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Zimbabwe in throes of unprecedented recession

by Staff reporter
10 Apr 2020 at 08:31hrs | Views
ZIMBABWE will struggle to recover from the recession caused by the Covid-19 pandemic as companies are already beginning to show signs of severe stress.
Companies are struggling to remain viable and have adopted a cocktail of measures which include retrenchment and sending workers on unpaid leave.

The coronavirus pandemic has killed nearly 90 000 people globally. This has prompted the Zimbabwean government to enforce a 21-day national lockdown to contain the spread of the respiratory disease. The lockdown began on March 30 and will end on April 19.

The country is projected to experience a double-digit recession of -20% post the Covid-19 pandemic with companies failing to recover after the lockdown.
The lockdown has been seen as a death knell to the country's economy.

Local economist Gift Mugano this week told businessdigest that the pandemic is one of the worst crises Zimbabwe has experienced, coming amid a severe drought, waning tourist arrivals and dwindling diaspora remittances.

"I can say with certainty that Zimbabwe will fail to come out of this Covid-effected recession with a functional economy. It was already dead before this pandemic. Many companies will certainly fail to come back. We had our own fair share of troubles before this. What guarantee do we have that we will come out of this and recover?" Mugano pointed out.

"We were already in a recession. We are going to go deeper into a double-digit recession with GDP figures of at least -20%. The Zimbabwe government is broke and doesn't have stimulus packages. The country is in need of fresh lines of capital. It will have to depend on aid. It then goes to political arrangement where the country will need fresh elections. We will need global sympathy. Considering our financial history, no one is willing to freely lend us money."

Amid growing fears that the Covid-19 downturn could have far more adverse effects last longer than initially feared — potentially stretching to next year and even beyond — the government has sought to intensify restrictions on business to halt the spread of the pandemic. Mugano believes the country is yet to feel the full impact of Covid-19.

"Remember, we were failing to pay salaries before the lockdown. Most companies are not going to come back. This year, we are going to have a very difficult year. We are not going to be exporting. The tobacco season is another disaster in the making, considering the restrictions of this virus like social distancing. It is likely to be sold at very low prices, thus resulting in a knockdown on the economy at large. We were at -85%, we are still in recession and we are not yet out of it," he said.

"Despite the directive by government to open money transfer agencies, the truth is it's not going to do much to the economy given the fact that most of those countries are also on lockdown."

Government ordered money transfer agencies to commence operations this week in a bid to allow some cushioning of its people from diaspora remittances but Murano said this was a wrong move.

Usually, diaspora remittances increase sharply in times of crisis, but the global nature of Covid-19 means the source countries are also hampered economically, he said.

The threat posed by the pandemic has resulted in companies — already battered by a debilitating liquidity crunch, fuel and foreign currency shortages as well as runaway inflation which has stood at 540,16% as of February — taking drastic measures as revealed in the Confederation of Zimbabwe Industries (CZI) report titled Tracking the Business and Economic Impact of Covid-19 for the period from March 25 to March 30.

According to the report, 88% of surveyed companies are failing to access both source and export markets with 81% of surveyed firms experiencing supply chain disruptions.

"Supply chains have been disrupted by this global pandemic as countries continue closing their borders and going into national lockdowns in a bid to try and contain the Covid-19 pandemic, which has resulted in more than 100 000 deaths globally," the CZI said in its report.

The report revealed that 16% of the surveyed companies have workers who are on unpaid leave, which the organisation described as detrimental to the welfare of employees, most of whom live from hand to mouth.

"Aggregate demand will be adversely affected by loss of income for employees, which affects industry operations and ultimately economic growth and development," the survey reveals.

The survey showed that trade and production volumes have plummeted by 36% on average. The reasons for this include a reduced workforce, disrupted supply chains and temporary closure of firms.

Among the recommendations of the report are the scrapping of the 2% tax on electronic transactions, suspension of payment to statutory bodies such as National Social Security Authority and City of Harare and the removal of the Aids levy or its temporary conversion to a Covid-19 levy.

In a development that illustrates how companies are struggling to stay afloat, Zimbabwe Stock Exchange-listed fast food concern Simbisa Brands has laid off contract workers, put employees on leave and halted the payment of acting allowances. This, the company says, has been necessitated by its failure to generate enough money to pay salaries. Simbisa, which operates fast food brands such as Chicken Inn, Pizza Inn, Creamy Inn, Bakers Inn and Nando's, has reduced working hours to contain the spread of the coronavirus.

Beverage manufacturer Delta Corporation has, like other companies, sent its workers on leave as part of measures to contain Covid-19. Employers' Confederation of Zimbabwe (Emcoz) president Israel Murefu told businessdigest that the organisation is preparing a paper which will encourage employers to make every effort to save jobs in the face of unprecedented recession.

"We prepared a paper which is a statement of intent to guide our members. It encourages employers to do all they can to save jobs," Murefu said.

"We urge employers not to make arbitrary decisions on issues such as sending workers on leave. We urge employers to sit down with their workers and reach an agreement on any measures

The International Monetary Fund projected gross domestic product growth for 2020 at 0,8% but the general sentiment is that the situation would be far worse given that the country is in a financial crisis and in dire need of fresh lines of finance.

The country is not in a position to cobble up a substantial stimulus package, given the realities of an already weak economy.

Source - theindependent

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