Although Zimbabwean President Robert Mugabe’s recent price cuts are projected to halve the state’s income in the short term and will further cripple the economy, business leaders remain reluctant to openly criticise his policies.
A large proportion of businesses in Zimbabwe are expected to report losses within the next quarter, which will have a severe effect on the revenue generated by the state through corporate tax.
Manufacturers are downscaling operations now, with some closing shop because of the lack of demand. The decline in manufacturing is expected to strike a blow to exports, which will affect the amount of foreign exchange flowing into the country.
Foreign exchange shortages will, in turn, restrict imports of fuel, electricity and medical supplies.
Nonetheless, business is tiptoeing around Mugabe, using flattery to win his ear at a crucial meeting last week.
According to a confidential business briefing handed to Mugabe, and minutes taken by one of the 12-member business team that attended the meeting, business leaders plied Mugabe with accolades, saying his “contribution to Zimbabwe was without equal”, that he was a “decisive” leader and that “the country” was responsible for the economic crisis by failing to meet his goals of “creating a prosperous society for all”.
The business leaders said Mugabe’s price war, which has left store shelves empty and worsened the dire economic situation of most Zimbabweans, “had very good reasons”.
Publication this week of the contents of the document presented to Mugabe at last week’s meeting is certain to attract criticism for business leaders.
Although Mugabe accuses business of backing his opponents and working against his policies, business has hardly ever publicly criticised his government, opting instead for a policy of appeasement in the face of an increasingly irritable government.
In spite of 4 000 arrests and the closure of hundreds of businesses, not only did business refuse to blame the crisis on Mugabe, but it even took the extraordinary step of taking the blame itself.
“When we look at how we as a nation have performed against the goal that you set for us, that is the goal to create a prosperous nation where the lives of all our people are uplifted, we can all clearly see that we have all let you down … this country, business and government, have let you down.”
Business leaders argue that outright criticism of Mugabe will only worsen matters. But others point out that in an economy in which new private investment has dried up and businesses are scaling down existing operations, government has emerged as the last single source of meaningful business.
Meanwhile, the increasing dominance of the black market is depriving the state of much-needed tax revenue.
An analyst, who preferred to remain anonymous, said the informal economic system in place now is resulting in massive tax evasion. The analyst said the loss in tax revenue will severely limit the state’s ability to finance its activities.
Anticipated losses of close to 50% of revenues are expected to lead to a widening of the budget deficit, likely to be financed by increasing domestic money supply, a move which will put increased pressure on already soaring inflation.
With an increased perceived risk in Zimbabwe, it is becoming more difficult for the state to secure finance from banks and friendly countries such as China. Zimbabwean sources say business confidence is at an all-time low and this is deterring domestic and foreign investment.
The analyst said price controls not related to cost will ultimately drive the economy into deep economic recession.
Another analyst warned that the price controls could lead to an inflation explosion soon.
Documents from last week’s meeting show that business believes a “robust implementation” of a package of reforms it proposes will bring stability to the inflation-ravaged economy within 90 days.
“It is our view that we face extraordinary challenges that require extraordinary measures and unconventional methods,” business said, recommending that Mugabe assemble “a team of business and government to put together and implement a comprehensive emergency package of measures to rescue, stabilise and eventually turn around our economy”.
The package of reforms includes the need to approach “friendly” states and institutions for a “substantial” foreign currency injection to stabilise the battered currency rate and a new pricing policy that strikes a balance between viability for business and affordability for consumers.
Business also wants an end to all forms of government controls on the economy, an end to insecurity on the farms and finalisation of proposed legislation that will have a bearing on investment, such as the Empowerment Bill and planned changes to mining laws. Mugabe was asked to reform state-owned enterprises — some of which report losses equal to the national budget and are run by corrupt ruling party appointees.
“Once this internal package of measures achieves traction,” says the document, foreign support will rush in and recovery could be as soon as three months.
Minutes of the meeting disclose that Mugabe instructed the business leaders to add the “removal of sanctions” to their list of what measures are necessary to end the crisis.