High interest rates, power outages dent investment environment – observers

06 Jan, 2023 - 00:01 0 Views
High interest rates,  power outages dent investment environment – observers Prof Mthuli Ncube

eBusiness Weekly

Michael Tome

ANALYSTS have bemoaned high-cost business operating environment obtaining in the country saying it is a deterrent to private sector investments, calling on responsible authorities to find mechanisms to tame the challenge.

The business environment in Zimbabwe has lately been experiencing steep operating costs stemming mainly from the rise in cost of credit, coupled with intermittent power outages which have prompted established industries to rely more on expensive diesel generators.

Mid-2022, the Reserve Bank of Zimbabwe (RBZ) increased the benchmark policy rate from 80 percent to 200 percent per annum as a way of reducing money supply in the economy, while the Medium-Term accommodation interest rate increased from 50 percent to 100 percent per annum.

This monetary policy pronouncement was instituted to tame runaway inflation at the time, but upholding the interest rates at 200 percent will undoubtedly stifle investments and local economic growth.

It should be considered that credit is the lifeblood of many businesses, enhances economic activities as it allows businesses to invest beyond their cash on hand.

Generally, an economy needs credit for different purposes mainly to promote growth and sustenance.

Finance and Economic Development Minister, Professor Mthuli Ncube, late last year indicated that the administration was going to maintain interest rates at 200 percent as a way of stabilising inflation as the government moves to maintain a tight monetary interest rate regime as a way of bringing sanity to the economy.

More so, 2022 saw deepening electricity shortages, a challenge that is likely to persist until at least through the first half of 2023 due to limited imports, constrained production at Kariba hydropower station, and predictable breakdowns at the local thermal power stations.

Electricity is a key enabler in local industry operations and its paucity increases business costs resultantly straining operational budgets.

The aforementioned scenarios both monetary and energy wise, have lately been weighing heavily on the local economy and undoubtedly increasing the country’s risk, which deters investment, from both foreign and domestic players.

Economist, Cleopas Chibvure, implored the responsible authorities to swiftly address these imposing barriers to economic growth if the country was to attract more investment either from indigenous or from foreign players.

“Government should expedite addressing the issue of energy because no investor wants to plough their funds in a destination that is infested with severe power blackouts like we are experiencing right now because setting up a new solar plant or a new generator means an additional cost to the investor and no one likes that.

“The 200 percent interest rate is just too outrageous that companies are afraid to borrow in order to improve their capacities, apparently this is a direct attack to the industry, albeit having been helpful in addressing the issue of inflation,” said Chibvure.

He also said that the Russia-Ukraine conflict in Eastern Europe which has an uncertain end and the on and off Covid-19 pandemic also posed a greater risk to the economic outlook locally and globally.

“A high-cost environment feeds chronic inflation and scares away private sector investment, which is generally viewed by economists as the powerhouse for robust national output (GDP), income, and employment growth,” said Zvikomborero Sibanda while appraising Zimbabwe’s economic performance for 2022 and the outlook.

The contemporary high-interest rates obstruct economic growth, especially in a rapidly dollarising economy like Zimbabwe’s, undoubtedly negating productivity and development.

Meanwhile, the Minister of Energy and Power Development, Zhemu Soda, this week announced that the commissioning of Unit 7 at the Hwange Thermal Power Plant, was almost complete with engineers now finalising works on the system that allows evacuation of power to the grid.

The unit is earmarked to produce 300 megawatts.

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