Payments delay hits business, economy

WHILE business supports efforts by authorities to stabilise the economy, it is concerned that some of the measures being implemented could seriously affect the operations of many companies.
Speaking to The Financial Gazette this week, as some companies continue to count the cost of last month’s temporary freeze of payments to government suppliers by Treasury — in a bid to curb overpricing and inflation — business also warned that this could have dire consequences for the economy.
The measures have seen many organisations, especially small and mid-sized enterprises (SMEs), struggling to pay their workers and other obligations, including taxes.

Kurai Matsheza, CZI president

In this light, the president of the Confederation of Zimbabwe Industries (CZI), Kurai Matsheza, implored authorities to re-think the freeze, saying it was “choking” the market.
“Obviously, government spending has a significant impact on the economy. If the government stops spending, the whole economy will catch a cold.
“With this temporary freeze, we are experiencing tight liquidity challenges in the whole economy. This will have to be lifted, otherwise both business and the economy will choke.
“At this stage, none of our members has come forward to give us details of what is happening directly to them, other than the impact of the liquidity squeeze on all of us,” Matsheza said.
The president of the Tourism Business Council of Zimbabwe (TBCZ), Wengayi Nhau, said there was need for constant dialogue between the government and business to allow “a win-win situation” for both parties. “We have started dialogue with the government over the temporary freeze, and this is proving to be fruitful. Remember, the government takes up about 70 percent of all services.
“Our intention is to strike a balance so that both parties benefit. Government’s function is derived from taxes, and businesses have to be functioning to be able to pay tax,” he said.
On his part, economic analyst Vince Musewe said while authorties were trying to rein-in errant companies, there was a need to also consider the effects of such drastic decisions on complying businesses.
“It is difficult for service providers not to be paid as they have bills to pay … In the long term, this decision negatively affects suppliers’ operations.
“It is a temporary respite to bring sanity, which has been pronounced. That is the upside of this decision. But on the downside, business have operating costs and expenses to pay,” he said.
The chief executive of the Zimbabwe National Chamber of Commerce (ZNCC), Chris Mugaga, urged the government to tackle the main causes of the country’s economic challenges, rather than incorporating temporary interventions.

Christopher Mugaga, the ZNCC chief executive officer.

“We complement the government for taking the stance of the temporary freeze. But this also has to be looked at from a bigger scheme of things.
“In other words, we should not wait for a temporary freeze for the market to behave. From the very start, the government should be alive to what is happening, as well as the possible outcomes, and not condone a behaviour of over pricing like what has been happening.
“One of the major drivers of the overpricing was the time lag between government giving suppliers business and when it makes payments,” Mugaga told The Financial Gazette, the country’s number one business publication.
“Once the government reduces that time lag, we will see that maybe the problem we are having will be somehow reduced.
“But at present, the time the government takes to make payments is unfair to many businesses,” he added.
Former Finance minister Tendai Biti said authorities were violating the law by enforcing the tough measures, which he said were breaches of contracts signed with suppliers.
“You have to appreciate that this is a contract, and both parties have to honour its provisions. In the short-term it might appear as if the exchange rate or prices have stabilised, but sooner or later the tap will be open and it will be déjà vu.
“Floodgates of bond notes will flood the market and money supply will furiously go up once the temporary freeze is lifted.
“Artificial policies or measures bring fake short-term solutions. In this case, Armageddon is coming,” Biti warned.

Former Finance Minister Mthuli Ncube

“This move will force the economy into a recession. Costs will go up, interest rates and prices of goods and services will also follow the same direction. Money supply and inflation will increase, and economic projections will be missed,” he added.
All this comes as business is ramping up its push for another stimulus package to help commerce and industry recover from the residual effects of Covid and economic strife.
Speaking to The Financial Gazette recently, business leaders said the issue of a fresh stimulus package had become more urgent in the light of the dire economic challenges experienced over the past few months.
This came after both industry and commerce complained that many businesses were not able to access the International Monetary Fund’s (IMF) nearly US$1 billion Special Drawing Rights (SDRs) that were allocated to Zimbabwe last year.
Matsheza described the situation confronting business then as “grave”, adding that things had been exacerbated by a deadly combination of foreign currency shortages, high inflation, recurring droughts and the effects of the Russia-Ukraine conflict.
“The impact of Covid-19 has been felt by all sectors of the economy to varying degrees of severity. Some of our members lost markets, production capacity and skills.
“Even before Covid-19 struck, the need for re-tooling was already there. Therefore, the need for a stimulus package post Covid-19 is key for the revitalisation of the productive sector.
“Some of the sectors which were to benefit from SDRs were the cotton value chain and leather and pharmaceutical value chains.
“While some effort towards the pharmaceutical sector is noted, more is required. Thus, the impact of SDRs has not been significantly felt in the identified sectors,” Matsheza said.

“As industry, we had also said that some of the funds needed to be deployed to support the auction system. For this, our estimate was about US$500 million.
“However, we are aware that government identified other social service sectors as requiring support, such as education, health and food security for the vulnerable,” he added.
On its part, the government had said that it would allocate a total of US$30 million from the SDRs to the identified sectors.
In this regard, a re-tooling revolving fund for new equipment and replacement for value chains was to be created.
“We want to take part of these SDRs and offer guarantees to banks … so that they don’t ask for collateral from you. We will announce which banks these are.
“We believe that this is the best model for us to begin to crowd in banks and the rest of the private sector in the financing of economic growth,” Finance minister Mthuli Ncube said in December last year when he announced the package.
The Treasury chief’s 2022 budget also set aside $2,3 billion to provide medium and long-term finance to enable companies across the agricultural, mining and services sectors to implement value addition activities through the Industrial Development Corporation.
“However, this facility is yet to be availed in 2022 despite the glaring need for funding on the ground,” a recent CZI memo said.
All this notwithstanding, business was still hopeful that an SDR-backed stimulus package would be more effective than the previous $18 billion resuscitation facility announced by the government in 2020.
newsdesk@fingaz.co.zw