ZiG gamble rattles Zimbabwe state contractors

State contractors owed millions of United States dollars under Zimbabwe's ambitious infrastructure drive have warned that strong safeguards will be essential as government moves to pay exclusively in the Zimbabwe Gold (ZiG) currency.

The policy shift, introduced by Treasury last month, is aimed at resolving a long-standing payment gridlock while boosting demand for the country's gold-backed unit. However, industry players say the transition could trigger unintended consequences if not carefully managed.

Tinashe Manzungu, president of the Zimbabwe Builders and Construction Association, described the move as a delicate balancing act.

"This represents a high-stakes attempt to fix old problems, but it will definitely bring side effects," Manzungu said.

At the centre of the reforms is the introduction of the National Standard Price List (NSPL), alongside a directive that all payments to local suppliers and contractors be made in ZiG. Authorities argue the policy will help stabilise the economy and strengthen confidence in the local currency, particularly following recent gains in macroeconomic indicators.

Annual inflation dropped to 4,1% in January, entering single digits for the first time in decades, while foreign currency inflows surged to US$3,4 billion in the first two months of the year, up from US$1,9 billion during the same period in 2025.

Despite these improvements, contractors say the new framework poses significant operational risks. Local firms, which played a key role in major projects such as the Trabablas Interchange, warn that a mismatch between costs and payments could destabilise the sector.

Manzungu noted that most construction inputs are priced in US dollars, raising the likelihood of defensive pricing as companies hedge against exchange rate volatility.

"Contractors will naturally quote higher to protect themselves against currency risk, which could itself become inflationary," he said.

He added that without adequate contractual protections — such as exchange rate adjustment clauses and shorter payment cycles — firms may begin to shy away from government tenders altogether.

"When the gap between input costs and final payment becomes unpredictable, firms shift from a growth mindset to a survival mindset — and that rarely includes high-risk public tenders," Manzungu warned.

Business leaders and economists have echoed these concerns. Trust Chikohora said the policy could undermine contractor viability in an economy where the majority of transactions remain dollarised.

"For contractors to be paid exclusively in ZiG while operating in an environment where 70% to 80% of transactions are in US dollars creates serious viability challenges," he said.

Chikohora cautioned that some suppliers could fail, delay deliveries, or struggle to meet contractual obligations, suggesting a phased approach might have been more effective.

Development economist Chenayimoyo Mutambasere also raised concerns about policy clarity and investor confidence.

"It dampens investor confidence and negatively affects the ease of doing business," she said, adding that contractors are likely to increase prices to offset currency risks.

She further questioned the transparency around ZiG's backing, warning that uncertainty could fuel perceptions of instability and drive contractors away from public projects.

Economist Tapiwa Mashakada, however, defended the policy, arguing that standardisation through the NSPL could bring discipline to pricing and procurement.

"All material quotations are expected to fall within a government-set benchmark range," Mashakada said. "Paying suppliers in ZiG will increase its usage across the economy."

The government's strategy effectively positions the State as the anchor of ZiG adoption, leveraging its spending power to reduce reliance on the US dollar, which currently dominates up to 80% of transactions.

While officials remain optimistic, contractors insist that the success of the policy will depend on how well risks are mitigated. Without adequate safeguards, they warn, Zimbabwe could see a shrinking pool of contractors willing to participate in public infrastructure projects — potentially slowing the pace of development.