THE Zimbabwe Independent last week hosted the prestigious Banks & Banking Survey and Award ceremony in Harare. The event, whose theme this year is “Weaving Through a Dynamic Liquidity Terrain”, was sponsored by First Capital Bank. During a panel discussion, economic stakeholders raised alarm over a worsening liquidity crisis in Zimbabwe, which they said was crippling industry and deterring investment. Since the introduction of the Zimbabwe Gold (ZiG) currency on April 5, fiscal and monetary authorities have adopted hawkish policies to stabilise its value. However, these measures have inadvertently tightened liquidity in the market, exacerbating challenges for key economic sectors. Below are excerpts from what the panelists — trade economist Gift Mugano, economist Eddie Cross, Consumer Council of Zimbabwe's director policy advocacy, monitoring, and evaluation, Patience Chikwiriro and Confederation of Zimbabwe Industries value chains and sectors coordinator Kevin Msipa — said:
Gift Mugano
So, my major issue with liquidity is coming from the contradiction between the work of the central bank (Reserve Bank of Zimbabwe) and Ministry of Finance. That gives me sleepless nights.
The central bank is looking at a tightening stance to try to reduce excessive liquidity and supply in the market, which is something I support to curb inflation. But the Ministry of Finance's budget is expansionary, and it becomes like poison given to a child who is sick.
If you look at the budget, I would want to say the Ministry of Finance has become the second central bank in quotes, when you look at the amount of money that they pump into the economy, which then results in increased liquidity in the economy.
If you look at last year’s budget and the 2023 budget, it shot up by over 1 000% from ZWL$4,5 trillion to ZWL$57 trillion, when it was still the local Zimbabwean dollar.
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Now, the 2025 budget has two figures, and I do not know which one to report. The first figure is ZiG276,4 billion from ZiG119,97 billion, which is a 150% increase.
Then the second figure, which is shown in the voter appropriation, is ZiG322,7 billion. So, those are the two figures for your budget. So, the first one is equivalent to US$7,7 billion and the second one is equivalent to US$8,9 billion. But the point I want to make is that an increase of 168% for the second figure, or 150% for the first figure against a growing economy of 6%, tells you a lot of inflation caused by excessive money by the Minister of Finance.
Now the danger is that the one, who is taking the lion's share of the budget is the Ministry of Defence, an equivalent of US$500,9 million. We are not at war for it to get that lion's share. Are we clear in terms of our priorities and how is that money going to be used is another topic for discussion.
With the Ministry of Finance, we are worried again that they are taking almost US$300 million, holding a purse to dish out. They can only hold that purse when there are calamities that are coming next year, like Covid-19, droughts and cyclones, but we do not have those risks ahead.
Why are they holding that money, US$300 million, when the Ministry of Energy, which is critical, is being given US$7 million?
So, the point I am making is that the ministries of Agriculture, Transport and Defence, and the Office of the President and Cabinet, overspent.
The Ministry of Agriculture had already overspent by almost 150% in the first nine months. So, that is our challenge, which is going to be presented here, caused by the Ministry of Finance.
So, if anything, the major culprit in terms of driving excessive liquidity in the market is the Ministry of Finance.
To the Ministry of Finance, yes, you want to reduce liquidity, but you must never put a country only in national fasting in the spirit of trying to reduce liquidity.
We hear that exporters are not getting the export retention. I talk to them, and they tell me that they are not getting that 25%. Of course, there is an arrangement that banks should then be able to pay, but there is not enough liquidity to do that.
So, it is causing risks of default and also viability challenges in the market. The last point I want to raise is that we are so fixed on liquidity and exchange rate, as if this whole matrix of the economy is wired or geared on just focusing on the rate.
We are so desperate to make sure that we stabilise the exchange rate, even if it means someone must die. Why are we doing that? There is nothing wrong with a 1 200 rate because, in South Korea, the rate is over KRW1 000 against US$1.
What is very important is stability, not the quantum of the exchange rate. So, why are we draining the market to a point that we are killing demand?
Why are we holding back on paying the contractors and giving them treasury bills because we want to drain liquidity? Why are we not paying civil servants on time because we want to hold on to liquidity? Why are we not paying contractors and input suppliers for the agricultural season if we want to do command agriculture?
We are now killing the agricultural sector. There are rumours that we have not planted enough and we had planted only one-third of what was supposed to be planted as of Thursday last week (a fortnight ago) because the input suppliers have not been paid on time
There is no capacity to support this season, even if they go to work in the rainy seasons. So, why do we not deal with the big elephant in the room? Corruption! This is so that we can save our money and we can direct our money to production.
The second big elephant is production. So, we stop corruption and we have
enough money. We direct our money into production and we have a big endeavour on production than we focus on the change rate and the end rate.
The advice to you, the deputy governor, is that the central bank cannot solve our problems as a country, nor the Ministry of Finance alone.
The Ministry of Agriculture must play a critical role in terms of creating production and having various instruments to push sectoral production.
The sector must be market-led, not the command. Wherever there is command, there is no production. That is why in tobacco, we have no command.
We are number four in the world but the same farm that is producing tobacco cannot produce maize and soybeans because there is a Grain Marketing Board, which controls the price.
There is command agriculture, which distorts production. We produce tobacco, but we cannot produce maize.
So, the government must get out of command. I am hearing when I talk to clients in the sector that we might hit 300 million kilogrammes next year with tobacco, but we might be food insecure because of government interventions. So let us get out of that place.
Then the second advice is that in industry and commerce, we need to have a real industrial policy because it is not the one that was done by the Minister of Industry, the Zimbabwe Industrial Reconstruction Growth Plan. There is nothing there. That document is shallow. Let us have a proper industrial policy.
If you do not know how to do it, I am here to help you for free. That is the only truth. Let us have a real industrial policy. Let us have a local economy policy, local economy act, and local economy regulations.
We are importing over US$4 billion worth of goods, which we can produce locally. We must domesticate the toothpicks, chewing gum, and tissue paper, including value-adding our vegetables.
We need a local economy policy, which stipulates what should be done locally with incentives. We must have a master plan for energy. The central bank's role is to then provide the incentive framework and financial stability.
The Ministry of Finance, instead of being the minister of taxation, must focus on reducing their taxes and increasing tax incentives for those, who are increasing production.
In conclusion, the Zimbabwe Revenue Authority must stop because it is killing the goods that make taxes. I rest my case
Eddie Cross
This question of liquidity, I want to discuss it from a prominent industrial point of view or manufacturing production point of view.
This year, for example, there is virtually no financing for agriculture. Friends of mine, who have got capacity, irrigation, and everything that is required to grow a substantial crop this coming season, simply have not been able to finance their requirements.
I think so long as that situation prevails, you cannot really expect agriculture to recover.
The farmers are there, the land is there and the resources are available. I think we can put this summer around about 300 000 hectares under irrigation. So, climate change is not an issue, providing we have sufficient money to grow the crop.
I can remember a time when every bank in Zimbabwe had an agricultural department where there were specialists. If I was farming and I produced a budget for the coming year around about March, I would go in and talk to my bank manager.
He would refer me to the agricultural man. We would agree on a budget for the crop and I would go back to the farm and start implementing what I was preparing. By June, I would have all my inputs on the farm.
By September or October, all my equipment is repaired and ready to go. I would plant in October or November, reap in May and deliver my product to the marketplace.
The bank would recover its money through a stock order. It was a seamless situation. My bank manager would come to me at least once a month on the farm.
He would know as much about me as anybody else and he would even finance my school fees. Now, that situation simply does not exist today. There is not a bank in Zimbabwe in my experience, which knows what happens in agriculture. CBZ bank, perhaps, comes closest to it but that is it.
When you look at industry, look at the contracting business. We have an enormous backlog of infrastructure. We are producing 1 100 megawatts of power and we need 2 400megawatts.
The Zimbabwe Electricity Supply Authority (Zesa) is completely broke. There is no possibility of us borrowing more money and God help us if we get the Chinese to build more power stations.
But it is not just the power situation to put another 1 000 megawatts back into Zimbabwe, you need US$1 billion. You know, so we have really got to start thinking about the infrastructure.
The road programme – the road from Beitbridge to Chirundu is the most important road in southern Africa, maybe in Africa. It carries 1 000 trucks a day.
Yesterday 300 buses went through Beitbridge and this road, apart from the bit that is been fixed at a huge cost by the government of Zimbabwe, it is a death trap. From Harare to Chirundu, we are losing two to three trucks a day to accidents.
It urgently needs complete rebuilds. So, does the Beitbridge to Victoria Falls road. If we could not finance that, what we have been doing up to now is completely crazy.
We choose contractors to build roads for Sadc. I do not know what they spent US$180 million on, and not one contractor has been paid. If that is a liquidity crisis, believe me, it is big. I do not know why we get ourselves into these situations.
The Vice President was head of the Sadc preparations and he just gave instructions, ‘I want you to do this’. They went to the contractors, and the contractors said, ‘yes, boss’ and they spent that money.
We have not paid them. We still owe US$100 million for the Beitbridge to Harare road. You cannot provide infrastructure with short-term money borrowed from a local bank, which is relying on deposits - you cannot.
You have got to have long-term money for that and I think that part of our liquidity crisis, in fact, a major part of our political crisis, is the fact that we are completely isolated from the world.
I went to Morocco last week. I was at the Africa Investment Forum in Morocco. I presented my beautiful Zimbabwean passport at the desk. I get hauled off and detained for two hours. Not another single passenger on that flight was detained, except me because I carry a Zimbabwean passport.
In Africa, I tell you, it drives me mad. African Development Bank says ‘we can fix the railways in the region but we cannot touch Zimbabwe’ because we are a pariah state.
Despite the assurances from the Americans that they have lifted sanctions on Zimbabwe, the Zimbabwe Democracy and Economic Recovery Act (Zidera) is still in place. If any of the multinational banks go to their board and seek approval for a loan to Zimbabwe, it is vetoed by the Americans.
Not because they do not like us and not because they do not think our projects are viable, but simply because Zidera bans any multilateral investment in Zimbabwe.
Who are we? What significance are we in the world? Why are we the only country out of 60 countries in the world under American sanctions, under sanctions stipulated by the US government?
When I was chief economist of the Agricultural Marketing Authority, we borrowed US$1,5 billion every year in March and we gave it to the banks for them to lend the funders.
We never defaulted, we had a 100% record, and that was under United Nations mandatory sanctions. We were able to raise that money at international rates.
Independent Zimbabwe, is unable to operate like that and I just think that if we do not find a solution to these long-term financing needs, we are not going to be able to achieve our goal of middle-income status by 2030. There is no hope at all unless if we can overcome this.
I was staggered by this meeting last week in Morocco. They committed US$29 billion to 500 projects in Africa. We, in Zimbabwe, put up two projects, both of which were funded. Where were we in previous years when this money was available on the table? We had no projects.
Kevin Msipa
I am speaking just for the industrial-based manufacturing companies, in particular. They have had a pretty hard time with it. The 2024 budget came with a lot of structural changes for business.
I think the move to market is an example. The move to market is a function of technology, the function of prioritising efficiencies and reducing costs.
We have regulations that basically prioritise compliance, good and bad, but ultimately bring an added cost to the business. We exist in an environment where the capital and private equity space is quite shallow.
So that means support from equity base for businesses is scarce. Our capital market, the Zimbabwe Stock Exchange and the Victoria Stock Exchange, the activity there speaks for itself that there are challenges in raising capital there. So, this puts a lot of pressure on businesses, forcing them to revert to short-term financing for projects and in instances where equity should be a loan.
So, what we did see is that given the environment itself, very volatile, it means that businesses have to be prepared for a lot of shocks and business disruptions.
But when you have a capital base that is not stable and you have no banking infrastructure and you have these capital constraints, it means businesses are out there on their own, in terms of financing. If you are in any other environment, capital should not be a differentiator for businesses.
It is becoming an issue where business, whether it lives or dies, based on its ability to access capital.
We have also seen that even going to banks themselves, you get your facilities approved, but when you go back and ask for a drawdown, you are informed that there is no capital.
They cannot provide liquidity to your business. So, it is a value chain effect where you end up having to squeeze each other into that value chain.
I think people may want 2024 to end, but with no solution in sight in terms of dealing with the real issues that businesses are facing, the situation can only get acute going forward unless the issues are addressed.
I will not speak to them too much because I think they have already been enunciated here.
It is not going to get better. We have seen the Africa Continental Free Trade Area coming in. We are going into 2025 and we have seen many big-name companies that have announced withdrawal from the market, from manufacturing. In other instances, they just left their distribution centre.
We are now seeing a trend where our neighbouring countries are courting local companies and offering manufacturing bases. The incentives are quite high and attractive.
We do have a couple of companies that have taken that up and we expect to see that trend grow. Our priority is that we need to be clear in terms of what we prioritise in the New Year.
But I think going forward, there is a lot of work and we will continue discussing issues and trying to find solutions.
Patience Chikwiriro
As consumers, we are at the tail end of the value chain, meaning we absorb the full brunt of inefficiencies in the economy. We are the most affected with the chaos.
The current monetary stance that the central bank has taken this year, it has helped in terms of condensing inflation. It has also helped the consumer to preserve in terms of disposable income.
But I would also want to talk about the issues that our consumers are concerned with in terms of liquidity issues. I want to speak about the issue of change. It was a really major issue this year. Instead of getting their change, they are supposed to take sweets.
We also registered a lot of complaints about counterfeits. Why are people being exposed to counterfeits? It speaks to the inefficiencies that I am going to talk about. As consumers, because of the low disposable income in Zimbabwe, we are forced to settle for whatever is there.
I am also passionate about the things that are happening in the manufacturing sector. The manufacturing sector has not grown from the figures that are shown in the budget.
The growth was around 1% from 32% to 33%% and that speaks a lot about what we are offering to our consumers in Zimbabwe. This is in terms of what we can produce. Gift Mugano also spoke about importing things that we can make locally.
The energy crisis has further compounded the challenges faced by consumers and industries alike. Frequent and prolonged power outages disrupt productivity and increase costs, with these inefficiencies ultimately passed on to consumers.
There is no electricity when you wake up around 4 a.m., the electricity is already gone and it comes back around 10 p.m. when you are asleep
For consumers, 2024 has been really bad. Issues like counterfeit goods, liquidity challenges, and limited access to affordable, quality products have left many struggling to make ends meet.