Zimbabwe’s TSP can repair economy, but slow pace of reforms hurting confidence, says US

Zimbabwe’s Transitional Stabilisation Programme (TSP) could solve the economy’s “fundamental weaknesses”, but its is weighed down by the lethargy of President Emmerson Mnangagwa’s government on implementing pledged reforms, according a new assessment of the Zimbabwe economy by the US State Department.

In its latest 2019 Investment Climate Statements, which provide country-specific data on the business environments of over 170 economies, the US says the TSP could work, but investors have remained cautious as Zimbabwe has made only “modest progress” on its promised economic reforms.

“The Transitional Stabilisation Programme, announced in 2018, includes structural and fiscal reforms that, if fully implemented, would resolve many of the economy’s fundamental weaknesses,” the report says.

But lethargy in implementing promised business reforms have watered down initial investor excitement, it says.

“Investor optimism following the November 2017 fall of President Robert Mugabe has weakened as President Emmerson Mnangagwa’s government has been slow to follow through on reforms to improve the ease of doing business, and a protracted currency crisis strains the economy,” says the State Department.

Zimbabwe: Black market persists

Under the TSP, launched in October, Finance Minister Mthuli Ncube pledged sweeping currency reforms and began rolling back subsidy programmes that he said were feeding the deficit and driving up demand for US dollars. The government has made series of currency reforms, the most recent of which include the introduction of an interbank market for forex and restrictions on the use of hard currency for local transactions.

However, the liberalisation of the markets has not gone far enough, the State Department says.

“On February 20, 2019, the RBZ introduced the real time gross settlement (RTGS) dollar (incorporating the RTGS balances, bond notes and coins) whose value against the U.S. dollar should be market-determined, but RBZ has not allowed the official rate to fall in line with market pressures. The black market persists,” the assessment says.

Zimbabwe had moved quickly to amend the restrictive indigenisation law to apply only to the diamond and platinum sectors, opening other sectors to unrestricted foreign ownership, the report notes. Foreign Direct Investment (FDI) did grow in 2018, rising to US$470 million from US$289 million in 2017, but investors remain largely cautious.

“The government announced its commitment to improving transparency, streamlining business regulations, and removing corruption, but the last two years have brought only modest progress.”

The State Department notes the steps taken by Zimbabwe to attract FDI, including tax breaks for new investment, and making capital expenditures on new factories, machinery, and improvements fully tax deductible.  Government has also waived import taxes and surtaxes on capital equipment. However, more is still needed to cut red tape.

“The government has been working to improve the business environment by reducing the regulatory costs measured in the World Bank’s Ease of Doing Business index, but the pace of such reforms has been slow, and policy inconsistency remains a major challenge to foreign investors.”

Corruption remains a worry, the report says. “Accusations of corruption seldom result in formal charges and convictions. Many corruption charges stem from opaque procurement processes. While the laws to combat corruption exist, enforcement of the laws is weak as law enforcement agencies lack political will and resources.”

Repeating a position made last year by a Zimbabwe Embassy official Jennifer Savage that the country’s laws were too pro-labour, the State Department report also says Zimbabwe laws make it too hard for businesses to fire workers.

“The country’s labour laws make it very difficult for employers to adjust employment in response to an economic downturn except in the Special Economic Zones (SEZs) where labour laws do not apply.”