In the next few weeks, Finance, Economic Development and Investment Promotion Minister Mthuli Ncube will present the 2025 National Budget. The year 2025 already promises to be another tough year for some sectors of the economy due to factors ranging from shifting geopolitical relations to the consequences of the country’s never ending currency crisis. The environment has already been characterised by severe economic headwinds, and many business leaders are downbeat. Our senior reporter Freeman Makopa (FM) this week caught up with Zimbabwe National Chamber of Commerce (ZNCC) chief executive officer Christopher Mugaga (CM) to discuss fundamental issues affecting business as budget presentation day draws closer, and to hear his views on the coming year. Below is how their discussion turned out:
FM: The 2025 National Budget will be announced at a time when the rainfall season has started. It is promising to be a good year ahead for agriculture. Are companies optimistic?
CM: We look forward to a mixed year. We have confidence in other sectors. There is some pessimism in others. For example, in terms of the distribution sector, we are very optimistic. In terms of the tourism sector, we are very optimistic. But in terms of agriculture, we have mixed feelings, and in terms of the financial sector, we are pessimistic, and in terms of the mining sector, we are optimistic.
FM: What is driving these varied views?
CM: What normally drives pessimism is the role played by exogenous factors, or factors which we do not have control over. That is, for example, why we have mixed feelings in agriculture. During the just-ended season, we experienced dry spells. But in terms of mining, there is an expected bull run for most minerals or commodities on the international markets.
FM: There were elections recently in the US, and President-elect Donald Trump will return next year. What does this mean for Zimbabwe?
CM: With the agenda that Trump had of a closed economy, there could be demand for commodities from only one of the world's largest economies. I think China will be more aggressive in demand for African commodities, considering that it might be losing a lot of friends, including the transatlantic zone, which includes Western Europe and North Africa.
FM: From a business point of view, what is a balanced budget? Has Finance Minister Mthuli Ncube been able to achieve this?
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CM: I think the biggest challenge that we have at the moment are fiscal leakages. He can announce a US$4,3 billion or US$4,5 billion budget, which looks like a balanced budget because on paper, the expenditure will be aligned. However, the level of leakages, corruption, and the number of issues that have been draining this budget (are profound).
Almost 18% to 22% of the national budget has been lost to leakages. You (may) claim you have allocated US$4,5 billion. But out of that, almost 20% is lost to leakages, which are not reaching intended beneficiaries. In the context of a balanced budget, I think sometimes it is better to have a budget while investing in capital expenditure.
FM: What happens if you don’t invest in capital expenditure?
CM: It is not meaningful to have a balanced budget which is (strong) on the revenue base. This is because, in particular, the private sector will be feeling the impact. That will be a bad balance.
FM: In your contributions submitted to government for the 2025 National Budget, you did not address currency issues, which is one of the biggest fundamentals determining the economic direction. What, in your opinion, is the right currency for Zimbabwe now and in the years to come?
CM: Mthuli Ncube is announcing a very difficult budget. The terrain is marred with a lot of uncertainty and a lot of confusion. The currency that he is going to use in the budget may not mean the same thing at the same time next year. So, announcing a big budget on its own is a big task for Mthuli.
In our submission, obviously, we certainly did not expect the ZiG (Zimbabwe Gold) to strengthen. It will rather depreciate year on year.
FM: What options does he have?
CM: This will push him to have different options, including having a supplementary budget during the mid-year of 2025. The honest truth is, there is no way a ZiG budget will hold into 2025.
FM: Are businesses gaining or losing from transacting in US dollars? Can you elaborate on that?
CM: Let me say to a certain extent companies are losing. How are they losing? The US dollar is an over-valued currency in this economy by 18% to 20%. In being overvalued, what it means is the value of the US dollar in Zimbabwe is different from the value in our neighbouring countries. So, this is impacting or putting a dent on the competitiveness. It is costly to transact in US dollars because it is an uncompetitive currency. The cost of producing using US dollars is too steep.
When it comes to power costs, for instance, right now Zimbabwe is one of the few countries which are paying what we call the cost-reflective tariffs because we are using a hard US dollar.
FM: How about other countries?
CM: Other countries might hide behind their currencies. They are using the Rand, the Pula or the Metical. If you do exchange (the currencies) you may see that they are not necessarily paying what we call cost-reflective tariffs when it comes to power. This is because we are dealing with amounts of about, maybe, US$0,07 to US$0,08 per kilowatt hour.
FM: What does this mean for the economy?
CM: I will take you back to your first question again. Another sector we are pessimistic about is the energy sector because of the debt which has to be somehow honoured in terms of energy in Zimbabwe. We are looking at an external debt, which is not below US$1,4 billion.
Then we are looking at the domestic debt, which is also staggering because businesses and households owe the power utility. So, if you look at the cost of power in 2024 alone, we are looking at a weighted cost of tariffs. We are looking at almost about US$0,22 per kilowatt hour. On paper, it looks like it is just US$0,16 or US$0,14, which is official.
FM: The ZNCC is generally worried about taxation in Zimbabwe. But the government is seeing its revenues blown away by economic problems. How can revenues be raised without hurting government operations?
CM: Zimbabwe is already overtaxed. I think what Mthuli Ncube should focus on is to know how to widen the tax base rather than to continue adjusting the taxes upwards because they are already up. So, what is happening is the government, through the Treasury, is creating unfair competition where every formal business finds it difficult to operate. Actually, it is better to be informal, because once you are informal no one cares about the taxes that you must pay.
At one point, Mthuli Ncube spoke about Presumptive Tax. I do not know how it just disappeared. So, Mthuli Ncube and his team should look at ways to widen the tax base than to deal with increasing existing taxes for business.
FM: In relation to taxes, what is worrying business right now?
CM: The biggest challenge we are having is that taxation is being used by our government to balance the budget instead of using taxation to balance development in different areas.
FM: Are companies still closing in Zimbabwe or those that remain are the resilient ones that have been tested over many years? If they are closing, at what rate are they shutting down per year?
CM: Obviously, companies are closing. But I am not necessarily interested in companies closing. This is because there are also companies that are registering. The only problem, possibly in terms of the net impact, is employment. This is because if a company, which has closed had 10 people, the impact is more damaging. We are also facing what we consider to be structural unemployment. Job losses could possibly be hitting an average of 22 000 to 25 000 a year. But you will see, there are new companies registering. However, the unfortunate thing is the new companies registered in the same period are just able to create an average of possibly 18 000 to 15 000 jobs.
FM: What are the fundamentals driving bankruptcies?
CM: There are a lot of them. It depends on the sectors that you will be looking at. But obviously, I spoke to you about power. We can talk about access to foreign currency. We can also talk about unfair competition from informal traders. You can actually relate this unfair competition to Truworths’ decision to actually apply for corporate rescue. It is the informal sector that they could not cope with. Then you can also look at the case of the environment being harsh. This is because Zimra (Zimbabwe Revenue Authority) for instance, is coming not to negotiate but to collect.
FM: Are companies winning these court cases against Zimra?
CM: It is very rare to win a tax case in our country. So, all these factors contribute to what we are describing as the demise of companies.
FM: Tell us about ZNCC. Who are you? How big is your membership and how does it compare with what you had on your books a decade ago?
CM: I think if you were to reflect on an institution like ZNCC, obviously maybe comparing with a decade ago might not be a good measure because companies had already collapsed a decade ago. But if you had to compare with maybe before the year 2000, you would get a true picture.
Obviously, we were the biggest before 2000.
But our membership transcends from big corporations, manufacturing companies, the transport sector, some mining companies, big retail giants, logistics companies, four universities in the country, and banks. If you look at our outreach in terms of size of the organisation, we are looking at an average of about 1 400 to 1 600 companies.
