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Capital controls bad for business: Mugaga


Businesses in Zimbabwe are facing a plethora of challenges ranging from foreign currency gridlocks to the high cost of doing business.

NewsDay (ND) business reporter Fidelity Mhlanga spoke to Christopher Mugaga (CM), Zimbabwe National Chamber of Commerce chief executive officer to get insights into his organisation’s role in representing the interests of the business community. Below are the excerpts.

ND: What challenges are facing Zimbabwe’s businesses?

CM: Smuggling, foreign exchange shortages and uncertainty which has emanated from policy shifts and high cost of credit are some of the constraints facing businesses.

ND: As ZNCC what do you think should be done to deal with these challenges?

CM: There must be zero tolerance to corruption and there must be a friendly approach and principles between business and the Zimbabwe Revenue Authority.

ND: What role are you playing in the country towards economic development?

CM: We are the voice of business and equip business with development opportunities through lobbying and business advocacy. We continue to engage government on business issues and we were part of the delegation that met the Head of State recently to discuss issues affecting business. We are also making contributions on what the Special Economic Zones should encompass.

: What role will the state of the economy survey play?

CM: It will be an honest examiner of realities, challenges and how we can improve on policy effectiveness. It will also help in correcting the levels of smuggling because it will give a clear picture of how the informal sector behaves.

ND: Do you think government will act on the findings of survey?

CM: We don’t doubt that it will act to the findings and implement on measures that address gaps that will be identified by the survey because the survey is evidence-based.

ND: What solutions does it seek to offer to the problems besetting the country?

CM: It is an honest assessment of where we are going as a country and seeks to identify how to grow the small-to-medium enterprise’s sector without confusing it with the informal traders

ND: What’s your comment on the foreign currency shortages which are affecting the economy?

CM: It is disheartening that we are immersed in this. This is not new to Zimbabwe, since 1965 we had foreign currency shortages which were the reason why the Ian Smith-led Rhodesia declared UDI (Unilateral Declaration of Independence) as a means of import substitution following foreign currency shortages. It is a symptom of fundamentals which need to be addressed which include fiscal deficit, current account deficit and confidence deficit. It also scares away foreign direct investment, given that companies do not want to operate in an environment where the foreign currency issue is volatile.

ND: What do you think could be done to deal with the problem of the prevailing three-tier pricing regime?

CM: We need to shun capital controls at all cost, where we try to put regulation on repatriation of capital flows in the country. There is need to rein-in government spending because it creates fiscal deficits which need to be funded. There is also need to expand our export base because the three-tier pricing system is a response to distortions and shortages existing in the market. When the gap is corrected the arbitrage opportunities will be eliminated.

ND:Where do you see the rate of inflation by year-end? CM: We can’t underestimate the threat of inflation in the short to medium term given that the three-tier pricing system will place much burden on a cashless economy where point-of-sale is much more used. By year-end we are forecasting inflation to be between 5% and 7% annualised.

ND: What value do you intend to unlock by opening an office in India?

CM: It creates markets for local producers. We are serving as an information hub on some unjustified perception about Zimbabwe. We want to learn from international best practise on Special Economic Zones which Gujarat is known for.

ND: What do you think government should do to revamp the economy of the country?

CM: Revamping is not necessarily the duty of the government only. The private sector should also play a leading role, given the prominence it has been accorded at regional and international bodies such Sadc, Comesa and the United Nations.
Government should just strengthen the operating environment and avoid crowding out private investment through chronic fiscal deficits which end up increasing the cost of funds as well as sovereign risk.

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