Zimbabwe must tackle structural problems, fiscal dilemmas

AFTER showing signs of revival during the inclusive government era between 2009 and 2013, Zimbabwe's economy has been on a tailspin since the 2013 elections. Government has struggled to restore economic stability, confidence and contain inflation as well as stem currency volatility, among other challenges.

Zimbabwe Independent reporter Nyasha Chingono (NC) sat down with former Confederation of Zimbabwe Industries (CZI) president Busisa Moyo (BM, pictured) who says Zimbabweans should brace for a long, arduous road to recovery underpinned by fiscal discipline and culture change.

Moyo, a seasoned industrialist, also commented on the Letters of Credit (LCs) crisis, warning that the facility had fallen 10% below capacity for most industries and could lead to the spiralling of company closures. Below are excerpts of the interview:

NC: How has industry responded to the Monetary Policy Statement (MPS) announced on February 20? What have been the challenges?

BM: Industry has not fully responded to the MPS. In my view, it will take three to four months before we reach a new balance between prices, incomes and volumes as an economy. The unencumbered portion of tobacco inflows and improvements in gold deliveries may shorten this period. The key priorities will be a liquid and freely trading interbank market platform for foreign exchange.

NC: Has the introduction of the forex trading platform yielded any results? Do you think the liberalisation of the market will yield positive results?

BM: Any move by government towards a market-based system should be welcomed, the centralised planning systems of governance failed two decades ago. A robust economy must be market-based and this brings confidence.

Government should only protect markets from manipulators, but, in doing so, should not be a significant player. This encourages competition and consumers benefit from innovation and lower pricing in the medium to long-term.

The forex trading platform is a welcome development, but we must understand that we are where we are due to three deficits; a moral deficit (manifests itself as corruption), fiscal deficit (manifests itself in money creation and inflation) and trade deficit (manifests itself in unemployment and low foreign currency liquidity).

The Ministry of Finance has dealt with the fiscal deficit primarily through increased taxes and secondarily through austerity measures, this is why we believe the exchange rate and inflation will stabilise. We must, however, acknowledge the value erosion that has been caused by money creation, this partially corrects value for real assets in the economy but monetary assets have lost value in real terms.

NC: We have witnessed a crisis with regards to LCs. How is industry surviving in the absence of these financial instruments?

BM: LCs have assisted in the orderly and scheduled procurement of raw materials up to now.

However, the volume of LCs has fallen below requirement 10% of capacity for some sectors. If clear communication, engagement and mechanisms are not put in place soon we may see a domino effect of closures, retrenchments and a new crisis may precipitate.

I am aware there are various efforts, proposals and blue papers being discussed, but we may need resolution much sooner and the hopes being pinned on tobacco inflows may turn out to be inadequate.

NC: Consumers are on the receiving end of price hikes. Do you foresee changes in the pricing regime amid increased calls for employers to increase salaries? What solutions would you proffer?

BM: The whole economy is in flux after de-dollarising and this will settle out in three to six months - holding all things constant - especially maintaining a fiscal surplus.

The Tripartite Negotiating Forum (TNF) Bill will need to be fast-tracked and verifiable models developed under the National Economic Consultative Forum (NECF) for key commodities and services, so that we bring the economy into balance through dialogue and an element of inflation targeting for a time. Incomes, prices, charges and foreign currency availability have to be in the matrix for stability.

NC: There have been calls for national dialogue in Zimbabwe. Where do you think business fits in the dialogue?

BM: Dialogue I refer to is the one under the TNF Bill which brings government, business, labour and civil society together and creates a social contract that fosters a framework for accountability and confidence building.

NC: Bulawayo industry has suffered de-industrialisation over the years. What could be done to save the situation?

BM: Bulawayo needs to be rethought with fresh eyes and a new paradigm in light of devolution. The Special Economic Zones designation which is now complete (textiles and leather), breeding a guided and supported re-energised entrepreneurial environment among the youth, women, information communication technology, tourism will all be crucial in the new thrust.

The Sadc education hub anchored on the School of Mines, Bulawayo Hotel School, National University of Science and Technology (NUST), the two teachers' colleges (Hillside and United College of Education) are among ideas being discussed for the development of the city. The challenge is coalescing and gathering visionary leadership to create a felt impact. Ministry of Industry, Bulawayo Metropolitan Provincial Ministry, Bulawayo City Council and business have come together, modalities will be finalised soon. This will help stem further unemployment and depressed economic activity in the city.

NC: You have been very vocal about assisting businesses affected by the January violence. What has been done so far to assist and what kind of assistance do these individuals require?

BM: It's not really about government; it's about Zimbabweans supported by government pushing various initiatives in provinces, economic sectors and clusters to begin the journey of concerted reconstruction. Government has demonstrated a willingness to be responsive in spite of immense difficulties, sanctions and no reserves.

NC: You are a member of the Presidential Advisory Council (PAC), is the president open to new ideas? Do you think government is in the right space to listen to what industry has to say?

BM: I am not at liberty to engage on the PAC with the media at this stage, you may contact the secretariat.

NC: In the absence of an economic bailout package, how can this government turn around the economy. And as a matter of urgency, which areas should Zimbabwe focus on?

BM: It is my humble opinion that there are no quick fixes; all we can do is prepare for a long, arduous road for hard work and development. Direction and strong signalling are more important than quick wins as they build confidence and confidence sustains momentum.

I have mentioned the above, tackling the three deficits mentioned: moral deficit, fiscal deficit and trade deficit, this will allow us to build reserves which should be directed to rural entrepreneurship, agriculture, tourism and manufacturing. Open the mining sector and reduce red tape around it so investment flows freely into the sector.

Recognising and facilitating for visionary leaders to emerge and participate meaningfully in every community, province, economic sub-sector, and cluster value chain. This has already begun but needs to gain momentum and depth.