Reserve Bank of Zimbabwe lost the ability to implement monetary policy apart from its peg to international currencies.
CORRUPTION, policy instability and bureaucracy have been cited among factors undermining Zimbabwe’s competitiveness, a report released recently has highlighted.
The other issues highlighted in the Economic Competitiveness Report as contributing to the demise of the country’s economy include infrastructure problems, rigid labour laws and lack of access to cheap finance for companies.
“About 25 percent of the surveyed companies indicated that lack of finance was the major challenge bedevilling the local industry,” the report, which was released last week by the National Economic Consultative Forum (NECF), said.
“The limited access to finance reflects the severe liquidity conditions in the economy. Following the adoption of the multiple currency system in 2009, the Reserve Bank (of Zimbabwe) lost the ability to implement monetary policy apart from its peg to international currencies. Moreover, the banking deposits are mainly demand deposits, which are transitory in nature, and thus limit credit creation by banks,” the report added.
It said the low-income levels obtaining in the country have also reduced the propensity to save, resulting in a narrow deposit base.
In addition, the high demand for loans has pushed up interest rates and as such, the cost of borrowing is very high.
The report was released a day after a Confederation of Zimbabwe Industries survey cited high interest charges, labour laws and lack of credit as affecting the recovery of industries.
Although the country has been able to access offshore credit lines to ease the financing challenges, these have been mainly short-term as opposed to the much-preferred long-term financing.
The perceived country risk has also resulted in high interest rates compared to other countries in the region.
The high cost of finance negatively affects competitiveness among local firms.
“The issue of policy instability mainly stems from the uncertainty surrounding the indigenisation and economic empowerment legislation, which created uncertainty in the country,” NECF said in the report.
“The Act was recently amended and clarified in order to encourage further investment in the private sector.
“By the same token, the Labour Act is currently under review in order to bring flexibility to it in line with international best practices,” the report said.
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