Mnangagwa privately admits economic woes

Source: Mnangagwa privately admits economic woes – The Zimbabwe Independent November 2, 2018

Vice-President Emmerson Mnangagwa

PRESIDENT Emmerson Mnangagwa this week acknowledged to business leaders that the country’s economy was in distress and in dire need of immediate rescue, amid rising inflationary pressures and currency volatility.

By Tinashe Kairiza/Kuda Chideme

As the economic turmoil spiralled out of control in recent weeks, Mnangagwa’s government has not shouldered responsibility, instead it has blamed alleged saboteurs and social media for fuelling panic-buying and a resultant spike in prices of basic goods and shortages of fuel, among other essentials.

Last month, monetary and fiscal authorities announced a raft of unpopular interventions which include ring-fencing nostro foreign currency accounts (FCAs) from Real-Time Gross Settlement (RTGS) balances as well as introducing a new 2% tax on intermediated electronic transactions. This created turmoil in the market, while worsening the persisting currency volatility. Officially, government however, still insists that the RTGS and bond note is trading at par with the greenback.

Sources who attended the meeting, which was closed from the media, told the Zimbabwe Independent that Mnangagwa informed business leaders that the situation had deteriorated. However, he did not acknowledge the root cause of the problem — unrestrained government spending and the resultant budget deficit expected to hit US$2,3 billion at year-end.

Mnangagwa, sources said, informed business leaders that hope for the country lay in urgently securing a bailout package, hence the intensification of efforts to re-engage with international financial institutions and bilateral lenders.

In their submissions to Mnangagwa, captains of industry fiercely opposed the suspension of legislation restricting the importation of basic commodities, saying the move could cost 100 000 direct jobs in the manufacturing sector, while a further 400 000 workers in downstream industries would also be cut loose.

This month, government scrapped Statutory Instrument (SI) 122, previously SI 64, which banned the importation of a number of essential commodities. The legislation had been put in place in 2016 to stimulate growth in the local manufacturing sector.

According to a paper presented by industry during the meeting seen by the Independent, business leaders proposed to Mnangagwa that the suspension of the import ban should only be temporary and not go beyond this year.

“Since 2016, there has been a significant increase in employment in the manufacturing sector and those industries directly or indirectly linked to the sector,” part of the submission reads.

“Of the total formal employment, about 100 000 are direct manufacturing jobs while a further estimated 400 000 jobs are those whose industries are dependent or linked to manufacturing. It is all these people and their dependents whose livelihood is under threat due to lack of consistent and comprehensive reforms that support all productive sectors of the economy.”

Industry, according to the paper, also requested for a monthly foreign currency allocation of US$200 million for the importation of core raw materials required to sustain operations.

“(We also recommend that we be allocated) US$200 million worth of currency per month for industry to ensure product availability at affordable prices,” part of the paper reads.

During the same meeting, mining firms represented by the Chamber of Mines requested to have the foreign currency allocated to them by the Reserve Bank of Zimbabwe (RBZ) reviewed upwards in line with US dollar costs that are obtaining in the market in order to restore viability.

The miners in their submissions, also seen by the Independent, proposed that any remainder of “export proceeds paid in RTGS” be translated to their equal US dollar value.

“Most mining companies’ total cost-to-income ratio ranges between 70% and 95%. We also propose that any remainder of export proceeds paid in RTGS be liquidated at fair value in line with obtaining local costs or market conditions as opposed to 1:1”.