MTHANDAZO NYONI in Victoria Falls
PROMINENT economist Eddie Cross has advised the local businesses to tighten their seat belts, warning that the country will likely dive into worse hyperinflation within two months.
Speaking during the Zimbabwe National Chamber of Commerce (ZNCC) 2022 annual congress in Victoria Falls on Wednesday, Cross said the economic outlook was gloomy due to high inflation and currency volatility.
“My advice to the business community is to tighten your seat belts, seriously. I don’t see the measures adopted in the last few days having any impact at all on the underlying instability on the money market. I think inflation is going to escalate. I project hyperinflation within two months. Hyperinflation is 50% per month,” he said.
Zimbabwe’s annual inflation jumped to 191,7% in June from 131,7% recorded in May, further spiking prices of basic goods and services.
The 60% point movement comes on the back of yet another fuel price increase from US$1,76 to US$1,88 for diesel and from US$1,73 to US$1,77 for petrol.
The incessant price shifts have left the government struggling to shore up the economy and President Emmerson Mnangagwa’s promises to implement new measures to stem price increases are failing to contain the pressures.
Cross said the government was “rolling in money” because for every USD liquidated on the auction, the value has gone up three times in the last two months.
“Remember 25% of the revenues in the government is in US dollars. On top of that, overall taxation is already up 200% a year and I don’t see any possibility of that slowing down, neither does the minister,” he said.
“So I forecast high levels of inflation for the rest of the year in local currency. You
must not forget that in US dollar terms, the inflation is only about 2% or 3%. And 75% or more of all transactions in Zimbabwe today are conducted in US dollars.”
He implored the business community to collaborate and formulate a policy proposal which can help solve the current economic problems.
“The way things are happening at the moment, the solutions being tendered are not addressing the fundamental issue,” he said, adding that the challenge in Zimbabwe was the foreign exchange market.
Cross noted that the country needed to sort out the agriculture sector, which is regarded as the backbone of the economy.
“We need to sort compensation to our farmers, solve the question of stability and leasehold rights, financing and marketing. All of that is in complete shambles. I am working with the government in trying to reorganise the agriculture value-chain,” he said.
“I have never seen such a mess, loaded with corruption, poor pricing and under-invoicing of exports. Those guys are doing it and we need to sort these things out because unless we fix that, there is no future for agriculture in Zimbabwe.”
Cross also warned against re-dollarising, saying businesses would not be able to compete with regional peers as the African Continental Free Trade Area kicks in.
“If we do not have our own currency we will not be able to compete. If we are re-dollarising right now, the Zimbabwean dollar is dead. It has no value in the marketplace,” he said.
“If you don’t have your own currency, we know from the government of national unity (GNU), you are not competitive.”
ZNCC president Mike Kamungeremu said the government should come up with measures to strengthen the local currency.
“We expect more confidence-building measures, and confidence in our currency is the starting point. My worry is that even the previous statement from the minister (of Finance Mthuli Ncube) did not address that. For example certain taxes are still needed to be paid in foreign currency when we have a local currency,” he said.
“I thought we are on a de-dollarisation roadmap and I thought, since President Emmerson Mnangagwa announced in May this year, taxes and levies and royalties are to be paid in local currency.
“Unfortunately as we speak right now, that is not happening, we are still required to pay in the foreign currency contrary to what the President said,” Kamungeremu added.