VINCENT MHENE IN GWERU AND RYAN CHIGOCHE IN HARARE
A South Africa based Zimbabwean financial expert Joseph Busha Makamba has warned that the suspension of lending by banks announced by the government in its latest monetary policy measures will destroy investor confidence in Zimbabwe`s economy and raise the cost of doing business.
President Emmerson Mnangagwa on Saturday announced several measures meant to promote the use of the Zimbabwe dollar, contain the rising exchange rates and curtail parallel market foreign currency exchange trade as well as inflation. The measures include the suspension of lending by banks to both the private and public sectors, the introduction of an Intermediate Money Transfer Tax (IMTT) of 4 percent on domestic foreign currency transactions, and a 2 percent levy on forex cash withdrawals of at least $1 000, among others.
But the South African based businessman and opposition party Free Zimbabwe Congress leader told Business Times that by prohibiting banks from lending, it would increase the cost of doing business, where companies are already struggling to remain afloat due to debilitating macroeconomic conditions.
“The ban on lending has three implications. One, it kills investor confidence, two, it makes conducting business difficult, and three, it raises the cost of doing business. Investors and businesses don`t like shocks. The economy is already battling with price instability, rising interest rates, inflation and unemployment, now this announcement,” Busha said.
He added that the restrictive measure heightened the policy inconsistency in Zimbabwe and disrupts long-term plans by investors.
“Policy certainty is vital for businesses`. Changes in the business environment are too unpredictable and sudden in Zimbabwe. Riding a rollercoaster is better because one anticipates the changes in speed and it is enjoyable. We need to enjoy doing business in Zimbabwe and this is what business should be.”
Busha implored monetary authorities to adopt “prudent financial management” that mainly entails directing more fiscal resources toward capital projects.
“The solutions for our financial and economic problems lie with prudent financial management, fiscal management, that is, priority and correct capital allocation, increased production and the currency regime. We need to move capital into productive sectors because that would support exports, that would support job creation.”
Economic analyst and Coalition of Democrats party leader Trust Chikohora said the lending ban would help in the short term but have medium-term negative implications.
“Loans have been suspended, which might help in the short term to ease the run on the rate (foreign currency exchange) but in the medium to long term, it is still important for people in business to be able to borrow,” Chikohora said.
Chikohora, who is the Political Actors Dialogue (POLAD) economic thematic committee chairperson, added that the long-term result of economic players` inability to get loans from banks would “curtail economic growth” and was “not sustainable”
He proposed that the government and stakeholders meet for a “financial indaba” to “come up with sustainable and holistic solutions” to Zimbabwe`s monetary and fiscal problems.
Announcing the raft of measures last week, President Emmerson Mnangagwa said the new measures were expected to boost confidence in the economy through enforcing market discipline, promoting the use of the local currency and reducing currency distortions.
The measures came at a time parallel money market activities continue to fuel an increase in the exchange rate, which in turn forces businesses to hike the prices of basic commodities and erodes the purchasing power of the majority of Zimbabweans` salaries.
In submissions to the Ministry of Finance and Economic development ZNCC expressed concern over the effectiveness of the measure to restore market confidence, preserve value and ensure macroeconomic stability.
ZNCC said the move was bad for business, as it will scare off investors.
“Surely, this is not an ideal measure to control the growth in the broad money supply. There are other measures such as moral suasion that can be arranged between the RBZ and commercial banks. By Government ordering suspension of lending, it has dented our rank of doing business since availability of credit is one of the key pillars.
“The suspension legitimises a parallel banking system with usurious interest rates and no investor would be attracted to such an economy where lending can be suspended overnight,’’ ZNCC added.
An economist with the University of Zimbabwe Moses Chundu told Business Times that the unpredictability of government policies and currency issues deters investors.
“First is the issue of stability, consistency and predictability of policies. I know some adjustments to the indigenisation policy were made and in its current version it could pass as one of the best but the question is whether the government can be trusted to follow it through for the foreseeable future recognising that most big investment projects have a gestation of 20 to 25 years.
“Related to the issue of predictability is the very issue of what currency and exchange rate regimes will be ruling during the same period. If an investor cannot predict that with a degree of certainty, the investment decision is to hold even though the numbers may be looking good.’’ he said.
