Industry’s message to the US
We publish part of the submission by Mr Joseph Mutizwa before the United States Senate Foreign Relations Sub-committee on Africa and Global Health Policy hearing on Zimbabwe after the July 30 election. Mr Mutizwa made the submission last week in Washington DC. The subcommittee oversees the US sanctions on Zimbabwe.
THIS opportunity to address the Senate Foreign Relations Sub-committee on Africa and Global Health Policy to offer the perspectives of the private sector in Zimbabwe on the situation prevailing in Zimbabwe in the post-election period is greatly appreciated. This dialogue is long overdue. On behalf of the private sector in Zimbabwe, I would like to thank Senator Jeff Flake and members of his Committee for this rare opportunity accorded to us.
As this invitation came at short notice, some of my colleagues from the private sector in Zimbabwe were unable to travel to Washington to participate in today’s proceedings.
In the short time available to me, I was able to solicit the contributions of some, not all of the private business sector leaders in Zimbabwe.
The outcome of this consultation is, I believe, a balanced assessment of the state of the macro challenges facing Zimbabwe today as outlined in this written submission. Zimbabwe is a nation that has experienced economic volatility for the greater part of its post-independence history from 1980 to today.
I can say, without hesitation, that the people of Zimbabwe are extraordinarily resilient.
Over the last two decades, they have experienced all manner of deprivations such as political polarization and violence, record beating hyperinflation, infrastructure decay, staggering unemployment levels and economic decline accompanied by deepening poverty.
In recent times, we have even been visited by medieval diseases such as cholera.
Despite all these challenges, the people of Zimbabwe have largely remained peaceful, hardworking, God fearing and honest.
Our work ethic as a nation is second to none on the African continent.
Our literacy rates remain among the best in Sub-Saharan Africa.
Zimbabwe business leaders occupy positions of high responsibility in iconic corporations across Africa and beyond.
I make this submission in my following capacities: -
i) As the former CEO of Delta Beverages (2002-2012), one of Zimbabwe’s largest listed companies;
ii) As the current Chairman of the Zimbabwe Stock Exchange Listed Companies Forum (ZSE Forum) – representing all the 63 companies listed on the Zimbabwe Stock Exchange.
iii) As a Leadership Consultant working with more than 30 private sector companies since my retirement as CEO of Delta Beverages in 2012.
This consultancy role gives me unparalleled
LAST week the US Senate Foreign Relations Sub-Committee on Africa and Global Health Policy deliberated on Zimbabwe’s post-election environment within the context of a possible review of economic sanctions on the country. Former Deputy Information and Publicity Minister Bright Matonga has been sanctioned by the US. Here he gives a personal account of how the sanctions have affected him.
access to chief executive officers, their boards and executive committees.
This puts me in a position to have an in-depth appreciation of private sector perspectives across Zimbabwe.
iv) As Chairman of the boards of several private sector companies in Zimbabwe.
v) As an independent non-executive director on the Board of the Reserve Bank of Zimbabwe.
In this capacity I also chair the important Bank Stability Committee which is charged with supervision of the banking sector in Zimbabwe.
I am, therefore, fully cognisant of the challenges facing the private banking sector in Zimbabwe.
The ushering in of the new political dispensation following the resignation of President Robert Mugabe in November 2017 has had a seismic impact on the nation of Zimbabwe.
The private sector is a significant stakeholder in the process of building a new Zimbabwe in the post Mugabe era.
This submission will address four key issues which Senator Flake has requested me to focus on. These are: 1. What is the current state of Zimbabwe’s economy and its impact on Zimbabwean people?
2. What is the private sector’s evaluation of the impact of the July 30, 2018 elections on Zimbabwe’s economy?
3. How does the private sector evaluate of the progress made to date on economic and political reforms by the Government of President Emmerson Mnangagwa?
4. What alternatives does Zimbabwe have should the USA fail to take action to support Zimbabwe’s economy? I will tackle each question in turn. In preparing this submission for the Sub-committee on Africa and Global Health Policy, I am guided by a number of considerations that the private sector in Zimbabwe embrace. These are: 1. The over-riding desire for stability in terms of both the economic and political environments. A stable operating environment is conducive to business growth. The converse is true.
2· A desire for economic reforms that recognize the role of the private sector as the engine for economic growth.
3· The need for an investor friendly environment that encourages and makes it easy for both foreign and domestic investors to conduct business.
4· Macroeconomic policy consistency and predictability.
5· A stable currency and affordable cost of money.
6· Access to affordable international lines of credit to enable the recapitalization and modernisation of plant and equipment for productivity and competitiveness.
7· A regulatory framework that is facilitative of business and that improves the ease of doing business and makes Zimbabwe a desirable investment destination.
In concluding this preamble, I wish to state that the private sector in Zimbabwe endeavours to be apolitical.
We work with any Government in office regardless of its political leanings.
We offer support to ensure success of desirable policies and programs but we also offer constructive criticism to Government where we believe that policies or measures are not in the best interests of the economy.
This submission is guided by the above considerations.
Question 1 —What is the state of Zimbabwe`s United States dollars that involved my name could not go through; the money was intercepted.
Assuming someone wanted to send me money or any of the colleagues on the list through Western Union or World Remit, the transaction was flagged.
Once they type in my name, they are immediately asked to punch in my ID number. The US officials have all my personal information including my national ID number and passport number.
So, once they ascertain that the money is being sent to me they intercept it and hold on to it.
They allow the transaction to go through then they hold on to the money.
So this is one of the challenges facing those on the sanctions list including companies, we cannot transact outside the country.
I have children born in the United Kingdom, and it is also difficult for them.
They ended up having to write to British authorities to ensure that they are not affected by the sanctions. But they still face delays when they transact.
In addition, banks were instructed to withdraw all my Visa cards.
My son is British-born and went to high school there, I could not send him economy and what is the impact it is having on citizens?
Current state of the economy from a business perspective. Zimbabwe’s economy is currently in distress and is exhibiting stress in the following areas:
◆ Fiscal distress with the budget deficit projected at 11,6 percent of GDP in fiscal year 2018. The consensus target within the Sadc region is for a fiscal deficit around 3 percent of GDP.
◆ Current account imbalance with imports projected to exceed exports in fiscal year 2018.
◆ 80-90 percent of the economy is informal — reflecting high levels of unemployment in the formal sector.
◆ Large public debt burden standing at US$18bn and split 54 percent to 46 percent between domestic and international debt respectively.
◆ Currency volatility reflected in multi-tier pricing distortions in the market with significant loss of value of the local currency over the last two months.
◆ Rising annual inflation climbing to 20,9 percent as at October 2018 – the highest in the Sadc region.
◆ Infrastructure constraints affecting road, rail, power, water and sanitation, among other needs.
◆ Very high country risk discouraging Foreign Direct Investment. The country risk premium currently stands at over 20-25 percent. Only US$470m FDI inflows in 2018.
◆ Deteriorating standards of living for ordinary citizens as savings and earnings have lost value while costs are escalating.
The positive developments in the economy
i) Rise in manufacturing sector capacity utilisation expansionary fiscal measures by Government have stimulated recovery in capacity utilization in the manufacturing sector from a low of around 34 percent three years ago to around 60 percent before the October 1,2018 policy pronouncements caused a major foreign currency crisis.
The adverse impact of this rise in capacity utilization has been the “overheating” of the economy as demand for production inputs and consumer products has outstripped the economy’s capacity to generate foreign currency earnings to service the increasing appetite for foreign currency.
The above situation reflects the fact that Zimbabwe’s productive sector is highly import dependant — thus contributing to the Current Account Deficit. ii) Recovery in agriculture production. There has been significant recovery in agricultural production as evidenced by the following:
◆ A 34 percent increase in tobacco production from 188,6 million kilograms in 2017 to 252.5 million kilograms in 2018 (the highest output in the history of the tobacco industry in Zimbabwe-exceeding the previous peak of 238 million kilograms reached in 2000).
◆ A 95 percent increase in cotton output from 73 086 tonnes in 2017 to 142 761 tonnes in 2018.
◆ Zimbabwe has achieved food security through the Government`s intervention in agriculture during the 2017/18 agricultural season. 1.2 million tonnes of maize are now in the country`s strategic grain reserves, putting Zimbabwe in a secure position even if the current rainy season is adversely affected by El Nino.
iii) Mining sector output growth pocket money and could not even pay for his fees using my name.
I had to find assistance from third parties who had funds in the UK to pay the fees and then repay them locally.
I remember when my mother passed on and my brother who stays in Australia sent money to assist with the funeral, that money was intercepted after it was sent in my name.
They took all the money which was meant to assist with our mother’s funeral. If I go into South Africa and do not have cash, it takes me more than two hours to buy one bottle of drinking water.
Now, because I do not have a Visa card I have to carry cash with me and you know how dangerous it is to move around with cash in South Africa.
At times I had to go with my wife but they have also taken away her Visa card.
Some will say these are targeted sanctions, but evidence abounds that they are affecting the whole country.
Strive Masiiwa at one point came out saying how sanctions had affected Econet and he called for their immediate removal.
When you are under sanctions, you cannot get businesspeople to bring in money into the country. They have to
◆ Gold output has increased substantially and could end the year at 34 tonnes or 42 percent, up on the 24 tonnes achieved in 2017.
◆ Platinum output is set to expand on the back of a new mine commissioned by Zimplats — the country’s largest platinum producer.
◆ Diamond output is set to reach three million carats in 2018, up 67 percent from the 1,8 million carats achieved in 2017. iv) Reform of indigenisation laws. A major step forward implemented by the new Government has been the repeal of the indigenisation laws, which required all businesses to have a 51 percent equity interest in the hands of indigenous Zimbabweans.
This made Zimbabwe unattractive to foreign investors. This requirement has now been removed save for the platinum and diamond mining sectors. V) Closure to land tenure Significant progress has been made on the contentious issue of land tenure with bankable and transferable 99-year leases close to finalisation.
Another major change has been the decision by the Government to discontinue the Mugabe era prohibition of leasing arrangements between white farmers who desire to lease and farm productively on farms allocated to black farmers. Joint ventures and leasing arrangements are now in place, allowing a significant number of white farmers to return to farm in Zimbabwe.
Impact of macroeconomic developments on the populace
◆ Since 2016, there has been a significant erosion in the welfare of citizens. This erosion has been transmitted through higher cost of living, erosion of value of savings and deterioration in service provision.
There has been a real fear that the country was heading towards the volatility experienced in the hyperinflation period of 2007 – 2008. Foreign currency shortages have had a severe adverse impact on the availability of essential goods and services in particular, essential medical drugs, fuel and machinery spares and raw materials.
◆ The cumulative impact of all these developments has been to erode the quality of life of most, it not all Zimbabweans.
◆ Since October 2018, there has been a deterioration in macroeconomic stability as parallel market rates of exchange sky-rocketed, leading to speculative price increases that saw prices of basic food items as well as the cost of transport and rentals soaring out of the reach of ordinary citizens, whose disposable incomes have been severely reduced by inflation and increased taxation.
◆ The current level of trust by most citizens in public institutions is still very low given past experiences with hyperinflation ( 2007-2008) when savings were wiped out.
As a consequence of this experience, confidence is very fragile in Zimbabwe, leading to panic and over-reactions when there is any hint of possible loss of currency value.
QUESTION 2 How did the July elections impact Zimbabwe`s economy?
In the run up to the elections, there was a surge of optimism across Zimbabwe, generated by a number of developments among which were the following:
◆ Ushering in of a new national leadership after the resignation of President Robert Mugabe — in power for 37 years.
◆ A very peaceful and relatively open election campaign period. get approval from the US Treasury, otherwise the money will be intercepted and the financiers will face heavy penalties.
The little money that is coming in is not coming through straight channels, they have to go through back channels.
People will always find ways of sanctions-busting, but that is not the way to do business.
The world has endorsed the New Dispensation, and on that basis alone Zimbabwe should be given support through the removal of sanctions.
I know some of my colleagues who were removed from the list.
One would ask me why don’t you go there and ask to be removed, but on a point of principle I am saying I am doing this for my country.
It would be selfish of me to go and negotiate. I know some went and negotiated and were removed and can travel freely, but from a point of principle this is about my country.
I was once offered a job which l turned down because it had conditions attached for them to get me off sanctions list and l turned it down!
The other l was offered but couldn’t take because l knew l would not open an account or travel to the EU or US
◆ Expressions of support for Zimbabwe from broad sectors of the international community.
Post- election violence
The optimism that swept across Zimbabwe was shattered by the discord around the announcement of election results and the post-election violence on August 1, 2018.
Confidence was severely undermined and country risk escalated.
The expected FDI inflows did not materialise as expected although there are significant numbers of potential foreign investors visiting Zimbabwe to make inquiries.
A few key investors have now made commitments.
Post-election political polarisation
The legal challenges against the election results at the Constitutional Court and the refusal by the main opposition to accept the legitimacy of President Emmerson Mnangagwa has resulted in deep political polarisation which has severely dented business confidence for both foreign and domestic investors.
While the polarisation is a reality, it is also a fact that the ruling party emerged from the election with a two thirds majority in Parliament, thus giving it a strong mandate to carry out the required legislative reforms, particularly those needed to align existing laws to the 2013 constitution.
Impact on value of local currency
In the period following the resignation of President Mugabe and the July 2018 elections, the depreciation of the local Zimbabwe currency (the RTGS or Real Time Gross Settlement balance and the bond note) was around 30-40 percent.
The local currency has significantly lost value in the post-election period - at one point in October 2018 reaching a low of around 500 percent devaluation before stabilizing at around 340 percent devaluation in the parallel (or unofficial) market.
This is despite an official position putting the local currency at parity with the United States Dollar.
Deepening foreign currency situation
The post-election period has seen a deepening of the foreign currency shortage as United States dollars continue to disappear from the formal markets.
The consequence of these shortages have had a severe adverse impact on the availability of imported raw materials, fuel and medical drugs.
The most severe impact has been felt in the area of medical care as hospitals and pharmacies have run out of imported medical drugs, thus putting the lives of many ordinary Zimbabweans at risk.
Tightening liquidity and cash shortages
Zimbabwe has been experiencing cash shortages in the banking sector since the introduction of a local currency (bond notes) in November 2016. These cash shortages remain in place four months after the July 2018 elections.
Significant increase in tourist arrivals
Following the July 2018 elections, there has been a surge in the number of tourist arrivals in Zimbabwe.
Tour operators and resort hotels are reporting increases of around 25-30 percent, compared to the same period last year. Hotel operators in the Victoria Falls resort area are reporting occupancy levels last seen in the 1997-98 period for the forthcoming festive season with average occupancies around 65 percent.
New mining investments
Some long term investors have come on because of sanctions.
Yes I am not in Government but the whole country is being affected by the sanctions. So we are in it together.
There is a gentleman who shares the surname Matonga, but we are not related at all. His son wanted to go to the United States but because he had the surname Matonga, they had problems.
He was asked point blank if he was related to me. When he said he was not he was asked to bring evidence to that effect.
So, I had to write an affidavit stating that I am from Mhondoro and this other Matonga is from Murehwa and we are not in any way related; more or less in the same manner many people who have the surname “Smith” in America are not related.
So for anyone with a Matonga name intending to travel to the US, I have to write an affidavit for them disowning them.
US demands The United States government continues to insist that Government must entrench democracy.
But that is exactly what President Mnangagwa’s Government has been doing since coming into power — the political space has not been this open board, including two Australian mining companies who have projects in oil and gas exploration in Northern Zimbabwe and a Lithium mining operation near Harare, respectively.
A Chinese investor is considering setting up a major steel plant in the Midlands area while another company is planning opening a major platinum mine.
Financial commitments by UK financial institutions
Of note has been the financial commitment made by The CDC (The UK Government`s Commonwealth Development Corporation) to make lines of credit available to the private sector in Zimbabwe.
Although a limited amount given Zimbabwe`s significant requirements for financial support, this commitment is symbolic as it represents the first such financial commitment by the CDC in almost two decades.
Delegations from EU governments in the post-election period
The post-election period has seen high powered delegations (combining political and business leaders) from China, Germany and Belgium, among others, visiting Zimbabwe.
QUESTION 3 - Is President Emmerson Mnangagwa making any reform efforts, and if so, what progress is being made? What are some for the hurdles to making economic reforms?
My considered view is that there is a crisis of expectations in Zimbabwe. The ordinary person expected a very quick turnaround of the economy following the July 2018 elections.
These expectations are misplaced. Zimbabwe has been in the grip of misrule for 37 years and the damage done to the economy, to the country’s reputation and its institutions will take many years, if not decades, to repair.
It is from this perspective that I evaluate what President Mnangagwa has achieved since the July 2018 elections.
Evaluation of progress
What has been achieved to date? i) Cabinet composition There was wide support for President Mnangagwa’s decision to let go long-serving party loyalists and bring in fresh talent into a 15 significantly trimmed cabinet.
Key new appointments were made in the ministries of Finance, Industry, Mines and Transport-all now headed by technocrats. The private sector in Zimbabwe welcomed these appointments. This cabinet has only been in office since September 2018. It is too early to objectively evaluate their performance after just three months in office. ii) Opening up of political space ◆ The political space has been opened up significantly. Zimbabweans now express themselves much more openly than during the Mugabe era. Press freedoms are in place for the print media while the state electronic media is still to be reformed and liberalised.
◆ Political demonstrations are allowed and the recent demonstration by the main opposition on November 29, 2018 is a case in point.
◆ The move to open to the public and to broadcast live on national television the proceedings of the Constitutional Court electoral challenge hearings as well as the public hearings held by the Commission on the post-election violence of August 1, 2018 are both major milestones in establishing transparency in Zimbabwe. ◆ Full submission by Mr Joseph Mutizwa on www.sundaymail.co.zw since Independence.
We have never seen anything like what we are witnessing today. But this is a process and you cannot expect it to be done overnight.
They insist that the Government must repeal Aippa.
In my opinion there is nothing inherently wrong with the law. In fact it entrenches the rights of journalists to demand information from Government. What they should be calling for is for the law to be implemented fairly.
They also insist that Posa should be repealed.
But just look at the national security laws they have in the UK and the US. Look at the Patriot Act in the US and the Official Secrets Act in the UK, which were tightened owing to the fight against terrorism.
You will realise that Posa is child’s play. They talk about the August 1 incident. The President appointed a commission to look into that and that is very positive.
They also talk of the alignment of laws to the Constitution, but this process is nearly complete.
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