Policy Talk: Observations on Zim’s Economy – Making it Work!

Zimbabwe’s current fiscal and taxation policies are characterised by increasing tariffs, expanding the proportion of taxes, raising all kinds of living, production and material rates, resulting in a sharp rise in the production costs of businesses and an increase in the burden of business operation.

At the same time, the exchange rate of the rebirthed Zimbabwean dollar against the US dollar has depreciated sharply and totally failing to find stability. The consumption cost of the people has risen sharply in a short period of time. As a result, the market demand becomes weaker, and inflation is higher. At the time of rising production costs, businesses have encountered the double challenge of shrinking market demand, adding to their difficulties and worrying conditions. People risk is on the rise as skilled labour is migrating. Some businesses have stopped production or sought to withdraw from the local market or shifting focus towards regional markets, thus worsening the already high unemployment rate in the country.

Due to the poor economic performance and deviation of fiscal policy, Zimbabwe has encountered some serious problems, namely stagflation. One direct implication of stagflation is a sharp decline in people’s income and a sharp increase in unemployment, as well as major problems in social stability. It seems that Zimbabwe has entered a vicious circle of economic decline in investment, production, circulation, and consumption, which in turn leads to both financial and economic crises. At present, government’s response is limited to short-term solutions, lacking long-term strategic vision. This is not desirable in any sense. Development needs to be carefully arranged and carried out in an orderly manner. At present, it is necessary to seriously study which industries are aligned to the country’s national conditions and market needs. There is need to study, identify and consider which industries are in urgent need of the local market, which industries are conducive to the development of local resources and other factors, and rationally balance the interests. Zimbabwe should take a comprehensive approach, and formulate a targeted medium and long-term (5-10 years) development plan.

Continuation of good policies is the cornerstone of national development and can only be done if the country has a long term policy. Let investors have no worries, rest assured that bold and active investment shall be made. Investment will bring advanced technology and good management experience and international markets. It will also provide a large number of jobs, promote business development, reduce dependence on imports, increase export opportunities, and increase national taxes so as to bring the country into a virtuous circle. Zimbabwe should study the surrounding countries that have done a good job of attracting investment. It should study and compare the comprehensive factors of various aspects, so as to formulate a more attractive investment policy, more in line with the long-term development of the country to attract investment while continuing to introduce relevant policies and push them forward.

Fiscal and tax policies that meets the country’s long-term interests should be formulated. Given the current economic conditions, top priority is to encourage economic development. In terms of taxation, expanding the tax base and reducing the tax rate are the need of the hour. A step-by-step tax policy that expands the tax base both by law and reasoning should be introduced. With the 2% tax, the government did well in expanding the tax base. However, the tax burden is too high which is killing both production and consumption. Government needs to have a relook on most tax rates with a goal of reducing the tax burden.

In addition, in the current dismal business environment, the production businesses should be given appropriate tax reduction support, so as to help the products to enter circulation as soon as possible, promote the market recovery, increase consumption, and increase the employment rate. If the government can attract more overseas investment, it can get more tax revenue from the increase of the scale of production, operation and transportation of businesses. Specific measures include reducing tariffs on raw materials and spare parts to help businesses reduce production costs, simplifying the process of administrative examination and approval of businesses, delegating responsibilities to relevant ministries, establishing one-stop services, and so on.

Respect Gwenzi

Respect is the Lead Analyst and Managing Director at Equity Axis. He has 8 years experience in respective fields of finance and media. Particular areas of expertise include Asset Management, Stockbroking and Financial Media. Respect is on a mission to change the course of Financial Media in Africa through digitalization

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