‘Economic woes hamstring business’

TENDAIISHE NYAMUKUNDA

Local companies are battling for survival as severe economic conditions   continue to weigh down businesses, multiple industry executives and economists have indicated.

These conditions are marked by soaring inflation, run away exchange rate and crippling power cuts, among many other problems.

National Tyre Services corporate secretary Stewart Mandimika described the situation as dire.
He claimed that the operational environment had an effect on the business’s viability.

“The volatility of the foreign exchange rate continues to negatively impact price competitiveness in the market. Prices of goods and services increased towards the end of the reporting period due to high festive season demand. Erratic electricity generation towards the end of the year negatively affected turnaround time in our retreading factories,” Mandimika said.

According to Sharon Kodzanai, company secretary of Tanganda Tea Company, the company’s activities were impacted by economic headwinds, which led to lower revenues.

“The operating environment for the period under review was characterised by rising inflationary pressures, currency volatility and rapid changes in the policy environment. Export proceeds continue to be subject to 25% mandatory liquidation at subeconomic exchange rates. This implied significant tax on the topline reduces exporters’ competitiveness and their ability to reinvest export proceeds into value addition and growth in exports,” Kodzanai said.

Hippo Valley  said the company operated in a difficult business environment with significant inflationary pressures, exchange rate volatility, constrained Zimbabwe dollar  and United States dollar liquidity.

Victor Bhoroma, an economic analyst, highlighted that it is difficult for investors to be enticed to the country’s current business climate due to a number of issues, such as inconsistent policies, rising inflation, a complicated tax structure, and more.

“It is a fact that the business environment in the country makes it harder to attract investment as the evidence shows that in the past five years, the country’s average Foreign Direct Investment (FDI)  is less than US$150m,”Bhoroma said.

He added: “Key among other risks include frequent policy changes, an inefficient foreign exchange market which is over regulated by the central bank, high levels of inflation, exchange rate risks and a complex tax regime.

“The same can also be said about the state of power and road infrastructure in the country which are key to business survival. In the end, it’s too costly to operate a business in Zimbabwe as the economy is constantly volatile and unpredictable.”

According to economist Vince Musewe, political squabbling and unstable currency have a significant impact on the growth of the economy and businesses  since stable economic policies are necessary for corporate expansion.

“An unstable currency added to political bickering does not create confidence for anyone. Business needs a stable economic policy environment to invest and plan ahead. Remember they are in it for profit. Successful economies put the needs of the business sector first, not politicians, “Musewe said.

Eddie Cross, another economist and business person weighed in saying: “The major issue is the monetary  policy  situation which is currently receiving attention by the monetary authority and the Ministry  of Finance .”

He added: “The forex auction has been suspended and l am pleased by that because it was really not contributing a great deal  anymore.”

According to Cross, a strong hard currency market is necessary for the nation’s economy to draw in foreign investment and increase the value of local currency.

“If we had a good market, we would run for hard currency in this country, our local currency would be very strong and that will preserve this with the new series of problems, that will solve all ranges of  others and will make our country a much more attractive destination for incoming  investments, “Cross said.

Last week, Deloitte, one of the leading  accountancy firms, said it will exit Zimbabwe.

Cross said: “Deloitte is not alone, other international accounting firms are also considering an exit. ”

In addition, Cross stated that the inability to comply with international accounting standards and unfavorable economic conditions are the primary causes of foreign investors, such as Deloitte, leaving the country.

“The main reason is that they can no longer operate here in conformity to international accounting standards.  The currency situation is the main reason. However, their local staff is taking over and it is unlikely that this will affect clients, “Cross said.

According to development economist Prosper Chitambara, stable currency rates, standard product pricing, and steady operating costs are necessary for a healthy economy that protects both domestic and foreign investors.

“We want to do business in an environment where there is stability in terms of prices, exchange  rate,  the cost of doing business. When there is instability it makes it difficult  to plan and also the written  on investment  is actually affected , both local and foreign investors  because there is a premium  associated with doing business in an unstable environment or macroeconomic environment, “Chitambara  said.

He added: “What we are seeing with the exchange rate obviously, it affects overall pricing and inflation erodes confidence.  It creates a lot of uncertainties and weakens growth so it means our economy cannot function optimally in that kind of environment .”