PHILLIMON MHLANGA
President Emmerson Mnangagwa’s government has a difficult task on its hands as it seeks to heal an ailing economy that has been in a tailspin in the last few weeks. The downturn, triggered by Finance Minister Prof Mthuli Ncube’s fiscal policies announced on October 1, has been so severe that it has raised fears of a pre-dollarisation crisis.
Analysts told Business Times this week that Zimbabwe’s economic prospects remained fraught with uncertainty, and emphasised that the economy would take some time to recover.
President Mnangagwa admitted at the weekend that there was a sharp deterioration of economic activities, saying the economy was “under siege and the government was aware [of the problems] and was gravely concerned.” This week, there was more evidence that the economy has shrunk further. Despite the Reserve Bank of Zimbabwe (RBZ) claiming that it had increased the foreign currency allocation for fuel imports, longer and longer queues for fuel have been visible at a number of petrol stations.
The situation has resulted in most fuel stations in Harare running out of both petrol and diesel, or either one of the two. In fact, the fuel situation appears to be getting worse than getting better, leading to some motorists sourcing fuel, the lifeblood of Zimbabwe’s industry, from the thriving black market.
While the pump price of petrol at most retail outlets in Harare was $1,43 per litre (up from $1,41 a litre last week), dealers in the black market have hiked their price of petrol to about $2 a litre. Diesel at retail outlets was selling at $1,35 a litre (up from $1,31 a litre last week), but black market dealers were selling diesel at $185 a litre, a Business Times survey revealed.
The country is currently consuming about four million litres of diesel a week (up from 2,5 million litres), and three million litres of petrol a week (up from 1,5 million litres). This, according to knowledgeable sources, is because industry’s capacity utilisation has gone up to nearly 60%, which means more fuel is being consumed by industry.
Joram Gumbo, the Minister of Energy and Power Development, was quoted on Tuesday as explaining that the fuel price hike was due to “pricing trends on the world market”. According to him, “the price of fuel is reviewed every week by the Zimbabwe Energy Regulatory Authority (ZERA)”, and as there was an increase on an international market which is no longer stable, “ZERA will keep on reviewing the fuel prices.”
“As we speak,” Gumbo told the media, “[fuel] has gone up by two cents for both petrol and diesel. So petrol has gone up from $1,41 to $1,43, that is the price for the week; and diesel has gone up to $1,35 from $1,33.” The RBZ says the increase in the demand for fuel is a sign of an expanding economy. However, one of the country’s main problems is its gross domestic product which has remained weak for years.
The economy has been battling with persistent budget deficit caused largely by recurrent expenditure, persistent current account deficits, infrastructural problems, corruption, high cost of doing business, and the absence of parastatal reforms which has been outstanding for decades.
The Mnangagwa administration has promised to sell, liquidate, or partially privatise loss-making parastatals. Analysts say reducing the budget deficit can be achieved by Finance Minister Mthuli Ncube increasing tax revenue and containing expenditure. But this has been a challenge for Zimbabwe for years because growth in tax revenue can only be achieved if there is growth in economic activity, which is only possible if there is investment, job creation, and infrastructural development.
But the country has seen the opposite happening: the revenue base has dwindled, in fact eroded by a shrinking economy caused by company closures and increasing job losses. Only last week, a number of companies closed shop. These challenges have put pressure on the government.
This week, the renowned economist Ashok Chakravarti told the Business Times that “the economy is in a difficult situation because of poor economic management over the past two decades. So it will take some time to peak again from what is happening. There were high expectations when a new government was put in place. There were hopes that this would result in the economy stabilising quickly. But more needs to be done to stimulate this economy.”
Other analysts said Finance Minister Ncube who, earlier this month put in place a 2 cents tax on electronic transactions above $10, has a tough task before him. Already, the worsening economic situation has seen teachers this week demanding their salaries in US dollars.
Tapson Sibanda, secretary general of the Zimbabwe Teachers Association (ZIMTA), the country’s largest group of civil servants, said teachers have been hard hit by the new economic measures announced by the government, and warned that any further delays in foreign currency payments to teachers would destabilise the education sector.
“In light of the prevailing economic situation in the country, where service providers are demanding payments in foreign currency, we as teachers in Zimbabwe, being the largest section of civil servants, hereby demand to be paid our salaries in foreign currency forthwith,” Sibanda said.
According to him, teachers have already been earning below the poverty line and therefore were worse off before the new economic measures were announced.
Thus the demand to be paid in US dollars, Sibanda said, “is justified as any further delays in doing so will destabilise the education sector”.
The Pharmaceutical Wholesalers Association (PWA) also said this week that the health sector was in a precarious situation.
“With the country needing to import at least 80% of its medical requirements,” the PWA said, “the inability of the industry to access adequate foreign currency has had a devastating effect on the provision of health care services.”
PWA members owe their foreign suppliers about US$27m, resulting in the suspension of credit supplies. “Now they demand prepayment for any new order,” the PWA disclosed.
The association requires about US$8m a month to service old debts and make new procurements.
On Tuesday, the RBZ said it had made available US3,3m to the PWA for the importation of drugs. This was in addition to US$6,7m in letters of credit given to the PWA the previous week. But the association says this is not enough.
“The association was allocated 5% of the foreign currency it needed,” the PWA said. “We need a weekly allocation of US$2m to service old debt and make new procurements as we are also expected to supply government requirements for essential medicines and medical equipment.”
The PWA said the continued drug shortages could lead to potentially devastating situations such as increased death and complications due to uncontrolled chronic conditions such as high blood pressure and diabetes, and parallel imports through unauthorised channels which will result in non-efficacious medicines being made available to the public.
