PHILLIMON MHLANGA
Zimbabwe risks losing potential investors by continuously gazetting a plethora of Statutory Instruments (SIs) that have not only sent mixed signals but also exposed policy inconsistency within the government, analysts have said.
The country is lagging behind its regional peers in terms of attracting foreign direct investment, and critics blame policy flip-flops for the poor show. Over the past months, the government has used legislative interventions as stop-gap measures to avoid market failures. But experts say such measures have often resulted in policy inconsistency and a wane of confidence.
Several analysts last week accused the government of abusing the law by taking over Parliament’s role of enacting and amending laws. They say the government is doing this through the enactment of an avalanche of SIs this year, fuelling economic instability. They said the overuse of SIs, which are subsidiary legislation and have a limited lifespan, was highly undesirable.
According to the experts, the government should not be obsessed with running the economy through regulation or SIs but through Acts of Parliament, where the proposed laws would be subjected to full analysis, questioning and debate by both Houses of Parliament before enactment.
The Presidential Temporary measures, analysts highlighted, can only be used in times of emergency. The experts think there is an overuse of SIs, something which is killing businesses and causing potential international investors to walk away from Zimbabwe. These SIs are negatively impacting on production, making it extremely difficult to stimulate economic growth.
This year, the government expects the economy, which is already in recession, to contract by 6.5%. Although, Parliament’s primary law-making power must not be delegated, Section 134 of the Constitution, the supreme law of Zimbabwe, has provisions relating to subsidiary legislation. However, under Section 134, subsidiary legislation must not infringe or limit any of the rights and freedoms set out in the Declaration of Rights. The instruments must be consistent with the Act of Parliament under which they are made.
The SIs must specify the limits of the power, nature and scope of the SI that may be made, and also the principles and standards applicable to the SI. It is also expected to be laid before the National Assembly in accordance with its Standing Orders and submitted to the Parliamentary Legal Committee for scrutiny. But several analysts believe the SIs have been in the wrong hands, and the government – through the Ministry of Finance and the Reserve Bank of Zimbabwe (RBZ) – has been abusing those powers by ambushing businesses, something that threatens the viability of companies.
Given that Zimbabwe’s economy is troubled by structural challenges – from weak aggregate demand to weak investor confidence – an avalanche of Sis are the worst fear of businesses, according to several economists and lawyers. Now, there are many questions being asked about how the government hopes to run an economy with SIs that have limited lifespans as an economy is a going concern.
“By its nature, an SI is a delegated law,” says Rutendo Muchinguri, a top corporate lawyer who spoke at the recent Institute of Chartered Accountants of Zimbabwe (ICAZ) Summer School. “They [Sis] are released in our sleep. This is a scary and bizarre country because this year alone more than 100 SIs were released.” She added: “The government is using the law to regulate economics. But that is not the way economics work. It is not a mistake, they know exactly what they are doing and it is very deliberate because SIs take a short time but business is bleeding because of these.”
After realising that SI 142 of 2019 was flawed, the government gazetted SI 212 of 2019 and SI 213 of 2019 under Presidential Powers (Temporary Measures, (Amendment of Exchange Control Act) regulations, which effectively outlawed the pricing, transacting, and quoting goods and services in foreign currencies.
The SI came with heavy penalties for defaulters. SI 213 came after SI 142 of 2019 ended the use of the multicurrency regime. The SI 142 did not specifically forbid contracts that require payments to be made or calculated in foreign currency.
Generally, the SIs impose civil and criminal penalties on companies and individuals who fall foul of them. These regulations come with many problems which need to be dealt with, because suppliers of critical raw materials are quoting their equipment and services in foreign currency and companies are paying using the interbank rate. This means it increases operational costs.
Crucially, high production costs also means the era of the hyper-ventilated profits for companies are over. Other SIs promulgated this year included SI 33 Presidential Powers establishing the real time gross settlement dollar as a medium of exchange, giving it legal tender status within the multicurrency system. It also established an interbank foreign exchange market on a willing seller, willing buyer basis.
The RBZ also issued nearly 10 circulars and three directives during the year, including Circular No.1, which deals with the enhancement of effective accounting of service agreements. The other circulars and directives issued by the RBZ include: Circular No.4 (treatment of foreign currency receipts from holders of free funders); Circular No.6 (Treatment of offshore drawdown by cotton merchants and payment for cotton growers), RU102 Exchange Control directive, and RU 28/2019 Administrative framework for operationalising the foreign exchange measures in the Monetary Policy Statement.
Economist, Nigel Chanakira, indicated that the government’s continuous issuing of SIs was not helping the country attract international capital.
“How does the government conduct itself”? Chanakira asked. “The government continues to pump SIs onto the market. The consequences are pretty dire. This is a bad precedent. This is not conducive to attract international capital.”
Tafadzwa Bandama, the Confederation of Zimbabwe Industry (CZI) chief economist, insisted that the regulations were causing confusion in the market.
“Pumping SIs onto the market is a big problem,” he said. “Before you understand one, another one is gazetted. The government thinks if it burst up, the solution is another SI, which is a huge problem.”
The former finance minister, Tendai Biti, accused the government of abusing the law by taking over Parliament’s role of enacting and amending laws. The government was doing this, Biti said, through the enactment of an avalanche of SIs this year.
“There is a misnomer and it’s absolutely unnecessary,” Biti continued. “The President also purports to use a power that is given in terms of the Exchange Control Act. The President cannot continue abusing Parliament’s role through the enactment of these laws.”
Speaking at the BDO business and taxation breakfast held in the capital last week, Farai Masendu, the RBZ director of exchange control, claimed that the central bank did not “believe in using SI, people just have to produce.”
He admitted that “2019 was an eventful year. We have about nine directives and so many circulars this year alone. But too many laws are not good for markets. When you police people to that level, it simply leads to capital flight. The SIs we have put in place should be enough, I agree, they have a life span. We take note of that. For an economy that is not producing, it is not helping matters. It’s not good for the economy. I believe what we have communicated is enough to direct the economy.”
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