Stop the bleeding

Albert Norumedzo In the Money
As the liquidity situation in the country continues to deteriorate with immediate remedies remaining illusive, there is need to plug leakages in the economy.
The plugging of leakages in the economy is as important as attracting liquidity into the economy.
Most of the money that is in circulation is being used to import goods due in part to the lack of industry competitiveness and in some cases the lack of proper measures to curb unnecessary revenue leakages.

The economy is at a point where every dollar counts and it is in the nation’s interest to retain as much as we can if the economy is to continue running.

The question whether our revenue authorities are really sweating all revenue sources still attracts varied responses with some estimating that only half of total collectible revenue is finding its way into Treasury.

Whatever the reasons, corruption, lack of manpower on the part of collection agencies or lack of legislative and technical infrastructure, it is true that more could be collected at both personal and corporate levels.

It is also important to note that the country revenue base is also shrinking as some companies who have so far released their results have recorded loses or significant decline in profitability which translates into a direct reduction of the income tax base.

In addition the number of retrenchments and company shut downs is becoming a cause for concern as it has a negative impact on personal income tax base, as the amount of internally generated funds to sustain Government expenditure will diminish at a faster rate. Already Government has pushed back the pay dates for civil servants in what some market analysts believe is an indication of the mounting pressure on the fiscus.

It is estimated that over US$5 billion is circulating in the informal sector, perhaps this figure is exaggerated, but whatever the figure is one cannot ignore the impact of an untapped informal sector on the economy.

With unemployment levels escalating by the day, the informal sector is fast becoming a growing revenue potential source.
What remains paramount is the establishment of working models that are able to harness the financial resources of the informal sector and incorporate it into the formal financial system and account for it in Treasury.

The prevailing economic model is prone to revenue leakages which drain the economy of the much needed liquidity.
Protectionism can work to some extend but is not a panacea to our problem. Protectionalism works in favour of consumers and the economy through pricing distortions, erosion of industry competitiveness and interruption of international trade patterns that exploit competitive advantage.

In cases where the Government has tried to protect local industry against foreign players it has often led to the exposition of local industry incompetence as local companies have failed to effectively satisfy local demand, artificially driving up prices at the expense of consumers.

This consequently led to the realisation that the solution lay not in protecting local industry but rather in capacitating it to be able to compete at the same level with foreign products.

A dollar denominated market such as ours will continue to attract foreign manufacturers and retailers into the country as the US dollar outperforms most emerging market currencies.

The business environment will become tougher for local industry players, faced by limited credit lines, aggressive competition and inefficient cost and operational structures, to say the least local industry will not survive foreign competition in many sectors.

With this notion in mind reasonable grounds for some level of effective protection to local Industry players in critical sectors in justified.
There are cases where consumers and distributors have resorted to import merchandise that can be sourced locally from existing local players who can be able to efficiently service the consumer base, in some cases with a little help from the Government through a bit of protectionism, despite the arguments against protecting local industry from foreigners.

The fact, however, remains that without it local industry will not be able to withstand the constrained environment.
Externalisation of funds into other economies by both individuals and institutions is also another leakage point as many have favoured investing their proceeds in other economies deemed to be safer destinations, economically and politically.

Cognisant of the freedom of choice to accumulate assets in a country of one’s choice, there is need to fully asses and scrutinise cash flows out of the economy.

Many companies and individual who have operations in the country have facilitated the repatriation of huge sum of money in profits while little is done in terms of investment into the local economy.

Investments authorities must always be cognisant of the nature of investment and its overall long-term impact on the economy, particularly in the non-renewable resources sectors.

In a nut shell both the Government and industry players must work together to plug the leakages, go back to the basics, put their best foot forward and think outside the box.

Necessity is the mother of all inventions, although these are a lot of poetic phrases in one sentence, it is a pre-requisite for surviving the times ahead for industry operating in Zimbabwe.

Many have come, they saw, they tried, some conquered, some were conquered, some are still here but some have since been forgotten while some may be on their way out. Zimbabwe is indeed a nation in transition.

Albert Norumedzo is an equities and alternative investment analyst.