A Treasury directive requiring government agencies to pay contractors owed millions exclusively in Zimbabwe Gold (ZiG) has triggered a fresh wave of instability in a sector already confronting myriad challenges.
Zimbabwe is undertaking a crucial infrastructure rehabilitation programme under its highly-publicised Emergency Road Rehabilitation Programme, while also constructing dams and other projects in traditionally neglected areas.
The ambitious projects, undertaken amid funding shortages in a country shut out of international capital markets for decades, are being driven by a new crop of home-grown construction firms. They were recently directed to accept payment in ZiG after enduring lengthy delays in settling outstanding obligations.
Speaking exclusively to the Zimbabwe Independent this week, the leader of one of Zimbabwe’s largest construction industry groupings said pressures had intensified since the controversial move, with many firms being pushed to the brink.
Tinashe Manzungu, president of the Zimbabwe Building Contractors Association, said contractors were grappling with a difficult equation in which revenues were being received in a currency that functions largely within Zimbabwe, while many critical inputs still require United States dollars.
That mismatch is threatening a sector that was once a major contributor to gross domestic product, but has endured years of economic downturns and crises.
“Treasury’s directive to pay contractors exclusively in ZiG has created liquidity challenges,” Manzungu told the Independent.
“While ZiG stabilises local transactions, contractors face difficulties procuring imported materials, which require foreign currency. Profitability has been squeezed, and cashflow mismatches are common, especially for firms with dual-currency obligations.”
- Awards target married couples
- Corruption, poor workmanship in Bulawayo road construction unmasked
- Awards target married couples
- Corruption, poor workmanship in Bulawayo road construction unmasked
Keep Reading
He said companies were battling a fresh wave of cost escalations after prices of building materials surged by between 25% and 35% over the past six months, creating cashflow gridlocks and forcing firms to review project timelines.
This week, Reserve Bank of Zimbabwe governor John Mushayavanhu said he was satisfied with progress since ZiG’s launch in April 2024.
However, Manzungu said rising overheads had piled additional pressure on an industry already grappling with liquidity constraints arising from the shift towards exclusive payments in ZiG.
“Construction material costs have surged by an estimated 25% to 35% over the past six months,” he said. “Contracts priced before these escalations are now under strain, with companies renegotiating terms, absorbing losses, or slowing execution to preserve margins.”
Contractors typically price projects based on prevailing costs at the time of tendering, but frenetic increases in material prices can significantly alter project economics before completion.
This has left some firms facing difficult choices between honouring existing agreements, seeking contract adjustments, or reducing the pace of work.
Responding to questions from the Independent, Mushayavanhu said: “We have built the current monetary framework on a stronger foundation of policy discipline, reserve backing, and market-based mechanisms.”
“The introduction of ZiG was underpinned by a commitment to maintain adequate reserve backing while ensuring that money supply growth remains prudent and consistent with economic fundamentals.
“We have adopted a disciplined monetary policy focused on price and exchange rate stability, while refocusing the Reserve Bank on its core mandate and discontinuing quasi-fiscal activities that previously fuelled excess liquidity and macroeconomic instability.
“These measures have resulted in gains, including the achievement of single-digit inflation and the maintenance of a stable exchange rate.
“Our commitment is to continue implementing policies that reinforce confidence in the currency and support a stable macroeconomic environment for investment and economic growth.”
However, Gift Mugano, executive director at Africa Economic Development Strategies, said the policy faced structural challenges because of limited liquidity in the ZiG market.
“The decision by Treasury to direct all payments in local currency for local products, goods and services has some structural issues and challenges related to liquidity availability,” Mugano said.
“Clearly, because the level of government expenditure is about a US$9,3 billion budget, and over a billion US dollars goes into capital expenditure such as roads and construction work. The amount of ZiG in the market, what we call reserve currency, is between US$250 million and US$300 million equivalent.
“So you can see that if all that ZiG was going to construction work, it is just one-third of the government’s capital expenditure bill. Clearly, there is not enough money.
“Government has made a decision that payment of taxes should be split, 50% in ZiG and 50% in foreign currency. But the market is not liquid, to an extent that the policy position is not being fully-supported because there is not enough ZiG,” he said.
