BUSINESSES are facing transfer and pricing risks due to shortages of foreign currency and high inflation as the currency crisis strains the economy.
This has come as a result of a waning investor confidence due to the government’s dithering with critical reforms to improve the legal and security environment.
Recently, Reserve Bank of Zimbabwe governor John Mangudya said the apex bank was keeping a probing eye on companies participating in the foreign currency auction system amid allegations of profit shifting.
Mangudya accused some of the companies of creating associate firms in other countries particularly South Africa.
An international research firm, Fitch Solutions says Zimbabwe’s operating environment was challenging due to adverse weather conditions, commodity price shocks, low industrial productivity and liquidity problems.
These risks are compounded by internal factors around high reliance on primary sector exports, high import demand, endemic corruption, weak property rights protection, high borrowing costs and a yawning infrastructure deficit.
“Investor interest following the November 2017 removal of Robert Mugabe from presidency has waned as the new government has been slow to implement critical reforms aimed at boosting the legal and security environment and improving the ease of doing business, and a protracted currency crisis strains the economy. Due to the shortage of foreign currency and concomitantly high inflation, businesses face onerous transfer and pricing risks,” Fitch said.
Besides the transfer and pricing risks, businesses are facing recurrent electricity outages and fuel shortages. This has pushed up costs of alternative power sources and transport charges.
These factors combined with volatile foreign currency availability and rigid labour market regulations are expected to significantly lower the country’s competitiveness relative to its Southern African neighbours.
“Zimbabwe has significant human capital and vast resource potential that could drive economic development, contingent on the implementation of reforms that support legal, fiscal and monetary policy normalisation,” Fitch said.
There is a need for improved governance and transparency, increased investment openness and meaningful re-engagement with multilateral lenders and the international community in the years ahead, according to Fitch.
Zimbabwe has over the years been faced with a biting economic crisis worsened by inconsistent policy changes resulting in low confidence in the economic system.