PHILLIMON MHLANGA
Zimbabwe’s economy this week plunged into turmoil battered by foreign currency shortages, company closures, increasing unemployment and price hikes that have seriously eroded workers’ incomes, resulting in the fragile economy once among the most advanced in sub-Saharan Africa inching closer to recession.
The unrelenting shocks rocking the economy have this week resulted in widespread protests across the country over the economy’s comatose performance.
Although President Emmerson Mnangagwa, who is currently on a five-nation tour of Eurasia is convinced that his government will revive the once-promising economy, there are growing fears from economists, businesses and many ordinary Zimbabweans the economic outlook for 2019 remains gloomy.
To deal with the deteriorating situation, which triggered widespread protests across the country, the Minister of State in the President’s Office for National Security, Owen Ncube, on Tuesday blocked all internet services, proscribing disgruntled Zimbabweans from communicating through social media platforms.
Zimbabwe’s economic recovery plan faces serious constraints as a result of the tension between government and business, workers and ordinary people fighting in one corner.
Many companies, rattled by sharp hikes in operational costs which are expected to maintain an upward trajectory this year, are teetering on the brink after a shock sharp fuel price increases last week and runaway cost-push inflation, threatening to extinguish out the country’s economic recovery prospects.
Local firms have also raised red flag over the acute shortages of foreign currency, especially the greenback, which they now source from the black market at punitive premiums. The economy, which has become one of the most vulnerable, has now piled pressure on President Mnangagwa’s government.
“We are in a quandary. We are in a fiscal cliff’s edge,” Chris Mugaga, an economist and chief executive officer of the Zimbabwe National Chamber of Commerce, told the Business Times.
“We are living on the edge after economic conditions have deteriorated and the outlook (for 2019) is gloomy. We saw it coming. The crisis cannot be solved by debates. Worsening the situation is that we have a situation where land is in the wrong hands where farmers who were given land are not able to produce, capital is in the wrong hands as well. We are running a country which is fast dollarising; it’s fast moving towards redollarisation. The earlier we realise it the better.
” Mugaga said the crisis was set to worsen if the private sector fails to reopen or closes. ‘’
The markets are speaking and beyond 60 days, services will not accept swipe or bond notes. About 60 percent of the economy will be dollarised by the time we get to the end of the first half of the year. What it means to business is that they have to reconfigure again because their balance sheets are being wiped out daily,” he said.
He said “economic freedom” was key to move this country forward, adding “there is need to open the markets”.
“We should move away from crazy things such as having a whole VicePresident of a country to be directly involved in labour discussions say with doctors. That is wrong. Price controls are also coming but coming indirectly,” he warned.
Finance and Economic Development Minister, Mthuli Ncube, has imposed punitive measures, ushering in tit-for-tat austerity measures.
Last week, President Mnangagwa announced fuel price hikes, escalating the situation further.
The price of petrol increased by 151 percent to $3,31 a litre from $1,32 a litre, while the price of diesel also went up by 151 percent. Pump price for diesel is now $3,11 a litre from $1,24 a litre.
This triggered grave concerns, resulting in nationwide protests.
Protesters who spoke to this publication this week said the austerity measures have not met many Zimbabweans’ needs.
The protests saw businesses in the capital and other major towns across the country closing for three days from Monday this week to yesterday.
Some were broken into and looted.
Fearing that the protests could spread, the government on Tuesday directed all telecommunications providers in the country to suspend internet services.
Protesters had been using social media to organise themselves by communicating through social media.
“Further to a warrant issued by the Minister of State in the President’s office for National Security through the director general of the President’s department, acting in terms of the Interception of Communications Act, internet services are currently suspended across all networks and internet services providers. We are obliged to act when directed to do so and the matter is beyond our control. All inconveniences are sincerely regretted,” Econet Wireless Zimbabwe, the country’s largest mobile phone operator, said yesterday.
The shortage of United States dollars has seen some businesses demanding payment of their products in the greenback only because they don’t want to accept local cash referred to as “zollars”, whose value has plummeted despite government publicly insisting that the two –US dollar and bond notes or real time gross settlements (RTGS) remain at par.
The country is also grappling with price hikes of basic commodities and punitive taxes, especially the recently introduced two percent tax, further damaging international trust in Zimbabwe’s economy.
The increase could have broader implications to the economy. Pressure has now been applied on government after the bond notes further tumbled by another 29 percent on the black market after the president announced fuel price increases, raising questions about the country’s financial stability. RTGS and mobile phone transfers to procure the US dollar slumped further by close to 42 percent.
This week, the bond notes sagged to a low of $450 per US$100 from $350/US$100 last week. Transfers saw players in the black market charging $500 per US$100. The greenback is seen as a safe haven in times of volatility. The drop is particularly painful for Zimbabwe companies, who source foreign currency from the black market to pay for critical imported raw material. Premiums are high in the black market.
Several companies, including Capri and Olivine Limited, have since shut down and the majority are sitting on the edge. Suppliers of goods and services are demanding foreign currency, which many local companies are finding hard to get.
Zimbabwe has defaulted in debts in recent decades, meaning international credit and investment is hard to attract.
Zimbabwe is also still subject to international sanctions. President Mnangagwa has been calling for international aid to ease the crisis. But, this is proving to be a difficult task.
Several companies have since collapsed and more are likely to fold due to worsening economic conditions.
“We are now locked in a corner such that business will not do business,” Confederation of Zimbabwe Industries president, Sifelani Jabangwe, said.
“Business is suffocating right now because of bad (government) policies. Companies are closing and it’s a disaster for us to continue with closures. Many have already closed and are just waiting for a signal to reopen.”
He said some “more businesses are going to close in a month or two unless a transfer mechanism between real time gross settlement (RTGS) and the United States dollars is established”.
“Business needs to continue with the business cycle that is to buy, sell and replace. But now, the business cycle is difficult to complete. If we sell the remaining stock in RTGS, depleting the stock we have no access and can’t buy more raw materials because we don’t have forex. We have a situation where the country is grinding to a halt because of the (poor) policies,” Jabangwe said.
“As business, we are concerned with three things that is pricing stability, business viability and product availability. Failure to solve these concerns affects business and productivity.”
The sharp increase in fuel prices has resulted in most employees, including government workers, finding it difficult to report for work due to erosion of their salaries.
Prices of other commodities are likely to increase sharply, due to fuel increases.
Worsening economic conditions have plunged Zimbabwe into disarray, threatening further widespread social unrest and undermining President Mnangagwa’s efforts to win back foreign investors. There are now fears of contagion, with businesses closing down, throwing workers onto the streets.
“It’s very difficult for us as we find ourselves between a rock and a hard place,” Garry Watson, the managing director of Capri said.
“We have closed shop but we have about 400 workers whom we are still paying for doing nothing. They are at home as we speak. The conditions we had last year were good for us to be competitive than now.”
Workers are in a fix and have been incapacitated to continue reporting for work because their salaries have been eroded by price increases across all commodities, according to various unions.
They said, workers are now agitating for an increase in remuneration and want it in United States dollars, to cushion them from the rising cost of living.
Zimbabwe’s largest workers union, the Zimbabwe Congress of Trade Union president, Peter Mutasa this week said: “Most workers around this country are earning between $200 and $300 a month”.
