Source: Zimbabwe’s political instability and the impact on business – NewsDay Zimbabwe February 8, 2019
“Zimbabwe is open for business” has been the investment charm since the coming into power of President Emmerson Mnangagwa as his administration sought to attract long lost foreign investment into the country.
Guest column:RAYNOLD MHOTSEKA
However, unfolding events at home have failed to complement the mantra.
The core-relation between business and politics has refused to pay dividends.
Zimbabwe’s economy has become a public discourse. At the heart of the economic crisis is an unstable political environment stemming from the tyrannical rule of former
President Robert Mugabe’s era right through to the new political administration, where comparisons with the former, as far as change is concerned, have failed to convince not just the international community, but also the local investors.
There is lack of confidence in the market, driven by high currency exchange rates, consumers resorting to hoarding and business viability has remained low.
Political factors are government regulations that influence business operation positively and negatively and on its downward side, they can introduce a risk factor, which cause the business to suffer losses.
Zimbabwe’s hope for a real economic turnaround hangs on the country’s ability to solve the ongoing political challenges.
Overview of Zimbabwe’s political environment
The political instability in Zimbabwe has made the business environment less friendly and this has led to the lack of foreign direct investment into the country.
Even though the new political administration has taken its “Zimbabwe is open for business” charm offensive to the international community, the political instability at
home characterised by contested election results, protests and crackdown on civilians by security agents have proved a major barrier to the country’s prospects of being an attractive investment destination.
Governments have a great deal of power over businesses and many times, there is not much that businesses can do about it.
The criticism is that Zimbabwe has become a “command economy” with government’s hand visible in almost every sector of the economy including the latest urban mass transport service.
The viability of this plan has been broadly questioned.
Lack of political stability also leads to social instability which significantly affects business operations.
This has been driven by citizens’ disapproval of government policies such as the recent protests against the fuel price increase.
Eventually, it led to looting, riots and general disorder.
Soon after the recent protests characterised by looting as well as burning and destruction of business properties, industry counted losses totalling in excess of $500 million.
Consequently, some businesses, especially the small and medium enterprises said a rebound is almost impossible unless government intervenes through capital injections.
Tax and economic policies
An increasing or decreasing rate of taxes is a good example of political component, and this directly impacts business.
Among the major highlights since coming into power of the new administration is the increase in tax money.
Following the introduction of the monetary and fiscal policies in October and November last year, government introduced a new 2% tax per every dollar transaction on all electronic transactions from the 5% tax.
Increasing tax rates without complementing it with an increase in wages impacts on the cost of living for the citizens.
This, in turn, impacts on aggregate demand for the supply of goods into the market, therefore affecting business operations.
The main goal for business is to make profit and government’s goal is to ensure economic stability and growth. Both of them are different, but inter-dependent.
For this, government and businesses should respect the channels through which they try to influence and persuade each other on various matters.
These include lobbying by business organisations and trade unions calling for industrial actions to influence government actions.
Meanwhile, government’s role is to influence business by-laws and regulations as well as trade policies.