CZI: 82% of companies can’t pay more than a month’s salary, lift lockdown

The Confederation of Zimbabwe Industries (CZI) says 82% of local companies can only pay salaries for a month under the lockdown, urging Government to lift the restrictions to allow companies to resume limited operations.

The lockdown was necessary, but its implementation should consider the state of the economy and Government’s capacity to bailout companies, CZI said in a report made available Friday.

“The implementation of the lockdown should take into consideration the underlying conditions in the economy and the limited fiscal leg-room to rescue industry. Looking at the scenarios in Europe, it shows that they have allowed production including that of non-essential goods to continue except in Italy and Spain,” CZI said.

“Considering the above and the importance of making sure we are able to resume consumption of our goods in the local and regional markets, it would be prudent to reconsider the lockdown measures with the direction of the Ministry of Health and Child Care. It is of paramount importance that exporting companies are able to continue exports.”

In an effort to stop the spread of coronavirus, the government has imposed a 21-day lockdown that has affected much of industry and commerce, despite broad exemptions. A review of whether or not to extend the lockdown will be made at the end of the period, President Emmerson Mnangagwa has said.

According to the CZI survey, companies will not be able to pay wages beyond a month.

“Our businesses and our government both have no capacity to sustain the costs of a total lockdown. Preliminary analysis of data collected from businesses across all sectors of the economy on the impact of the lockdown indicate that companies are not able to sustain the payment of wages and salaries for longer periods without production taking place. Eighty two percent of the respondents indicated that they can only sustain payment of wages and salaries for one month under lockdown.”

Companies should be allowed to resume work, while observing precautions such as social distancing, hygiene and screening of staff, CZI says.

CZI recommendations

CZI has made the following recommendations on how to deal with the economic fallout. Most of the CZI’s recommended steps would require significant tax concessions by the government.

• Government should drop all “hugely wasteful” subsidies, including those on fuel prices. The exchange should also be allowed to float freely, so that it converges with the black market rate.

According to CZI: “Eliminating subsidies and allowing the exchange rate to converge is the only way to boost production and optimise the use of scarce foreign exchange in this time of crisis. With the magnitude of the crisis we are facing we simply cannot afford wasteful subsidies.

The government may also consider reducing the excise duty on fuel in view of declining oil prices on the international market. This can also act as a stimulus measure for the productive sector considering that when operations resume they will face working capital challenges.”

• Informal traders should be allowed to order goods from formal industries and use carts to distribute them directly to customers in residential areas.

“This will have the potential of shifting the informal markets to the residential areas and may contribute to decongesting the city centres during the COVID-19 long haul”.

• With many countries having stopped exporting medical materials, Zimbabwe should respond by building capacity of local pharmaceutical products.

• Allow the key mining sector to keep operating

• Zimbabwe should seek temporary suspension of repayments of Afreximbank loans, some of which are gold-backed. “If such an extension is granted it would free up valuable resources to help keep the country going during the crisis.”

• Business will be unable to pay back loans. Banks, the Public Accountants and Auditors Board and the RBZ must jointly work on a plan on the treatment of loans.

• Government should provide guarantees to allow companies to borrow and restart operations. “Companies could pay a fee for these guarantees which could then be used to fund any losses that the guarantee scheme may end up with.”

• RBZ must provide liquidity support for banks, “in line with international best practice and consistent with maintaining a stable monetary base”.

• Landlords should “show compassion” to businesses that will be unable to pay rent “for reasons which are simply beyond their control”.

• On mortgages and other secured loans, rollovers and extensions of time should be encouraged. Courts should carefully consider any foreclosures, to ensure that due consideration of the crisis can be demonstrated.

• Effective 1 April 2020, PAYE bands must be increased by 200%.

• Employers must be allowed to offset any 2% tax paid in any given month against PAYE due for that month. This will help to subsidise wages and allow employers to sustain the employees during the period of the lockdown.

• The 2% Tax Exempt transaction limit must rise from Z$100 to Z$500. The tax could also be cut to 1% to stimulate demand in the economy

• To avoid stoking inflation, these bailouts must be funded by existing local currency resources, and not by creating new balances.

“In that regard we recommend that government aggressively pursue two avenues: International support from the donor community; issuing of Treasury bills at attractive rates of interest to raise funding from existing RTGS balances.”