eBusiness Weekly
Misheck Ugaro
Without belittling the grave danger from the pandemic and cognisant of the vulnerable position of the country and its economy, while acknowledging strategies implemented towards fighting and ameliorating the negative impact of the disease, it is important to realise that our strategies should also be forward looking to incorporate the post Covid-19 period. All concerned players are urged to consider the other side. It is important to not lose sight of the existence of a post pandemic future.
In this update we briefly re-emphasise a few articles that have been carried in the Business Weekly over the last few months which all have a bearing on the future direction of the country. It is reasonable to be optimistic about the future in order for the country to avoid drifting into a pessimistic paralysis trap.
- The call for recognition of the dual nature of the country’s economy was made i.e. the informal and SMEs to large corporates sectors. In the proposed SME-led growth strategy, authorities were called upon to consider unifying the dual economies. (Business Weekly January 3, 2020). The argument that Zimbabwe is a dual economy country has been brought to the fore by onset of the disease.
It was proffered that any growth policies instituted should adequately cater for both economic sectors and SME targeted promotional measures should be the basis for future growth. The policy measures by the authorities were viewed as generally operative and effective only on the formal sector whose activities are recorded and are largely ineffective on the unrecorded segment of the economy (6 percent of GDP according to the IMF) .
The challenge that was highlighted then, faced by the country, is the lack of accurate records as authorities face difficulties in adequately capturing the full extent of all economic activities.
The Presidential 21-day lockdown decree starting mid night of Sunday March 29, 2020 brought the matter of the dichotomous economy to the fore. It was apparent from the feedback that while both the formal and informal sectors were ill prepared for the lockdown, the outcry from the informal sector was louder as they felt the impact more. This highlighted the need for authorities to base policy decisions on considerations+ of both sectors of the dual economy.
The opportunity that has arisen out of this development is interesting and should not be lost. A voluntary registration and data capturing for all economic activities is possible now. This must create a data base that should inform future policy plans and direction.
There is an incentive for all operators to regularise and register their operations given the promise by the authorities to assist players with some recovery relief including some payments of allowances to mitigate against lost business.
In short, the pandemic has taken away the incentive to informalise. Covid-19 provides an opportunity for authorities to adequately capture and formalise operations in a painless manner and which will allow the pursuit of growth strategies based on the promotion of platforms with designated value chains that allow small player participation behind the major industrial players.
- In parallel to the SME strategy above, the article on Industrial growth carried several recommendations regarding the appropriate strategic position for industry under the current economic slowdown environment (Business Weekly January 17, 2020).
Indeed it is pleasing that while successfully observing the 21-day lockdown period, business adopted a more futuristic position and requested, and obtained special dispensation to continue with critical operations during the extended lockdown period.
In particular the mining and certain manufacturing operations were allowed to open under carefully managed conditions. This is the optimistic approach that is required and is complimentary to the SME sector above whose manufacturing operations were also allowed to open.
In this regard, Covid-19 has provided an opportunity for authorities to unify and directly design a policy framework that affects both economic sectors in unison. A more long-term approach along this route is required as it is expected that the measurement of all economic activities will become possible.
While global projected GDP for 2020 is now expected to contract by 1-2,5 percent, statistically Zimbabwe’s case may curiously present a situation that defies the odds if the previously unmeasured informal sector gets accounted for.
Though with a different base in that regard, it is possible that Zimbabwe’s new GDP numbers may remain constant if not actually increase from the originally projected contraction of 3,5 percent before the onset of Covid-19. It is in this regard that authorities are urged to leave no stone unturned at this opportune time to formalise the estimated 60 percent of the economy and begin to formally account for it.
This has several benefits, the least of which is a wider tax collection base. The identification, twinning and strengthening of value chains around the larger manufacturing concerns may be a major incentive for the informal business to ride on thereby formalising their operations.
Covid-19 has galvanised the country’s industry into adopting an aggressive future looking approach and driven a robust response. At this initial stage, it is the mining, manufacturing and agricultural sectors that have adopted a “get back to work” approach.
While it is widely acknowledged that the country’s tourism sector has virtually stopped and is likely to face difficulties on its revival, players should in the short term look at innovations for attracting the local tourist sector and promoting volumes through various incentives.
The objective should be to provide a stepping stone while strengthening towards recovery of the global tourist market. The pharmaceuticals sector stands to gain from increased business volumes while the health services delivery system in Zimbabwe will never be the same again going forward having benefited from focused investments upgrades.
- Finally, the whole matrix of challenges arising out of the onslaught of the pandemic strengthens the call for policy consolidation (Business Weekly March 10, 2020).
The Covid-19 pandemic provides an opportunity for authorities to unify and remove the multiplicity of policy directives that in many instances had created conflicting positions and unnecessary doubts amongst economic players. The onset of the pandemic put closure to the long running debate on the question of re dollarisation vis-a-vis de dollarisation.
Recognising the opportunity to harness and formalise the significant quantities of foreign currency cash in the hands of the public, specifically the informal sector, the authorities moved in to mop that liquidity into the formal sector.
The enabling Statutory Instrument (SI 85 of 2020) that allowed the public to transact in foreign currency, albeit limited to the use of free funds, was all but a confirmation of the dual currency position the country was operating under.
The onset of the pandemic brought this rather hidden position into the fore. It can be argued that the pandemic has forced a removal of inconsistencies regarding legal tender in Zimbabwe. Authorities are urged to enhance this move transparently going forward and buttress it by removal of the remaining bastion of control i.e. the exchange rate peg of $25: US$1.
Undoubtedly there is a serious downside to the pandemic that cannot be overlooked. At the top is the loss of human lives which is most regrettable and should be avoided as much as possible. It is for this reason the lockdown approach is unavoidable and for which authorities’ proactive approach is applaudable.
The lockdown has even seen the President making impromptu unannounced inspection visits around the country which has brought him closer to the realities on the ground. This is commendable sign of commitment and must be carried on going forward after the pandemic.
Lastly, there is the serious threat of inflation arising out of both genuine economic fundamentals reasons as well as from unscrupulous business practices by speculators who take advantage of the situation. The risk of inflation is high with the annual rate for March already reaching 676 percent and projected to 1 000 percent by year end.
Misheck Ugaro (263) 777052004/ 712808140 [email protected] Linkedin: https://www.linkedin.com/in/misheckugaro Twitter: @twitcagan.com Misheck is a former expatriate banker based in several SADC countries and currently works as a Corporate Advisory Services Consultant. He is the founder of Rucabel Investments Private Limited, an investment company based in Zimbabwe. He is a member and past Vice President of the Zimbabwe Economics Society.
