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Saturday, 18 April 2020 12:19

SUSTAINABLE AND FLEXIBLE ECONOMIC INTERVENTIONS TO ADDRESS COVID-19

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The COVID-19 pandemic has hit not only Zimbabwe but the rest of the World. The Zimbabwe National Chamber of Commerce recognises the role that business plays to achieve our shared goal during this crisis, to maintain jobs and business continuity; to support health, social well-being and to ensure stability of the Zimbabwe populace. As a result, the Chamber has been engaging membership and stakeholders in tracking and assessing the impact of Covid-19 on Business over a three weeks period.

A total lockdown of 21 days was announced on 27 March 2020 and the lockdown started on Monday 30 March 2020, which meant that all citizens are required to stay at home, except in respect of essential movements related to seeking health services; to purchase and procurement of food and medicines and for the essential supplies and critical services.
In Zimbabwe the ability for the economy to withstand the impact of Covid-19 is a challenge given that the economy is characterised by escalation in prices and Inflation, forex and cash shortages, contraction in economic activity across key sectors, huge wage contraction and declining aggregate demand. As a result, a survey was sent out to the business community so as to capture the impact of the pandemic from various private sector players representing all sectors of the economy. The impact is assessed in terms of revenue losses and reduction in output and income of the business enterprises, brought about by necessary measures that were put in place to contain the pandemic. Continuous assessment of the impact is meant to come up with recommendations on short-term interventions given the crisis, but with a forward-looking view on potential ‘rebound’ opportunities in the mid-term.

ZNCC SURVEY OUTCOME


ZNCC conducted a survey to capture the impact of the pandemic from various private sector players. The 21 day lockdown has had some negative impacts on most sectors of the economy with businesses indicating that Covid-19 has weighed down on operations. Below are survey results from 210 respondents.

 

Businesses also indicated that they project to lose more revenue if the total lockdown is extended beyond 21 days. Below are projected revenue losses if the total lockdown is extended beyond 21 days;

Business also indicated that the lockdown has resulted in supply chain disruption, labour supply disruption and uncertainty in business decision making


Operating hours


47% of the respondents indicated that they were operating full day at more than 8 hours per day before the pandemic, 12% operated 6-8 hours, 7% 4-6 hours, 7% 1-3 hours. However, businesses indicated that operating hours have been affected due to the lock down with 42% of the respondents having resorted to have workers work from home as a measure to protect employees from the exposure to covid-19.

IMPACT ANALYSIS OF COVID 19 ON GDP, FISCUS, CURRENT ACCOUNT AND JOBS


1. GDP - From the 2020 Budget projections, the economy was projected to register a 3% growth, which was too optimistic, given that in 2019 economic growth was revised downwards to -6.5% in 2019. Given the impact of Covid-19 which has resulted in contraction of economic activity across all sectors, we project that the economy is going to decline by at least -9% in 2020.

 

 

2. Impact on the Fiscus
From the 2020 budget revenue collections for the year were estimated at ZWL$58.6 billion. To avoid undesirable impact of deficits on money supply and macroeconomic stability, the 2020 Macro Fiscal Framework espoused a low Budget deficit of around 1.5% of GDP to give expenditures of ZWL$63.6 billion, which is a ZWL$5 billion deficit.
Given that there is contraction in economic activity across key sectors, business operations are being weighed upon by the Covid-19 pandemic and that the pandemic is already weighing on employment; revenues for 2020 will be affected. As a result we project a Budget deficit of more than 5% of GDP. Government expenditure is going to increase due to the effects of Covid-19.
3. Current Account
In 2019, the current account registered a surplus of US$311.2 million on account of a sharp fall in imports against a marginal fall in exports on the back of strong performance in remittances. In 2020, we project a sharp decline in imports, due to the restricted importation of merchandise imports by cross border traders and impact of national lockdowns on importation of raw materials and other finished products. The level of imports is going to offset exports given that some potential exports have been affected/ lost due to covid-19. We project cumulative merchandise exports of below US$3.5 billion for 2020 compared to US$4.5 billion in 2019 while merchandise imports will contract to US$4.5 billion from US$4.8 billion in 2019.
4. Jobs
Workforce will be made redundant as some businesses will not be able to adapt to the effects of Covid-19
There is going to be loss of employment, 25% of permanent formal jobs will be lost and 75% of casual/temporary formal jobs will be lost as businesses lay off workers given the sharp contraction in many sectors.
The Tourism sector will be the most hard hit as it is expected to shed almost 25% of the total formal sector employment followed by the manufacturing sector. If the total lockdown is extended without resorting to partial lockdown some of the leisure and tourism operators might completely collapse
With Government having set the minimum wage, affordability by businesses is going to be challenge as businesses adjust due to the effects of covid-19

2. Exchange rate management


 Government should move from fixing the exchange rate
 Fixing the exchange rate is counterproductive as it weighs on exporters and the interbank while propping up smuggling of minerals and other export commodities
 RBZ should move back to a managed float with regular review to prevent widening parallel market premiums. Regular reviews should at least take into account commercial banks input


3. Tax Relief Measures


i. Exemption from paying PAYE
Government should consider exempting businesses from paying PAYE for the month of April given that the month has not been a productive month due to the total lockdown
Government needs to consider temporary removal of employment taxes/levies
ii. Import duty on raw materials
Government should consider relaxing import duty on raw material imports for the three quarters up to the end of 2020 to cushion producers and manage imported inflation considering that trade has been affected by the Covid-19 pandemic
iii. Payment of VAT Refunds
Paying all outstanding VAT Refunds will give businesses the needed liquidity to boost working capital during the COVID-19 period
iv. Payment dates for March 2020 VAT
There is need to move the payment due date for March VAT from 25 April to the end of May given that Businesses did not manage to collect cash due to the total lockdown
v. Review of the VAT Rate
There is need to review the standard VAT rate from 14.5% to 13.5% in order to stimulate aggregate demand
vi. VAT relief to essential products
There is a need for a zero-rate VAT for all essential products during the time of COVID-19 pandemic (e.g. staple foods items, soaps, disinfectants, sanitizers, water, electricity, etc). This will make essential products affordable to citizens
vii. Review of Corporate Income Tax Rate
There is need to revise downwards the corporate income tax rate from 24% to 20%. This will enable businesses/companies to have funds which can be invested back to the businesses to boost the working capital in order to sustain businesses
viii. Review of tax return period
Government needs to consider granting an extension to businesses in filing their tax returns (Value Added Tax, PAYE, Excise Duty and Withholding Tax)
This will give relief to businesses which would not be able to meet their tax filing obligations as per the period specified in the law, as they struggle to mitigate the impact of COVID-19 pandemic
ix. Review of tax on Telecom services
Government should lower taxes on voice, SMS and data services to encourage the use of digital payments. This will enable citizens to use the services while carrying out financial transactions

4. Interest Rates
Interest rates must be lowered to 20% from 35% and loans must be restructured so as to allow businesses to recover. Loan restructuring will entail review and relaxation of regulatory guidelines and benchmarks. SI65a, which provides for payment of interest on demand & call deposits and funds in mobile wallets/trust accounts at interest rate linked to TB rate of respective tenor, should be repealed given that it increases the cost of funds for banks which will be passed on to borrowers through higher lending rates.

5. Extension of Financial Sector Capitalisation deadline
There is need to waiver capitalisation of banks from USD to Zimbabwe dollars; high capital levels, though important, are not synonymous with stability. Waiver of USD capitalisation will mean that Banks will not be under pressure to get US$30m required for tier 1 banks
There is need to extend the capitalisation deadlines for Banks and Microfinance Institutions to December 2021, in Zimbabwe Dollars not USD
There is also need to lower stats reserves to1% which will release about $2 billion for banks to lend

6. Industrial Development Corporation (IDC) Capacitation
There is need to set up a drawdown facility which will be funded through the 2% IMTT. The drawdown facility must be open to businesses which require funding

7. Government Spending
There is need to curtail unsustainable subsidies on non-essential goods, and Government should also cut on related costs such as vehicles, trips and allowances so as not to put pressure to monetise deficits which fuel money supply growth

8. Informal sector management
Informal sector players should take advantage of the funding support, being provided to cushion them from the impact of the pandemic, to register their businesses and be allocated stalls to operate from
Stringent measures must be put in place to discourage the return of vendors in the Central Business District
Banks to reduce translation fees to process funds directed to SME’s through the Ministry of Women Affairs, Community, Small and Medium Enterprise Development

9. Rentals Negotiation
There is need for engagement on rentals negotiation whilst recognising the Privity of Contract
Through moral suasion, landlords should be encouraged to engage their tenants to negotiate for downward review of rentals to about 50% in this second quarter of 2020. These negotiations should only apply for commercial arrangements not residential

10. Customs management
There is need for ZIMRA to continue implement SADC guidelines on clearance of goods post Covid-19 and the risk management approach which has reduced the number of physical examinations at border posts

11. Creating Covid-19 Satellite desks at Foreign Missions
There is need to make sure that every Embassy of Zimbabwe across the world is tasked with facilitating the importation of critical raw materials for industry, providing market intelligence on opportunities which arose in foreign markets due to the crippling effects of the pandemic as well as assisting our supply chains up to the final destiny, during and post covid-19 period

 

Read 1218 times Last modified on Saturday, 18 April 2020 12:20

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