Analysts warn of economic meltdown as businesses resist stabilisation measures

22 May, 2023 - 00:05 0 Views
Analysts warn of economic meltdown as businesses resist stabilisation measures Analysts warn of economic meltdown

eBusiness Weekly

Michael Tome

Some analysts have warned of a “sharper” economic slowdown following the recent measures put in place by Government meant to stabilise the economy already threatened by massive depreciation of the local currency and a spike in prices.

Last week, the Government implemented a variety of measures to reverse the slowdown trend and these included scrapping duty on basic commodities, adoption of all external loans by the Treasury, granting 100 percent retention of domestic foreign currency earnings, and enhancing the foreign exchange auction system.

The Treasury said the new measures stemmed from “the need to eliminate harmful and destabilising arbitrage conditions that have pervaded the economy at the expense of the generality of citizens. This was after the Zimbabwe dollar suffered a stunning collapse against the greenback on the widely used black market.

However, economic analysts believe that most of the policy measures are bad for the economy and blamed the Government for failing to consult various stakeholders.

On scrapping the borders—analysts—in spate interviews said there was a potential of undoing the progress that had been made in propping up the local industry. They said the treasury should have made wider consultations with the sectors involved to come up with an all-win situation for the Government and industry.

Speaking during a Star FM talk show, renowned economic professor Gift Mugano said opening the borders was detrimental to the development of the local industry.

“We do not put measures that kill our industry because there is a problem in the market; opening the borders will create a bigger problem because we are now going to see the draining of foreign currency out of the country to bring basic goods.

“When we drain foreign currency it means the rate will continue to go up, these cross-border traders who are going to bring commodities will sale in US dollars which we are desiring, because they need to go back and buy again, so we are actually killing the Zimbabwe dollar which we are trying to save,” said Prof Mugano.

In arriving at the decision to scrap duty on basic goods, the Government said it was in response to rampant and extortionate pricing of basic commodities by the retail sector.

Prof Mugano, however, said the government should rather stop “the money printing crazy” emanating from funding infrastructure projects using short-term funding.

After being paid, the contractors chase the United States dollar by offloading the Zimbabwe dollar on the black market and in the process destabilizing the currency.

Prof Mugano said what the economy was witnessing were just symptoms of the government’s excessive money printing in its bid to pay contractors, whose effect is revealing itself through a turbulent local currency with consumers bearing the brunt.

“I’m calling for a holistic approach when addressing industrial issues, it is not a secret that money supply is increasing from the central bank. I was expecting the Minister of Finance to announce measures aimed at raising the US dollar component to 90-100 percent when paying service providers and contractors,” he said.

“Contactors are pushing the rate, manufacturers and retailers become the victim of exchange rate and it is passed on and the consumer suffers because now when the rate goes up, prices go up and you blame business but it is excessive liquidity.”

Confederation of Zimbabwe Industries (CZI) president, Kurai Matsheza weighed in, saying the new policy measures would “disintegrate local industry performance.

He said the industry was also being choked by a steep rise in cost build up given their need to acquire the greenback using an exorbitant exchange rate. “By this measure, we are outsourcing production and by that, we are exporting jobs. “Electricity is paid in US dollars, fuel is in US dollars, raw materials we import are also in US dollars, and none of our members is getting near 20 percent of foreign currency they require on the auction, so they get the bulk of what they require on the parallel market which is priced exorbitantly,” said Matsheza in an interview.

Consumer Council of Zimbabwe (CCZ) Executive Director Rosemary Mpofu said local businesses were bent on profiteering without any iota of sensitivity to the struggling citizenry.

She said the government’s pronounced measures were commendable as they shield consumers from the marauding retail sector which is fomenting arbitrary price increases.

“No business across the world is making profits like profits that are being made here in Zimbabwe.

“If the government has allowed imports to come into the country it is going to improve on our competition, our local industry should not be overprotected to the extent that they practice unfair trading practices, unfair pricing,” she said.

Confederation of Zimbabwe Retailers (CZR) president Denford Mutashu said the move by the government was positive given that the local supply chain was making unreasonable demands.  “Our pricing had gone to a level that is unacceptable, as CZR we made a recommendation to the government to liberalize the supply chain.

“Formal retail and wholesale was suffering as most of the suppliers were demanding payments in US dollars for products, now there is an opportunity for consumers to make independent decisions on a dollar spent,” said Mutashu.

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