ZIMBABWE must provide more clarity on its black empowerment laws to investors and relax labour laws in order to restore confidence in the economy, newly appointed IMF Resident Representative Christian Beddies said.
Three “key reforms” could see Zimbabwe regain access to bilateral lenders like the International Monetary Fund, Beddies said last Friday.
In addition to clarifying indigenization laws and easing labour restrictions, Zimbabwe must restore “confidence in the financial sector” and start spending more on infrastructure and less on its wage bill, the IMF representative said.
Zimbabwe’s economy is struggling to gain traction more than a year after President Robert Mugabe, 90, was reelected to office, with factory closures, weak consumer spending and deflation taking hold.
The indigenization law requires foreign and white-owned companies with assets of more than $500,000 to cede or sell a 51% stake to black nationals or the country’s National Economic Empowerment Board.
“Economic conditions in Zimbabwe are difficult,” Beddies said. “Nevertheless, I believe that Zimbabwe has a strong economic potential that sound policies should help unleash.”
Zimbabwe has the world’s second-largest chrome and platinum reserves, as well as gold, diamonds, nickel and coal. Anglo American Platinum Ltd., Impala Platinum Holdings Ltd. and Rio Tinto Plc are among companies mining in the country. The government is estimating growth of 3.1% this year.
The IMF re-opened its Zimbabwe office in July after more than a decade’s absence. The fund is providing technical assistance to the government and helping to monitor implementation of economic policies.
Zimbabwe is being “squeezed by a wage bill that is very high by any measure,” Beddies said.
Government wages account for 76% of state expenditure, Finance Minister Patrick Chinamasa said in September.
“Economic activity continues to decelerate despite bumper crops,” Beddies said. “The country’s precarious external position and debt distress have triggered a severe credit crunch that’s hurt investment.”
Zimbabwe needs to restore access to finance from multilateral and bilateral lenders in order to spur growth, he said. The IMF and other lenders can’t provide loans to Zimbabwe because of the nation’s arrears, including about $142 million owed to the Washington-based fund.Advertisement
Restoring confidence in the banking system is also key to improving the country’s economic outlook. Bad debt at some local banks has soared to as much as 90% of total loans, according to the central bank. The government has created the Zimbabwe Asset Management Corp. to buy about $700 million of non-performing loans.
“A well-functioning financial system is essential to improving the country’s growth prospects,” Beddies said.
“The most pressing priorities are dealing effectively with the non- performing loans and minimizing systemic risks coming from troubled banks through monitoring closely, ring-fencing, or closing them.”