Zimbabwe’s cash-strapped government could be losing US$2 billion annually through hefty leakages at corruption-prone borders, which has triggered the retrenchment of 20 000 workers, as companies struggle to cope with a glut of cheap imports, the Zimbabwe National Chamber of Commerce (ZNCC) warned authorities this week.
It is the latest of many submissions to government recently, which have red-flagged shocking mismanagement at strategic pillars of the state, reducing what was once an African pride into a desperate economy buffeted by shortages and extreme poverty.
Authorities have blamed the crisis on targeted sanctions imposed by Western powers over two decades ago although evidence of the destructive force of poor governance are visible across markets.
The Zimbabwe Independent reported last month that drastic production cuts due to poor planning in the energy sector had drained US$500 million from the mining industry in the past year.
Banking sector top-lines plummeted by about 50% during the first half of this year, due to complications emanating from a troubled currency and hyperinflation.
The list of fundamentals that have gone wrong is long, as confirmed in a ZNCC paper submitted to government, spelling out business’ expectations for the 2025 National Budget.
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Zimbabwe’s budget is traditionally presented at the end of November.
Finance minister Mthuli Ncube has been soliciting views from industries to help him produce a blueprint with capacity to reverse two-and-a-half decades of protracted turmoil.
The ZNCC chronicled industries’ worries spanning from the debilitating consequences of the controversial Intermediated Money Transfer Tax (IMTT), to pressures being exerted on the economy by debt distress.
It also flagged a growing list of statutory obligations and fees, including sin taxes From Page 1
announced through a statutory instrument recently.
But the paper devoted significant space to highlighting economic costs emanating from laxity in border controls by the Zimbabwe Revenue Authority (Zimra) and other agencies mandated to police cross-border movement of goods.
“The porous nature of Zimbabwe's borders facilitates the smuggling of goods, which undermines the formal economy and leads to widespread illegality and informality,” ZNCC said.
“This issue not only deprives the government of revenue but also fuels the growth of an underground economy that is difficult to regulate. It is estimated that financial leakages in Zimbabwe’s ports of entry amount to between US$1,8 billion and US$2,2 billion annually. These leakages represent the revenue that could have been utilised for critical national development projects, including infrastructure, health care and education.”
It reiterated growing calls, also shared by the Confederation of Zimbabwe Retailers and the Bankers Association of Zimbabwe in separate submissions to Ncube, that as the informal economy expands, the country was degenerating into complete chaos, with diminishing state revenues and tax evasion.
Following years of de-industrialisation and job market carnage, International Monetary Fund estimates showed about 60% of the economy was under the informal market.
It holds up to US$2,5 billion, which is circulating outside the banking system.
Implications of the drastic economic shift have been the unravelling revenues, which have frustrated government efforts to address citizens’ most basic needs, including procuring drugs for collapsing health care services.
This week, the ZNCC warned that unless Ncube set the stage for a roadmap that confronts Zimbabwe’s problems, waves of job market carnage would continue as cheap goods smuggled by informal traders flood markets, knocking off established industries.
The collapse of Zimbabwe’s once powerful textile industry has been attributed to the growth of the informal market.
Bankruptcies recently experienced in the retail sector, along with the divestment of multinational brands, have also been triggered by the powerful underground economy created by years of poor governance and corruption.
“The influx of cheap and undeclared imports facilitated by inadequate border management has led to intense competition for local manufacturers,” ZNCC warned.
“The competition has resulted in the downsizing of local industries and the loss of between 18 000 and 20 000 jobs. The erosion of the industrial base weakens Zimbabwe’s economic resilience and threatens the livelihoods of thousands of citizens. We urge Zimra to move with speed in the ongoing digitisation of the border clearance and surveillance systems.
“Products smuggled through transit fraud will unfairly compete with legitimately imported goods and locally manufactured goods and also prejudice the state of the much-needed revenue. Transit fraud makes the playing field uneven and drives out local manufacturers and legitimate players in the industry to the ground.”
Ncube will be under pressure to come up with a balanced approach that includes both revenue enhancing measures and targeted tax relief measures to boost economic growth.
Industries said they were expecting a spending plan with capacity to improve production, and foster private sector-led recovery.
Leading economists recently warned of potentially dire ramifications of waves of price hikes and currency volatilities on an economy that had slashed 2024 growth targets three times.
In November, the Ministry of Finance forecast gross domestic product (GDP) to rise by 5,3%. This rate would be downgraded to 3,2% this July, citing a brutal drought.
But in a monetary policy statement released in August, the Reserve Bank of Zimbabwe cut GDP growth to 2%, in line with predictions by regional institutions, including the African Development Bank.
The central bank also cited the drought’s toll on the economy, along with softening international commodity prices.
But that was before the Zimbabwe Gold (ZiG) — a structured currency introduced in April, came under pressure from black market dealers, suffering major setbacks in the past few months.
Since its launch, the ZiG has also surrendered value on the formal markets, sliding from US$1: ZiG13,56 at launch to about US$1: ZiG25 currently.
It has plummeted on the black market from about US$1: ZiG16 at launch to rates of about US$1: ZiG40 this week.
Fundamentals behind the slide remain a subject of speculation. But the downward spiral is expected to have far-reaching consequences on the economy.
“These price increases will strain household budgets, especially for low income families,” Chenayimoyo Mutambasere, an economist at the Centre for Economic Justice, told businessdigest.
“When prices of staple items like food, cooking oil and toiletries rise, consumers are forced to either cut back on consumption or reallocate spending, potentially compromising on health or education needs.”