As President Emmerson Mnangagwa announced a further 2-week extension of the lockdown that has run for 5 weeks now he also made mention of a ZWL$18 billion dollar stimulus package to bail out businesses and individuals that have been affected so far. The announcement gave us a lot of talking points. Among others, Finance Minister Professor Mthuli Ncube took to twitter to talk up the Victoria Falls Exchange concept, which we shall get to later. Let’s look at how the 18 billion stimulus package will be distributed and applied.
Agriculture received the biggest chunk of the package and with the exception. of health, it is perhaps the most deserving portfolio. In the short run, we can safely expect food prices to keep increasing this will be compounded by the reduction in production caused by lockdowns and the relative slow down in imports. Of this 6.1 billion 3.2 will be applied to winter wheat while the remainder is for the 2020/2021 agricultural season. This is not final but meant to kickstart preparations early.
Working capital also received decent focus as many industry players are likely to have suffered greatly in the 5 weeks gone by 2.5 billion dollars in government guarantees for working capital loans firms the bulk of the allocation. Meanwhile, an investment of 500 million will go into Silo foods again in light of the expected trend in food prices. 20 million will also be availed to the leather and textiles industries. Textiles have of course shot to prominence with many businesses turning to manufacture protective personal equipment.
Mining received support for the gold sector through a $1 billion credit facility. Part of this facility will be availed in foreign currency though it was unclear how much. With the official interbank rate frozen at 25 to the US dollar the ZWL$1 billion amounts to US$40 million in total.
Small to Medium enterprises will be availed with $500 million worth of funds to be distributed through the SMEDCO, Women’s bank and the Empower Bank.
Musicians, in particular, were singled out as having been instrumental, no pun intended, in the awareness on COVID-19. $20 million will be availed to them. While the move is wonderful it somewhat overlooks other content creators who have kept people sane including comedians and filmmakers.
Tourism has of course been one of the hardest-hit sectors worldwide and the government has stepped in with guarantees for working capital loans for tourism players. Government has pledged to settle all of its outstanding bills with tourism players while setting up a $20 million revolving fund. Some welcome acknowledgement of the importance of domestic tourism will see a VAT waiver on domestic tourism services and accommodation.
The government has been forced to acknowledge a lot of the malaise in our healthcare that has otherwise gone ignored for many years. In line with this, the allocation of 1 billion doesn’t seem like.much. 4000 additional recruitment will be made though it is not clear as per the document if this is inclusive of unfrozen posts or in addition to them. Health workers will receive a boost to service conditions including tax-free risk allowance, a $10000 professional support allowance if they fall sick and 24-hour accident cover with a 12-month salary death benefit. The government will also cover PSMAS shortfalls for all health.employees.
The $2.4 billion worth food Grants will be availed to 1 million vulnerable Zimbabweans for 8 months. Assuming the Grant’s will be distributed equally that amounts to ZWL$300 per person per month. The effort is most welcome though two glaring problems should immediately be visible here. Firstly the vulnerable in Zimbabwe, given our preexisting crisis and the lockdown due to COVID-19, likely number well over 1000000. Secondly, the amount of ZWL$300 while a noble effort does not amount to much, on the parallel market which most pricing is based on it amounts to US$5.94 per person per month at current rates and will only diminish if the rate trend continues.
To buttress these measures the government has also offered tax relief to businesses. Firstly a 50% tax credit for all donations made to the Covid-19 fight. Unbeknownst to many, Zimbabwe only allows a tax deduction on donations where they are proven to be in the course of furthering your business. Customs duty will also be relaxed on selected raw material imports. Details as to which raw materials will be availed in due course but we should expect to see health-related imports among them.
In addition to the interest rate cut announced last week banks will also have their reserve ratios cut. A reserve ratio is a percentage of deposits that a bank is forced to keep and not lend out or use for other purposes. This is done to ensure banks always have enough money to cover the short term needs of their depositors. Relaxing of the reserve ratio will allow banks more money to lend. These measures and the tax breaks further the expansionary policy initially set out by the government.
One of the biggest talking points was the mention of the Victoria Falls Exchange. This is an idea to have an exchange for Zimbabwean shares that will be foreign-currency-denominated and based in the resort town. While it has brought up a lot of discussion in investor circles in Zimbabwe no detail was offered aside from a sprinkling of the now rare “Zimbabwe is open for business” mantra. While the concept sounds exciting the Zimbabwean government and Mthuli Ncube have gotten people excited before only to deliver something completely different from expectations as they did with the interbank market.
According to the Ministry of Health and Child Care reports Zimbabwe has had relatively few cases of COVID-19 and the lockdown was put.in place to prevent spread. The trouble for many analysts at present is knowing how long the status quo will persist. As such all measures to keep the economy afloat are welcome. With industry opening up again it is our sincere hope that this will not lead to an upsurge in infections.