Zimbabwe’s political instability and its impact on business

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    By Raynold Mhotseka

    Harare – “Zimbabwe is open for business,” has been the investment charm since the coming into power of President Emmerson Mnangagwa led administration seeking to attract long lost foreign investment into the country, however, unfolding events at home have failed to compliment the mantra. The core-relation between business and politics has refused to be separated.

    Zimbabwe’s economy has become a public discourse, at the heart of the economic crisis is an unstable political environment stemming from the tyrannical rule of the then Robert Mugabe era right through to the new political administration where comparisons with the former as far as change is concerned, have failed to convince not just the international community but also the local community.

    There is lack of confidence in the market, driven by high currency exchange rates, consumers resorting to hoarding and businesses operations viability has remained low. Political factors are government regulations that influence business operation positively and negatively and on its downward side, they can introduce a risk factor which cause the business to suffer losses. That being said, Zimbabwe’s hope for a real economic turn around hangs on the country’s ability to solve the ongoing political challenges.

    Overview of Zimbabwe’s political environment

    The political instability in Zimbabwe has made the business environment less friendly and this has led to the lack of FDI into the country. Even though the new political administration has taken an investment charm “Zimbabwe is open business,” to the international community, the political instability at home characterized by contested election results, protests and crackdown on civilians by security agents have proved a major barrier into the country’s prospects of being an investment hub.

    Governments have a great deal of power over businesses and many times, there is not much that businesses can do about it. The criticism is that Zimbabwe has become a “command economy” with government’s hand visible in almost every sector of the economy including the latest urban transport service interventions. The viability of this plan has been broadly questioned.

    Lack of political stability also lead to social instability which significantly affect business operations.  This has been driven by citizens’ disapproval of government policies such as the recent protests against the fuel price increase. Eventually, it led to looting, riots and general disorder within the environment.

    Soon after the recent protests characterised by looting as well as burning and destruction of business properties, industry counted losses totaling an excess of $500 million. Consequently, some businesses especially the SMEs said a rebound is near to impossible unless government intervenes through capital injections.

    Tax and economic policies

    Increasing or decreasing rate of taxes is a good example of political component, and this decision directly impact business. Among the major highlights since coming into power of the new administration is the increase in tax money. Following the introduction of the monetary and fiscal policies in October and November last year, government introduced a new two percent tax per every dollar transaction on all electronic transactions from the five percent tax.

    Increasing tax rates without complementing it with an increase in wage payments impact on the costs of living for the citizens. This in turn, impact on aggregate demand for the supply of goods into the market, therefore affecting business operations.

    Summary

    The main goal for business is to make profit and government’s goal is to ensure economic stability and growth. Both of them are different but very co-dependent. For this, the government and businesses should respect the channels through which they try to influence and persuade each other on various matters. These include lobbying by business organisations and trade unions calling for industrial actions to influence government actions. On the other hand, government influence business by laws and regulations as well as trade policies.

    Equity Axis News

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