eBusiness Weekly
Elias Pacheso
Since the presentation of the 2020 National Budget a fortnight ago, the country’s attention has once again shifted to bread and butter issues as it always does after a major economic policy announcement.
The dust has somehow settled and all eyes are now fully trained on the prices of goods and services in the country.
November is considered the “Bonus” month due to the fact that the most companies and the Government included pay a 13th cheque to workers.
Given the fact the 2019 is coming to a close, it is important for all economic players and policy makers to take time to reflect on what got us here and what will take us where we want to go in 2020.
2019 can be viewed as a year in which significant adjustments that had been put off for a long time were made. The major change involved the widening of the tax base by incorporating a 2 percent tax on all transactions. While the tax succeeded in allowing the Government to improve tax collections from previously untaxed economic players, the tax was seen increasing the tax burden on the consumers while tightening liquidity in the economy.
Another significant change that caused massive adjustments in the economy was the introduction of the interbank market, which saw the dismantling of parallel pricing structures revolving around the official exchange rate which was trading at ZWL1 : USD1 in February 2019 and is now trading at ZWL16 : USD1.
This translates to an increase of 16 times and when one looks at the cost of goods and services, they are reflective of the massive exchange rate movement, where there remains a gap between the interbank rate and the parallel market. Government’s intention was for the two rates to converge. In the shops due to demand and supply issues, prices tend to be priced at the parallel market rate.
The exchange rate adjustment had the effect of raising the cost base for most businesses and unfortunately the income has lagged behind the massive increase in costs, hence the increasing restlessness among workers in both the private and civil service.
2019 was dramatic year for the Zimbabwean economy. The price shocks arising from the dismantling of inefficient allocation structures hit everyone in the economy. Subsidies enjoyed across many services and products were dismantled by the Government, as part of the TSP programme meant to usher in market forces and attract FDI.
Sadly, when this happens the vulnerable suffer the most especially in the absence of safety nets. With resources thin on the ground, the Government has continued to remove subsidies on maize meal, wheat and soya bean.
This has sent prices of basic commodities soaring through the roof this week. Affordability is now a big issue and every company will be forced to re-look at margins.
Speaking to a few colleagues this week about affordability issues it’s quite clear that the most imported goods and indeed locally produced ones are beyond the reach of many. A bad agricultural season has not helped as the country is seen spending millions of scarce US dollars importing food.
Those who have read my previous article know my stance on the need for long term solutions towards building food self-sufficiency. When an economy that has plenty of arable land and dams spends upwards of US$700 million annually on food imports alone, it is worrying. There is really no excuse.
More interventions are needed in this area. I hope the appointment of a new permanent secretary in the Ministry of Agriculture, (Dr John Basera) who has extensive private sector experience will usher in fresh ideas on how to tackle this needless drain on our current account. These funds are better used to value add Agriculture and Minerals.
Here is a list of some of the major changes that were implemented in 2019 (as shown in table).
There are so many changes that were introduced in 2019, but in this article I only managed to focus on a few. On the whole, the continued rise in inflation continues to create an unsustainable environment which in turn creates a fertile ground for reduced productivity in an economy that badly needs to see national output increasing.
As I highlighted in the last article, the Government has decided to focus on increased growth in the economy in 2020 and intends to direct resources towards stimulating investment through various incentives. 2020 will therefore be a year in which the Government should be focusing on consolidating the gains made from a realignment of the prices in the economy and avoid more shock therapy and policy reversals. Shock therapy disrupts planning and damages investor confidence and should be avoided at all costs.
2020 promises to be an interesting year, particularly given the expiry of the TSP programme, which will soon be replaced by a new programme.
The Government is faced with many challenges which must be addressed by this new programme. The problems are many and I cannot enumerate them all, but I do hope that the focus of the programme is to redirect energy on the right sizing of the civil service and wholesale privatisation of the loss making parastatals.
This will create a new platform on which the Government can cut taxes and improve the flow of much needed FDI in the economy. Transparency in Government programmes and projects is also key.
The new economy cannot be ignored and the Government will do well to continue attracting new technologies in the economy and improve the country’s attractiveness on the global capital markets.
