CAPTAINS of industry say the year 2015 was probably the worst since the economy dollarised in 2009, with most indicating that liquidity problems ruined their operations, despite reports that the banking sector stabilised and deposits have increased.
Zimbabwe’s economy faced downside risks in agriculture, with the rainfall season not inviting for farmers.
Political uncertainty due to succession and factionalism battles in the ruling ZANU-PF party, has also been an albatross around the economy’s neck.
Regardless, government is trying to extract every little penny it could get.
Last year, the Zimbabwe Revenue Authority (ZIMRA) dominated headlines with garnishee orders as it sought to force businesses to pay tax.
A tax amnesty, put in place in 2014 to encourage business to own up to any tax misdemeanours since 2009, was extended during the course of last year.
The tax raids were viewed by business as the single largest threat to their survival; the big corporate institutions were equally targeted, and often tax disputes spilled into the courts.
Nonetheless, so much is expected in 2016. So what does 2016 hold for business?
Every sector of the economy seems to be geared up for a change for the better.
Everything, except our politics has awoken to the reality that it cannot be business as usual anymore.
But politics is now the odd one out. Instead it hangs out like morning mist in the Eastern Highlands and is corrupting everything it touches, especially business — painting an unwelcoming outlook for 2016.
Presenting the 2016 National Budget last November, Finance Minister Patrick Chinamasa said the country’s economy would grow by 2,7 percent this year after he rolled out measures aimed at addressing a deepening economic crisis.
Zimbabwe’s economy was expected to grow by 1,5 percent last year, after initially being projected to grow by 3,5 percent. Against that background, Chinamasa’s projections could be far-fetched.
One can tell with a measure of certainty that all is not well when employees start turning up for work an hour early and leave their work stations two or three hours after their usual clocking time.
And when it is the adults who have to look down the back of sofa cushions for some loose coins that may have slipped from their pockets, it is surely signs of hard times.
Knock down January sales are certain to go on until March as retailers battle to clear old stocks.
The bane of Zimbabwe’s economy is obviously it’s controversial policies.
A 2016 World Bank report released in October showed that Zimbabwe had climbed 16 places to position 155 out of 189 countries ranked under the latest World Bank Doing Business report.
The report revealed that Zimbabwe, which has committed to far-reaching reforms to unlock foreign direct investment inflows, recorded two positive reforms — getting credit and protecting minority investors as measured by the Doing Business methodology during the course of this report’s data collection cycle (June 1, 2014 – June 1, 2015).
Official figures show that Zimbabwe’s foreign direct investment leapt to US$545 million in 2014 — less than five percent of the country’s gross domestic product — from US$400 million the previous year, driven by interest in mining, infrastructure and services but still lagged behind regional countries.
The World Bank Group’s Doing Business report tracks the regulatory and bureaucratic systems of nations by conducting detailed annual surveys.
For policymakers faced with the challenge of creating jobs and promoting development, it is well worth studying how nations fare in terms of the various doing business indicators.
The report further shows that by region, sub-Saharan Africa accounted for about 30 percent of the improved global regulatory reforms and half of the world’s top 10 improvers.
“Zimbabwe ranks 155th out of 189 economies on the ease of doing business ranking globally and scores 48,17 points on the overall distance to frontier score. This represents an increase of 16 places on the ranking compared to last year’s published data,” reads the report.
Confederation of Zimbabwe Retailers chief executive officer, Willard Razawo, said the cost of energy, labour, unreliable electricity and water supplies and continued talk of empowerment had slowed down business activities last year and will continue in 2016.
“It was again another tough year for business with liquidity challenges being the major issue. Going forward, I do not see any major changes. It will be the same macro-economic environment, characterised by deflation,” he said.
During 2015, deposits in the financial sector remained transitory.
This was largely because the economy remains cash-based and most of the deposits are from corporate clients who continue to settle transactions in large sums.
Non-performing loans increased as most companies needed long-term capital, which cannot be accommodated by the current deposit profiles.
The Zimbabwe National Chamber of Commerce said in 2016 substantial capital was required for plant refurbishments and complete replacement of some plants.
If this does not happen, the organisation said, it will result in businesses opting to borrow to raise working capital out of desperation, which is inconsistent with their objectives.
Economists said such developments could lead to firms ending up misrepresenting information in their proposals just to secure funding, which presented greater risk to banks. This could result in banks resorting to roll-overs for some customers, resulting in an initial one-year loan turning into two years or even three years.
Prolonged settlement of commercial disputes, which characterised 2015, with the country recording a number of business failures, which, in some instances, resulted in the firms facing foreclosure, liquidation, judicial management or curatorship, could continue this year.
The process of resolving commercial disputes in most cases continued to be prolonged and those assigned to handle the affairs of collapsing firms had too much discretion. This reduced the effectiveness of these stewards.
Capacity utilisation in the local manufacturing sector declined by 2,2 percent to 34,3 percent according to the Confederation of Zimbabwe Industries (CZI’s) 2015 Manufacturing Sector Survey.
Oxlink Capital chief executive officer, Brains Muchemwa, said high gearing levels, at a time the cost of credit has remained extremely high, coupled with very weak consumer demand and high operating costs, were major challenges for businesses last year.
“Considering the bearish outlook on the macro-economic front, there is very little on the horizon to believe that 2016 will usher better prospects than 2015. In any case, it is anticipated that bank foreclosures will rise steeply in 2016 and with that will come a slowdown in lending activities as banks remain cautious on the back of slowdown in economic activities,” said Muchemwa.
He indicated that the anticipated contraction in credit creation would thus pose a few more risks to the economy, especially with the 2015-2016 agricultural season showing signs of a disaster.
On the capital market front, companies struggled to raise fresh capital last year. This was evidenced by the number of under-subscriptions for most rights issues where the underwriter then struggled to secure investors and in most cases had to resort to foreign investors.
Industry lost millions of dollars due to power outages, which became more frequent as the year progressed.
While in the past the majority of national grid power failures would last a few hours, last year some blackouts lasted days or even weeks, completely shutting down production at companies and critical infrastructures such as telecommunication networks, financial services, water supplies and hospitals.
Market analyst and brand strategist, Andrew Muzamhindo, said companies are performing slothfully owing mainly to the continued liquidity crunch, policy contradictions and the unsustainable external account and debt situation.
“The strengthening of the US dollar against the rand also makes our products expensive to manufacture. It is cheaper to get rid of the workforce and import from South Africa and make more money in the process,” Muzamhindo said.
Muzamhindo said the 2016 National Budget did not match the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim-Asset) projections, an unstated admission by government that things would get worse in 2016.
“There is need to revise Zim-Asset and go back to the people, admit failure and come up with a bankable document that induces confidence in the economy and within all players in our economy. Whether failure was caused by internal or external fundamentals is another issue. Failure is failure. Chances are that what has caused Zim-Asset not to fly will not go away so there is need to get rid of the causes of Zim-Asset failure or any other proposed blue print for that matter. Until this happens our economy will not improve but continue to decline,” said Muzamhindo.
The country’s business confidence as measured by CZI’s quarterly business confidence index (BCI) shows that sentiment on the economy is negative this year, although expectations show a general sense of improvement in the second quarter of 2016.
At the launch of the quarterly index in October last year, CZI president, Busisa Moyo, said quarter-on-quarter the overall BCI showed a negative variance of 33,9 percent, while year-on-year, the variance was at a negative 31 percent.
According to Moyo, the quarterly CZI survey aims to ascertain the view of manufacturing companies regarding their situations. He said data was collected from at least 288 companies for the period April to June 2015.
Economist and former banker, Taurai Chinyamakobvu, said during the first quarter of this year, many companies may fail to reopen.
“Traditionally, it has never been a busy quarter, so in terms of output, it will be far worse than the last several quarters. Power will remain a problem, consumers will not have adequate discretionary income to drive demand, funding will remain elusive and expensive and companies will continue to cut down on labour costs. There is not really much good news for the rest of 2016 for now,” said Chinyamakobvu, adding that government had no capacity to invest in major infrastructure projects as much of its resources were spent on recurrent expenditure.
“I call it the lost 12 months,” he said about 2015.
“It does not look like the managers of the economy have a clue on how to reverse the downhill trend,” Chinyamakobvu observed.
Follow us on Twitter on @FingazLive and on Facebook – The Financial Gazette