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Liquidity challenges manifested to the public in the form of long queues at the banks

Dr Gift Mugano—

We have come to an end of 2016. As we welcome 2017 it is important to take note of stock 2016 and reflect on what we must do right in 2017. No doubt 2016 has been the most difficult year since the adoption of multiple currencies in 2009.

While the intentions of this review is not to narrate what happened as it is in the public domain but to dwell on the root causes of the economic challenges which ensued and paved way for debate aimed at avoiding the same in 2017.

There are also positive developments we witnessed in 2016 which we must consolidate in 2016. Likewise, we witnessed significant challenges we need to deal with in 2017 and beyond.

We witnessed severe liquidity crunch, constrained fiscal space and ever ballooning trade deficits. These three evils are a symptom of a fundamental problem, that is, low productivity. Without elaborating much on the three devils, we noted serious liquidity challenges which manifested itself to the public in the form of long queues at the banks and delays in payment of transfers for the corporate world.

The budget deficit continued with its ugly face during 2016 and from the look of things, based on the national budget, we are likely to have maintained an average budget deficit of about $400 million up to 2019.

The budget deficit is a two–headed snake which on one head crowds out the private sector while the other head manifests itself in the narrowing of the fiscal space due to low productivity caused by drought of funding in the of productive sector.

On trade deficits, are exporting, we consistently registered trade deficits on a yearly basis amounting to $4 billion, $2,6 billion, $5 billion, $3,6 billion, $4,2 billion, $3,3 billion, $3,3 billion and $3 billion for the years 2009, 2010, 2011, 2012, 2013, 2014, 2015 and 2016, respectively.

Cumulative figure of trade deficit up to 2015 is totalling $29 billion which is ironically enough to fund the requirements in the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZIM ASSET).

Our goal should be always to raise national productivity so that we address liquidity problems, create fiscal space and reduce trade deficits. In raising national productivity, we have to work on short, medium and long terms strategies.

With respect to short-term measures, the rains are here, in as much as some of the necessary requirement like fertilisers are not in place, we have to work around the clock using whatever magic is available to ensure that we have a good harvest.

Still on the short-term measures, we need to identify anchor companies, that is, companies which are at the centre of the value chains like National Foods, Delta Beverages and Seedco and provide production oriented incentives which will automatically trigger production across the value chain.

On the medium to long-term strategies, we have to work on attracting foreign direct investment (FDI) to propel the economy. Work on attracting FDIs has been ongoing, that is doing business reforms and debt clearing strategy.

The doing business reforms is one of the key achievements we registered as a nation in 2016. For readers’ interests, Zimbabwe, since the turn of the new millennium, has been lowly ranked by the World Bank in its doing business report.

In an effort to address regulatory, transactional and administrative burden which is affecting the business environment for the local and foreign investors, the Government, led by the Office of the President and Cabinet initiated the process of implementing the Ease of Doing Business (EDB) Reforms.

The EDB reforms started in September 2015 with the following thematic areas being constituted:

Starting a Business and Protecting Minority Investors;

Enforcing contracts and resolving insolvency;

Getting credit;

Paying Taxes and trading across borders; and

Construction permits and registering property.

The reforms are being implemented using the Rapid Results Approach (RRA) over a period of 100 days. The EDB reforms targeted both administrative and legislative reforms. Legislative reform is targeting the Companies Act and ancillary legislation.

Administrative reforms are centred on reforming the procedural, time and cost elements of the doing business.

To date, thirteen legislative reforms which covers Deeds Registry Act, Small Claims, Commercial Court, High Court, Estate Administration Act, Insolvency Act, Movable Property Security Interest Bill, Reserve Bank Act bill, Companies Act, Shop Licensing Act, Manpower Development Act, National Social Security Authority Act and Regional and Country Planning Act.

Based on progress report presented by the chairpersons of the working team on the EDB programme in June 2016, most of these legislative reforms have been approved by cabinet committee on legislation and were due to be tabled for parliament consideration.

In addition to the legislative reforms, the RRA process is also targeting simplifying of business processes. For example, when compared to other countries like Rwanda, the time taken to start a business in Zimbabwe was unjustifiably too long.

It used to take 90 days to fulfil nine procedures to start a new business. All these procedures have been eliminated with the implementation of the Ease of Doing Business reforms.

A classic example is the requirement to advertise twice for shop licence notice; this would cumulatively take 55 days. However, with the implementation of the Ease of Doing Business reforms these requirements have also disappeared.

Summary of some of the targets in days/hours that have been achieved as a result of the reforms are as follows:

Number of days to start a business have been significantly reduced from 90 to 30 days;

On construction permits, the days have been reduced from 448 days to 120 days as highlighted;

Property registration now takes 14 days from 36 days; and

Time taken to pay taxes was reduced from 242 hours to 160 hours.

These achievements didn’t come easy. It took bold move by the Office of the President and Cabinet (OPC) to lead in this process. This process is very inclusive as it covers all the relevant stakeholders in these thematic areas. The work done by these stakeholders and the OPC in this very short period of time must be applauded.

Certainly, the work on EDB reforms is a continuous process. As we continue to work very hard as team Zimbabwe we need to take note of these notable developments and motivate ourselves that something is happening and have some kind of assurance that we can build on what we are doing today to make Zimbabwe great.

As we go into 2017, there is a lot of work ahead, for example, expeditious approval of legislative reforms by the parliament, strict implementation plan (both on paper and practically on the ground) and a robust communication strategy.

Expediting implementation, once the legislative process has been completed and the bill has been ascended into law, the devils lies now in implementation.

Every piece of law is only useful if it is implemented. For successful implementation of the legal framework requires communication (I will come back to this aspect), reconfiguration of institutions (whether coordinating institutions or implementing institutions) and resourcing them, stamping out corruption and enforcing the framework on governance.

Communication — knowledge is power. A robust and well-resourced communication framework is needed to educate the masses on these reforms.

Here there are no short cuts. Generally, this part, the communication strategy, is overlooked even in donor programmes yet it is the key to changing people’s life through knowledge. In 2017, we certainly need to work hard in communicating these reforms.

For the world ranking purposes, Zimbabwe can run the risk of not improving its position on the World Bank Doing Business Report if reforms are not well communicated.

This is so because when World Bank carries its survey it asks businesses especially the SMEs on how the reforms have reduced their cost of doing business.

The SMEs can substantiate the benefits if it knows the previous and current laws and then draw up how it has impacted on his/her business. This can only happen if and only if effective communication mechanism is put in place and is well funded.

Georgia made remarkable progress in reforms but took a good five years to feel the impact due to lack of communication!

The same applies to the impact of reforms on productivity. Both local investors and international investors will not put more resources into the national economy if they are not aware of the new incentives which comes with these reforms.

Together we make Zimbabwe Great!

Dr Mugano is an Economic Advisor, Author and Expert in Trade and Competitiveness. He is a Research Associate of Nelson Mandela Metropolitan University. Feedback: +263 772 541 209 or [email protected]