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Oliver Kazunga Senior Business Reporter
GOVERNMENT should implement competitive economic policies that will attract foreign direct investment which will go a long way in addressing the liquidity crunch besetting the economy.This comes in the wake of the decline on the year-on-year inflation rate for February which declined to -0,49 percent from the January rate of 0,41 percent, that analysts confirmed the economy had plunged into deflation.
Deflation is regarded as a general decline in prices, often caused by a reduction in the supply of money or credit.
Data released by the Zimbabwe National Statistics Agency (Zimstat) last week shows that the year-on-year inflation rate for last month as measured by the all-items Consumer Price Index (CPI) stood at -0,49 percent, shedding 0,90 percentage points on the prior month’s rate.
The agency further revealed that the year-on-year food and non alcoholic beverages inflation prone to transitory shocks stood at -3,26 percent while the non-food inflation rate was 0,93 percent.
Economic commentator Trust Chikohora said addressing the liquidity crunch was critical.
“With deflation it means there are no incentives to buy or invest now. And when we talk about long term investment, interest on savings becomes difficult because liquidity crisis and deflation militate against the savings and long term investment,” said Chikohora.
“As a country we need to address the liquidity situation by pouring some significant amount of foreign direct investment into the economy. Another thing that can be done is for the government to embark on capital projects to stimulate economic growth.”
Another economic commentator, Wendy Mpofu echoed similar sentiments adding that the government needs to implement competitive policies in order to attract FDI. “At present, the whole world is competing for FDI and for us to attract these we obviously need to come up with favourable policies that lure investors into the economy. In addition, issues to do with corruption and infrastructure have to be sorted,” said Mpofu.
“Deflation also means that we have reached economic stagnation with the manufacturing sector scaling down operations because of limited availability of working capital.”
According to the United Nations Conference on Trade and Development, Africa’s FDI is projected to reach between $75-$100 billion this year.
According to the Confederation of Zimbabwe Industries, the manufacturing sector requires at least $8 billion working capital to stimulate productivity.
Capacity utilisation in the manufacturing sector last year declined to 39,9 percent from 44,9 percent in 2012 due to liquidity crisis, intermittent power supplies and competition from imports, among other fundamentals.
Last year the country’s investment promotion body, the Zimbabwe Investment Authority (ZIA) approved investment projects worth $685,9 million compared to $929,9 million recorded in 2011.
Online Reporter