LIVINGSTONE MARUFU
The deteriorating economic situation in Zimbabwe will likely be felt by the already ailing companies and restive Zimbabweans going into 2022 owing to a hostile business environment and high-country risk which threatens investments and growth prospects, captains of industry warned.
However, Finance and Economic Development Minister, Mthuli Ncube, believes 2021 will be a transformative year and is projecting a 7.8% growth in Gross Domestic Product, mainly on account of mining and agriculture. Ncube said the government has made strides in improving the economic conditions.
But, captains of industry have warned of a gloomy outlook citing a poor investment climate currently confronting Zimbabwe, poor performance by key enablers, mostly the power sector, weaker consumer spending, forex allotment backlog, inflationary pressures and more worryingly the volatile exchange rate, among others risks to the growth outlook.
This is further exacerbated by government policy inconsistencies which undermine any competitive advantages Zimbabwe may have.
Executives say this ultimately dampens investor confidence and hinders growth prospects.Miners, who require about US$3bn for retooling and recapitalisation, are more pessimistic about the economic outlook.
According to the latest mining survey, business executives in the sector expect the investment environment to be depressed, characterised by high cost of capital, further anticipate foreign currency constraints and infrastructure deficit to persist in 2022.
“Mining executives are expecting the situation to remain the same citing an uncompetitive investment environment and high-country risk weighing down on their ability to raise capital,” reads part of the survey report.
“As was the case for 2021, mining executives are less confident about the prospects of a competitive investment environment in 2022, with 70% of respondents expecting the investment environment to remain depressed as in 2021. Mining executives are pessimistic about growth let alone their prospects to raise adequate external capital in 2022,”
The report said variables such as access to capital, access to forex and mining policy environment remained in the negative territory for 2022.
The report also showed that notwithstanding issues surrounding foreign direct investment inflows, most mining executives are planning to use retained earnings to fund their projects in 2022.
Miners indicated that they are facing difficulties in raising external capital to fund their projects, with some reporting that they had put on hold some of their projects due to capital shortages which the industry requires about US$3bn.
Respondents reported that financial institutions are requesting the setting up of collection accounts with lending banks to guarantee uninterrupted repayments of loans and mitigate counterparty risk.
Most gold producer respondents reported that financial institutions have been enquiring about the possibility of gold producers exporting their gold through the lending banks or using their gold as collateral in mobilising funding.
The mining executives are looking forward to the government to address the issues raised by financial institutions in order to improve capital inflows in the mining industry.
Confederation of Zimbabwe Industries president Kurai Matsheza also expects a subdued economic outlook.
“The country is grappling with forex challenges as a result of delays in settling bids, hence the companies are left with limited working capital making it difficult to improve production,” Matsheza told Business Times.
“While we were still grappling with those challenges, here comes a severe power cut which is affecting production, working hours and loss of equipment. And with those issues, economic growth is expected to be minimal.”
He added: “Very few issues were resolved and implemented as we still have a lot of issues to be attended to after a meeting by business, the Reserve Bank of Zimbabwe and Ministry of Finance officials. We are not expecting any significant change any time soon, in terms of exchange rate stabilisation, price stability and dealing with inflation. If we are to see any change, we may need six months to see if the measures put in place are bearing fruit or not but as it stands no meaningful change has happened whatsoever.”
Matsheza said instead, power problems have come at a time when the country was still dealing with exchange rate issues.
Zimbabwe has been battling policy inconsistencies , which analysts said were also hurting the economy.
Speaking to Business Times on the sidelines of the Confederation of Zimbabwe Industries 2021 Congress yesterday, Industry and Commerce minister, Sekai Nzenza said the government will engage the private sector to ensure that policy consistency and implementation are achieved.
She also said the economy was enjoying a growth trajectory.
“We are the fastest growing economy in the SADC region. We will maintain the momentum and engage with the private sector to ensure that there is consistency in policy making and implementation, which in the past we have lacked,” Nzenza said.
“Key in our industrial transformation agenda is to implement the sectoral strategies to promote the value addition in local production.”
She said the problems facing industry can be overcome if the private sector and government work together. Nzenza said the ongoing CZI congress was coming at a time when the government was working with the private sector to implement the National Development Strategy 1 to attain the vision of an “Empowered and Prosperous Upper Middle-Income Society by 2030”.
She said under the NDS 1, the government was promoting a number of value chains including pharmaceutical, leather, cotton to clothing, dairy, bus and truck, and fertiliser production among others to achieve high, accelerated, inclusive and sustainable economic growth as well as socio-economic transformation and development.
“The private sector is at the centre of all these programmes in line with the Zimbabwe National Industrial Development Policy (ZNIDP) which advocates for private sector- led growth.
“My ministry and the CZI have a very strong relationship that has seen us working on improving and increasing industrial production as a result of robust implementation of the ZNIDP,” she said.
Nzenza said Zimbabwe was witnessing new manufacturing projects by the private sector in line with implementation of the US$8bn manufacturing and commercial sector roadmap.
She said the manufacturing sector increased its contribution to GDP by almost 3% to 18.43% in 2020, making the sector the second most critical sector in contributing to GDP after the wholesale and retail trade sector which stood at 19.24%.
Recently, the United Nations Special Rapporteur Alena Douhan said lack of access to international loans will affect Zimbabwe’s growth prospects.
“In terms of access to credit, the price of loans for Zimbabwe is reportedly 7% due to risk perceptions and over-compliance; the average is 0.5% in other countries and the fact that the country has heavy debts and longstanding arrears which remain in place,” Douhan said.
She said Zimbabwe has no capacity to support its economy due to lack of access to capital and high-country risk.
Ncube recently said Zimbabwe, which has not received financial support from the International Monetary Fund, World Bank and African Development Bank since 1999 due to its failure to settle its debts, is currently working on a cocktail of economic strategies geared at clearing its combined US$1.8bn in arrears owed to financial institutions.
