the government could not bear the consequences of spiralling money supply growth and hyperinflation.
The CZI’s submission came only a week after the minister claimed ZW$6 billion of the stimulus announced by President Emmerson Mnangagwa in May had been injected into agriculture alone, but farmers said they had not received anything.
“Companies indicated that no funds were accessed under the rescue package,” the CZI indicated in the paper that spells out companies’ expectations for the 2021 national budget.
“More focus was on ensuring minimal disruptions to business operations with what was available on hand. Other players have made indications to their bankers but they have not received responses yet — no funds have been availed. This is perfectly understandable given the need to maintain very tight RTGS liquidity. As we have often said at CZI, the best stimulus that industry can have is a stable economy,” the CZI said.
In the past few months, the CZI has suggested that a solution to the liquidity crisis facing industry lies in foreign funding.
Up to 30% of jobs have been lost since the government responded to the coronavirus pandemic by announcing blanket lockdowns that grounded the economy, the CZI said.
“Economic activity was generally restricted, with reduced production and consumption levels. Income generation was curtailed particularly for informal traders and the self-employed. One important take away from Covid-19 induced international lockdowns is that the public policy formulation and implementation process should make and execute policies that achieve a higher degree of self-reliance and self-sufficiency and proactively planning against exogenous factors in view of pandemics and climate change effects,” the paper noted.
Government claimed in the 2021 pre-budget strategy paper last week that funds were flowing into industries under the relief window.
“Besides causing a humanitarian crisis, the Covid-19 pandemic almost paralysed a number of our productive sectors through output and employment losses. Most affected sectors were tourism and manufacturing,” the paper said.
“Already, the government has committed significant resources amounting to ZW$6 billion under the ZW$18 stimulus package which is expected to restore production in the (agricultural) sector,” it noted.
These exposures follow weeks of propaganda by the government which left the markets wondering where the funding was going.
Last week, the Zimbabwe National Chamber of Commerce (ZNCC) said banks were treating state guarantees extended under the package with caution.
It warned the country to brace for extensive de-industrialisation in the absence of fresh bailouts.
Government decided only three weeks ago to underwrite drawdowns by industries under the package.
Mnangagwa’s intervention came after it became clear lockdowns would cripple firms which were already battling to forestall a gruelling crisis before the pandemic struck.
“The ZW$18 billion stimulus package cannot be an affair between banks and private sector players alone,” the ZNCC said in its submission for the 2021 budget.
“The credit guarantee arrangement with the government is not offering enough comfort to banks to lend to the private sector. Government has to offer significant tax relief to businesses or set up a fund for drawdown by businesses,” the ZNCC said.
Governments worldwide have announced and honoured a combined package of over US$5 trillion to keep firms running, with England undertaking to pay up to 80% of companies’ wage bills as firms faced multiple bankruptcies.
In its submissions this week, the ZNCC also called for currency and exchange rate stability.
“The dual currency system must continue. However focus must shift towards ensuring that market pricing follows the interbank exchange rate 100%. Current distortions in the market continue to present arbitrage opportunities and fuel the informal trade,” the CZI said.
“More work needs to be done to ensure that all small businesses are registered formally and operate within the formal parameters to enhance circulation of all currencies in the formal market and ease of monitoring of compliance. This makes pricing of goods and accounting of transactions difficult.
“Use of two currencies invites use of two exchange rates, one official, and the other unofficial. This situation allows sellers to take advantage of buyers by using high parallel market rates.”