Business Re-engineering in Zimbabwe after COVID-19

By Meshack Chisango

The damage caused by the coronavirus induced lockdown cannot be over emphasised. It is clear for everyone to see. Over a hundred thousand people have lost their lives. The virus has given the world economies no choice but to shut down. The Italian government closed businesses for almost five weeks now. South Africa and Botswana have increased lockdown days to 35 and 180 respectively.

Zimbabwe, a land locked country, had no choice as well but to close its borders after confirmation of a mere three cases. The virus resulted in the President E. D. Mnangagwa declaring a “National Disaster” well before we had any cases confirmed. Sitting at thirteen cases now, as I write, the closure of businesses leaves a sour taste in the mouth. It raises more questions than answers. With an undeniable 80 - 90% unemployment rate in Zimbabwe, of course, who ever chooses to deny that clearly is not sincere, the country needs to come up with a stimulus package that can take the economy from the doldrums it has sunk into. The poor masses who have been struggling to survive over the years, feel the wrath of this invisible killer as they have lost their livelihoods in a blink of an eye, with the poverty datum line in excess of ZWL$4000.

Before the lockdown three weeks ago, the economy had long taken a knock with the local currency plummeting on the alternative market at around US$1 to ZWL$43. A concoction of policies that had been put in place after the 2018 plebiscite have proven not to give the economy the much needed stimulus. Instead, the economy has regressed, probably not to the 2008 levels, but the levels of inflation caused by the devaluation of the local currency have caused the price level to rise significantly. It is an issue of the prices following the alternative market exchange rate and the forex which is found on the streets. The interbank market did not help the situation either because the central bank did not want to ease its appetite to allocate forex in the market coupled with its failure to reign in faltering corporates who are abusing their privileges. Introduction of bureau de changes in the market did not serve its purpose either, as nothing changed. The question that begs an answer always is; who is supplying the alternative market with ‘float” funds? If the central bank is not buying forex on the streets, then, who is? The government pays its suppliers large sums of money that they will in turn flood on the streets in search of store of value. Has the government lost the will to preserve its own currency? Who is benefitting from the plummeting of the local currency?

We have seen, within the lockdown, the alternative exchange rate falling again from around 1:33 to 1:42 (local currency is losing value so the rate is not rising but falling) despite the central bank fixing it at 1:25 days running into the lockdown. The rate had gone firmer days going into the lockdown after the central bank had allowed holders of free funds to use their money without restrictions. We have seen the central bank putting the blame on two corporates that have since lost their licences. Is this the source of our problem? Does this move solve our problem? Time will tell!

Enough with the exchange rate. This piece is not about that. The bottom line is that business in Zimbabwe is at a standstill. How will companies restart after the lockdown? Should the lock down end later rather than sooner? With listed companies like Simbisa reportedly offloading their staff, what would be the solution for smaller companies?

According to reports in The Standard of the 12th April 2020, the Confederation of Zimbabwe Industries (CZI) says 82% of local companies cannot pay more than a month’s salary, and have urged the government to lift the ban. CZI also argues that the government does not have the capacity to sustain the costs of a total lockdown.

In another report in the Financial Gazette of the 09th April 2020, foreign investors were net sellers of $34 million worth of shares on the Zimbabwe Stock Exchange (ZSE) in March 2020. It is evident that as the virus spreads across the world, investors are offloading their investments on the equity markets across the globe. ZSE just like any other bourse has plunged 11% on All Shares Index from 526.11 points on 17th February 2020 to 467.82 points as at 09th April 2020.

In its report for the period 25 – 30 March 2020 titled Tracking the Business and Economic Impact of COVID-19, the CZI assessed firms in the foodstuffs, beverages and tobacco, chemical and chemical products, paper and printing and publishing, clothing and footwear, metal and metal products and insurance industries. The industry board noted that in terms of market access 28% of the companies are greatly affected by the disturbances to the supply chains. 16% of the companies sent employees on unpaid leave, which is detrimental to the employees’ welfare.

Our economy has been hit very hard. The Independent of 10th April 2020 carried a story of an unprecedented recession of -20% that the country is facing. The obvious recipients of the harsh reality are the majority of Zimbabweans who have endured the pain of a festered economy. We have witnessed the economy deteriorating from a breadbasket of Southern Africa to a basket case of the whole region. From an industrialised country to a country of informal traders and vendors.

What strategies, thereof, can we put in place to avoid a total failure of the economy? The American government is preparing a US$2 trillion dollar package to rescue the economy. The Americans have been the worst hit with more than twenty thousand deaths. They are muting re-opening of the vital cogs of the economy to avoid a catastrophe.

The Zambian government has released K3 billion to clear government arrears and pay contractors and a further K57 million for an emergency fund that has been set up. They have also suspended import duty on mineral concentrates as well export duties on metals.

Botswana government has established a P2 billion relief fund, wage subsidies where government guarantees loans given to employers by commercial banks, tax concessions, reduction in fuel price restructuring of bank loans, paying purchase orders, paying outstanding arrears and refunds of VAT among other strategies.

The South African government created a Solidarity Fund where corporates have poured billions of rands. They have also started a temporary employee relief scheme for companies to be able to pay wages. Employees have been awarded tax subsidies of up to R500 per month for those earning R6500 and below. The government has also promised an improvement of tax reimbursements, a delay of 20% tax four months for companies with revenues of R50 million and below, no penalties and interests for tax delays for six months. Among other remedies, the government has promised a R500 million SME fund, R3 billion industrial funding, R200 million for SMEs in tourism, interest rates cut of 100 basis points.

In essence, these governments have intervened in the markets, with most strategies aimed at inducing aggregate demand, which, of course, would be wetted by the lockdown.

Professor Mthuli Ncube, the Minister of Finance and Economic Development, also announced a number of strategies that include a ZWL$100 million to fight COVID-19. The Minister also announced that the proceeds of the 2% IMTT tax are going to be channelled to fight the virus, all ministries are supposed to work on budget cuts; the government will unfreeze 4000 health posts, and create 200 new posts. The government is going to provide a cover for one million vulnerable households, USD2 million has been set aside for health related imports, duty free importation of medical supplies and a solidarity fund had been formed.

The measures put in place by the government of Zimbabwe smack of a scam. They are not good enough to induce aggregate demand neither to support aggregate supply. The Zimbabwe National Chamber of Commerce (ZNCC) estimates that the economy will lose about USD1.5 billion during the lockdown. This means we are going to lose 5% of our GDP, which was USD29 billion in 2019. The national budget for 2020 that was estimated at ZWL$80 billion, that time, equivalent to about USD6 billion, is already constrained to cater for the huge changes that we are experiencing in the economy. Events that have happened from November 2019 up to now including the awarding of salary increment for Civil Servants taking the least paid from ZWL$400 to ZWL$2500, have significantly eroded the budget. The government has no financial space to borrow from; the financial markets are constrained, the economy has a liquidity crunch that has remained forever. The few companies that have been alive are closing down. Most will not be able to reopen after the lockdown.

The ZWL$100 million earmarked to fight COVID-19, equivalent to USD4 million, using the current fixed interbank market rate, is a drop in the ocean. Zimbabwe is a USD29 billion economy which needs a huge rescue plan. The local currency has lost about 53,85% of its value since November 2019 when the budget was announced. If we use the alternative exchange rate, the local currency has lost 158,46% of its value since November 2019.

The cover for one million households has not been disbursed as yet. Scuffles have already began, with talk that the government wants to use the ZWL$200 million earmarked for these families as a rescue package for Netone, a mobile company that the government has a controlling stake in. The government intends to use the One Wallet mobile money transfer, according to press reports. The funds translate to ZWL$200 per family. The further delays that the government takes in disbursing the funds mean the families are on the verge of completing the lockdown without any help. It also shows a Social Welfare plan in limbo as it cannot be quickly triggered at any given time. It is also evident that the registration process for the vulnerable families will take much longer. The longer it takes to register the beneficiaries, the more exposed the process is to manipulation.

What is our best way forward, then? We all know that the American government will, besides borrowing, print money to stimulate its economy. With a public debt that has reached USD25,3 trillion in recent months, the American economy remains strong. Why isn’t our own economy ticking with a government debt of 53% of GDP as of 2018?

Our own print machine has been our biggest curse ever. It prints cursory money. Each time the machine is turned on, it has brought untold suffering to the multitudes of Zimbabweans. We have tried every trick in the book but it has not helped our nation to prosper. It’s a curse indeed!

It’s corruption Stupid!

Printing of money has always been one of the ways a government gives itself an “overdraft”. It is a deadly weapon in wrong hands. The use of some commercial papers either, which are short term securities, is suicidal as well. In recent past, Zimbabwe resorted to paying debts with Treasury Bills (TBs) forgetting that they will always mature. When they mature, they have to be paid. The process of redeeming TBs releases more money into the market thereby increasing money supply. With the country unable to print money between 2009 and 2012 because of the use of the USD, someone clever thought of using TBs. After the TBs had matured and the government was too broke to redeem the TBs, they created more money in RTGS$ (another story for another day).

Mthuli also knows this is open cheque but dangerous road to travel. Without printing money or borrowing from IMF, World Bank or AFDB, will Zimbabwe survive the scourge of corona virus?

The CZI suggestions among others include the following:

• That the 2% tax be removed

• Protection of local producers from dumping

• Waiver of import duty on raw materials for medical supplies

• Preference to local enterprises

• Cash flow packages to cushion employers

• Shift to infrastructural development to ease of doing business

• Free markets

• Removal of AIDS Levy or temporary conversion to a COVID Levy.

This brings us to how businesses are run in Zimbabwe. From the raft of measures above, I don’t see an aggressive approach to solving problems that dog the economy. I am not seeing a long-term vision in the approach and strategies. I see an industry that is not soul searching and preparing for the future. When are we going to see industries that invest in research and development? Wasn't this an opportune time for industries to show case thier researches? Are we going to see a business re-engineering wave after the pandemic? Are we going to see new business approach coming from our economy? Is business in Zimbabwe ready for change inspired growth rather than clamouring for tenders? Government tenders have always been the way to the top because they are cheap; often the money is paid in advance and the job normally takes long to get finished. Is the business society ready to help the government where it fails? Is the government ready to let its citizens participate in the markets freely? Are government officials ready to say we have had our fair share of the tenders cake, let the citizens benefit? These remain questions.

We need an industrial revolution led by thought leaders. Our universities have manufactured some medical equipment in recent weeks, which are in short supply world over. Business sense would require us to focus more on production and fund more of those projects. This little break requires us to rethink our processes, our funding needs, our funding sources, our human capital placement and development. We want to see virtual conferences that put together thought leaders together. We want to see more digital platforms that allow business reengineering into the future.

Meshack Chisango is the Managing Consultant of a start-up firm which offers consultancy services in Strategic Business Management, Economics and Finance. He writes in his own capacity as a thought leader. You can get in touch on meshck.chisango@gmail.com, or @ChisangoMeshack on twitter. Let's keep the conversation alive.