President Emmerson Mnangagwa should immediately set up a team of tacticians to come up with sanctions-busting strategies aimed at ameliorating the suffering of Zimbabweans due to the effects of restrictive measures, Zanu PF-linked cleric Obadiah Msindo has said.

By Precious Chida

In an interview with NewsDay yesterday, a week after Mnangagwa led a Sadc solidarity anti-sanctions march in Harare, Msindo also urged the President to quickly deal with people in his government and the party had imposed internal sanctions on the country.

The cleric said the Western sanctions were being reinforced by self-imposed internal sanctions by those pushing factional agendas, not supporting the vision of the President and giving a half-hearted commitment to their work while advancing selfish interests.

“The President should set up a team to find ways of circumventing the effects of the sanctions because as it appears, the Western countries are not willing to remove them despite the call from the whole continent,” Msindo said.

“Apart from setting up the team, the President should also identify and deal with various people in government and party whose actions are a threat to his vision. Their actions are an indirect way of imposing internal sanctions on the President and the country.”

Msindo’s call comes after Mnangagwa last week indicated that sanctions were hurting all sectors of the economy, leading to the economic meltdown now chewing right into the livelihoods of the ordinary people.

The US, which imposed sanctions on Zimbabwe in 2001 through the Zimbabwe Democracy and Economic Recovery Act, has repeatedly denied that their sanctions were hurting ordinary people, insisting they were simply targeted restrictions on certain individuals and entities linked to the State.

But Msindo said people around Mnangagwa should not wait for the West to remove the sanctions on the country, but find ways that can enable the country to survive.

“We need a team that can think outside the box, that is why the President appointed them,” he said.

The controversial cleric said it was sad that the country was under sanctions because it had reclaimed its land, but equally saddening was that the beneficiaries of the land reform were not utilising the resource, resulting in food insecurity in the country.

“Those who got land and are not using it, are imposing internal sanctions on the people and the President should deal with such saboteurs. The issue of production on the farms should be compulsory,” he said.

“With production on the land, Zimbabwe could be food secure and generating enough foreign currency. We have huge international markets for farm produce such as soyabeans, tobacco and other cash crops.”

Zimbabwe is an agro-based economy and prior to the land reform, was the breadbasket of the Sadc region.

However, the country turned into a basket case after the land reform programme, after most beneficiaries grabbed land for speculative reasons.

“There should be a deliberate policy to enforce production on the farms as this can be a way of busting the embargoes,” Msindo said.

The cleric said the billions of dollars sought by the country from America and other international funding institutions could actually be generated from maximising production on farms.

By 2050 an estimated 2,5 billion more people will be added to urban areas, with 90% of this growth taking place in Africa and Asia. According to Nobel Prize winning economist, Paul Romer, this will mean the building of more urban areas in the next 100 years than exist today. If managed effectively, Africa’s cities will drive the continent’s economic growth, and thereby help reduce poverty. To date, however, Africa has yet to realise the positive gains of rapid urbanisation experienced elsewhere. Instead, increasingly concentrated populations have become a major stress on the limited infrastructure and services, such as housing, employment, health, education, and safety. Retrofitting cities, where cities already exist, can be up to three times more expensive than planning for infrastructure in advance of settlement. Therefore, some leaders see the construction of whole new cities as the overall solution to overcome the pressures on existing ones.

The idea of constructing new cities to solve urbanisation challenges is not new. In Africa, for example, the first post-independence wave came with some governments deciding to move their capital cities. The motivations for this varied. In the case of Yamoussoukro, which was declared the capital of Côte d’Ivoire in 1983, the move reflected the desire of the then president Houphouët-Boigny to have the capital located in his home town.
Nigeria, on the other hand, Abuja became the new capital in 1991 to relieve population pressures in Lagos. The choice of the site for Abuja was motivated by the fact that it was located in the centre of the country. It is also more ethnically neutral as it is located between the country’s northern, majority Muslim population and southern, largely Christian population. The creation of the city of Abuja, therefore, was also to help bridge the divisions in the country in terms of politics as well as economic opportunity.

The fortunes of Yamoussoukro and Abuja offer important lessons for current planners of new cities — 120 are being built in 40 countries. Although some people were attracted to Yamoussoukro by the prospect of a newly constructed international airport, and even the world’s largest church, most stayed away. While it continues to be the country’s administrative capital, most government institutions remain in Abidjan. On top of this, Abidjan is still the vastly more popular city. It is the economic hub of the country, with an estimated population of close to four million. Yamoussoukro’s population is approximately 200 000, making it only the sixth largest city in the country. Any new city takes time to grow. Abuja, though still much smaller than Lagos, which remains Nigeria’s economic hub, has, however, already experienced rapid population growth since it was founded. In 1987 its population was only about 15 000 people.

Today, it has a population of over three million. Although not without its own challenges, there were two major advantages of Abuja. Firstly, at the time of its conception, the Nigerian government had a large amount of petrodollars. This meant that major investments in its infrastructure, such as water lines, could largely be made in advance of people settling. In addition, unlike Yamoussoukro, major government institutions were moved to Abuja. This spurred initial population movement, as the government civil service had an incentive to move there.

The myth of smart cities

The current wave of new city building is largely focused on leap-frogging economic development and moving Africa’s cities directly into the age of futuristic, technologically advanced, so-called smart cities. Plans for these types of cities are sprouting up across the continent; from Kenya, Mauritius and Senegal. Leading the way is Nigeria with five current on-going new city projects, which, when completed, are set to cover a landmass of 25 million square metres. The agenda of new city building is not only being pushed by governments, but by a vast array of construction, real estate and technology companies, who stand to profit from the city construction boom, as well. Yet these new cities will want to avoid pitfalls of places like Cyberjaya, Malaysia. Cyberjaya was the Malaysian government’s attempt to emulate Silicon Valley and pioneer such a hub in Asia.

Cyberjaya was built on 2 800 hectares of undeveloped land, 40km south of Kuala Lumpur. The idea behind the city was to create a space where intelligent minds from across the globe could reside comfortably and just concentrate on innovation. Malaysia hoped that its first mover advantage in the smart city arena would attract investors. They also believed that Cyberjaya could be a model for the city of the future. Yet Cyberjaya has failed to live up to its reputation. In particular, a fundamental design flaw was the lack of understanding that people move to cities not only for the infrastructure but also the amenities, as well as to build networks and to integrate into existing networks. In conceptualising Cyberjaya, the Malaysian government largely ignored this.
Rather the city was envisaged only for the highly educated elite, who, it was assumed, did not require many further amenities outside a suitable work environment. As a result of the failure to understand the human aspect of cities, many parts of Cyberjaya have remained vacant to date.
Many of Africa’s upcoming smart cities exhibit similar conceptualisation flaws. Senegal’s futuristic city Diamniadio, a core part of President Macky Sall’s 2035 plan, is meant to be a city of knowledge. It will comprise an industrial park with entertainment facilities and residential areas. However, when the city is completed, which is intended to be by 2035, it is unlikely that the majority of Senegalese will be able to afford to live there. An estimated US$100bn is being invested in new city projects across Africa; Diamniadio alone will cost the Senegalese government an estimated US$2bn. The assumption is that these investments will pay off. The logic is that these cities will attract the best and the brightest.

In turn this should drive productivity increases that ultimately will repay the large loans.
In addition, as the new city of Eko Atlantic City in Nigeria has shown, land prices may increase substantially. So, if the government can capture these through land based taxes, this can help recoup costs too.

But failure invariably comes with large debt bills that African countries cannot afford, and may leave large, unfinished ghost cities in its wake.

Not easy

As the case of Cyberjaya and other failed new city projects globally demonstrate, successfully designing new cities from scratch is not easy. Cities are complex systems. They require the necessary infrastructure to function. Silicon Valley has been successful as the infrastructure and regulatory environment has meant firms have clustered and learned from each other, spurring innovation.

But none of this matters without people being willing to live there. And what attracts people into cities are opportunities for social interaction and the socio-economic networks. In the case of Silicon Valley’s success, for example, it’s clear that the entrepreneurs employed by the firms themselves care about the business environment as well as the quality of life for themselves and their families.

Building new smart cities, in the hope people will follow, may be a higher-risk gamble that most African governments cannot afford. A surer bet is to study where people are already moving, which means where future urbanisation is likely to happen. Laying the foundations for this urbanisation to happen in an orderly and well-managed fashion, such as delineating basic road systems and investing in basic infrastructure before settlement takes place, as was done in Abuja, will go a long way to harness the potential of Africa’s urbanisation. – The Conversation

 Astrid Haas is a senior country economist for Cities and Manager of the Cities that Work Initiative, based in Kampala, Uganda

Enact reforms quicker. Execute faster policies. Prioritise growth and resilience building that includes women, girls and youth in national budget allocations — no room for mistakes.

This was a resounding call throughout for seven days from October 14 to 20, 2019, at the World Bank Group (WBG) and International Monetary Fund (IMF) 2019 fall annual meetings in Washington, DC.

Also, that week, Parliament of Zimbabwe’s Portfolio Committee on Budget, Finance and Economic Development was having a pre-budget consultative meeting with the Finance and Economic Development ministry. Finance minister Mthuli Ncube had recently released his 2020 pre-budget strategy paper aimed at facilitating discussions on policy direction for the 2020 national budget.

The main highlight of the IMF-WBG annual meetings — the World Economic Outlook — was presented by Gita Gopinath, IMF economic counsellor who said, “The global economy is in a synchronised slowdown,” adding that the IMF is once again down grading global GDP growth for 2019 to 3% — it’s slowest pace since the global financial crisis. For sustainable growth, she said, “It’s important that countries undertake structural reforms to boost productivity, improve resilience and lower inequality. These reforms are always more effective when good governance is already in place.”

“To summarise: the global economic outlook remains precarious with a synchornised slowdown and an uncertain recovery. At 3% growth, there is no room for policy mistakes and there is an urgent need for policy-makers to support growth,” she added.

The Opportunities

Since Independence, the government of Zimbabwe (GoZ) has always wanted to urbanise, but in the countryside, it looks the same as four decades ago, for the most part; same roads — or lack of new roads — or no new roads, little infrastructure, long distances travelled to receive child healthcare and not modified for vulnerable groups such as girls. A fast, downward spiral in quality of life has been exacerbated by the current drought and food insecurity across the country.

Against this backdrop, structural reforms, resilience and poverty reduction efforts through inclusion of women, girls and job creation for a booming youth population had a substantial allocation to the IMF-WBG annual meetings agenda in a consistent and central way. Fiscal policy plays a crucial role in planning development agendas and for “downside risks, contributing to financial stability, financing the 2030 Sustainable Development Goals, and finally, in addressing climate change, “ IMF director of the Fiscal Affairs Department, Victor Gasper said in Washington, adding that climate change “is the topic of the fiscal monitor this time”— the October 2019 edition of the fiscal monitor focuses on the design of fiscal policies for climate mitigation at the domestic and international levels to advise policymakers to follow prudent fiscal policies.

Priority considerations

Political will to quickly act while urgently putting in place a whole suite of public policy measures is a need to be taken up while recognising the culture and traditions of Zimbabwe.

• Quicker structural reforms — will go a long way in fighting corruption; the abuse of public office for private gain. Among economic experts at these meetings, there was broad agreement on the economic benefits of structural reforms; they often carry short-term costs while most of the economic gains from reforms only materialise over the longer term.

It was against this background that high-ranking experts discussed the political ramifications a country might face from not swiftly implementing a structural reform agenda. IMF says its “research shows that a major broad-based reform push in the area of governance, trade, finance product and labour market could raise output by as much as 7% over six years, providing a big boost to jobs and economic growth at a time when the global economy is slowing down,” but was quick to raise for discussion, “ if it was possible to implement far-reaching reforms without paying a price at the ballot box.

The public can access information that answers this question in an IMF staff discussion paper on The Political Costs of Reforms: Fear of Reality that states, “The political economy of reform is, however, less settled for two reasons. First, reforms may generate gains only in the longer term while distributional effects may be sizable in the short term. Second, governments may lack the political capital needed to confront vocal interest groups, wherein politicians may hold back on reforms, fearing they will be penalised at the ballot box (IMF 2009, 2016, and 2019).

There is much to ponder here, as Zimbabwe undergoes austerity measures and is classed as a “fragile, low-income country.”

• Faster resilience — a must in national budget allocations

In launching the IMF Sub-Saharan Africa Regional African Economic Outlook report, Abebe Aemro Selassie, director of the IMF African Department, laid out that, “policies we feel are needed to facilitate stronger growth.” He stated, “Cyclone Idai followed quickly by Cyclone Kenneth. So, we are trying to provide support to countries as they are being impacted by these shocks as quickly as we possibly can. So, that’s one way in which we are dealing with the somewhat uncertain climate. Right now, of course, we have a drought in southern Africa. We are trying to assess the impact of that in countries like Zimbabwe, Zambia and Mozambique and giving policy advice and support there.”

In the Fiscal Monitor, Gasper said it is important to realise that current pledges under the Paris Agreement are not enough. As concerns continue to mount over the impact of climate change, central banks are taking action in a range of areas within their mandates.

But is the Reserve Bank of Zimbabwe heeding the negative implications of Cyclones Idai, Kenneth and droughts?

Dealing with the impact will require prioritising fiscal policy measures, but as the IMF has emphasised, “While fiscal tools are first in line, they need to be complemented by financial policy tools such as financial regulation, financial governance, and policies to enhance financial infrastructure and monetary policy.”

Why so much IMF attention to this?

Kristalina Georgieva, IMF managing director, said, “The criticality of addressing climate change for financial stability, for making sure that we can have sustainable growth, is so very clear and proven today that no institution, no individual can step back from the responsibility to act. For the IMF, we always look at risks.

”This is now a category of risk that absolutely has to be front and centre in our work for two reasons: one, because of disaster risks to stability of countries; two, because of transitional risks.

”We have a duty of care to understand these risks, classify them, and most importantly, come up with policies to manage them.” In response, Philip Lane, member of the executive board of the European Central Bank, was emphatic and clarified that for a central bank to deliver on its core mandate it absolutely must be involved in resilience policies and delivering on inflation targets.

Georgieva went on to say there is no way of addressing the fundamentals of the economy without addressing climate implications, therefore IMF will be including it in its work.

It’s not only about predicting inflation, but serious monetary policy — every sector of the economy will be affected; it has to be at the core of central banking. Sabine Mauderer, member of the executive board of the Deutsche Bundesbank was quick to caution that, “ We have to bear in mind that we have a clear distinction between the mandates of central banking and policy-making.

Crystal clear is that central banks do have to deal with the risk of climate change. That is crystal clear. But, they cannot substitute climate policy. Climate policy has to be done quickly.

Central banks ought to integrate climate change and financial stability monitoring into banking supervision.” She asked that policymakers implement reforms that increase disclosure of individual and systemic risk because this information is desperately needed.

Herein lies a clear opportunity for Zimbabwe’s leaders to demonstrate leadership.

• Accelerate Poverty Reduction — how this can be achieved in Africa was central to the meetings.

On October 17, 2019, the WBG introduced, “an ambitious new learning target, which aims to cut by 50% the global rate of ‘learning poverty’ by 2030. Learning poverty is defined as the percentage of 10-year-olds who cannot read and understand a simple story.”

How Zimbabwe’s 2020 budget allocation will stack up against these plans will soon unfold as its Minister of Finance is due to reveal his national budget mid-November.

There was a prevailing view among most economists about why the future of rural spaces was key in discussions on a better economy that overcomes the rural hurdles of distance, degradation and climate vulnerability to promote greater economic inclusion and resilience. Perspectives from the public and private sectors were brought to bear on the question of effective rural change. It was generally agreed among the experts present that the need for women’s empowerment to significantly make improvements in the rural space was a must. It was highlighted that farmer cooperatives and local organisations realising economies of scale are another factor of success from The Netherlands to Rwanda. Rural economies are ripe for innovations that deliver better results for people, Zimbabwe and the planet. Additionally, science and digital technology — including SMS and television — are key areas to accelerate this transformation.

Hastening poverty reduction and the cascading effects of an unaddressed, fast-deteriorating healthcare system deficiency should be examined by legislators as they prepare to formulate the 2020 national budgetary policies.

Georgieva talked about how improved gender parity would lead to better economic outcomes. She argued that women must fully participate in the economy on equal terms. On unpaid work, she was adamant the unequal distribution of unpaid work is not only unfair, it is also inefficient since you have high-skilled women doing unskilled work. She concluded by stressing that while political will is needed to take concrete steps, cultures take time to change. In response to a question on what men can do to help, Georgieva said that it is important that men recognise the historical injustice and that IMF is working to correct it.

A failure to heed — the IMF-WBG calls to act quickly — will have far-reaching, long-term consequences for generations to come.

Accelerating reforms, speeding resilience, and lowering inequality and poverty faster is key.

• Pearl Matibe has geographic expertise on US foreign policy, think tank impact, strategy and public policy issues. You may follow her on Twitter: @PearlMatibe

Defence minister Oppah Muchinguri and an army-owned company, have been taken to court by an Oman-based businessman, Thamer Said Ahmed Al Shanfari following moves to seize his Harare properties.

BY CHARLES LAITON

Shanfari recently filed a High Court application seeking an order for placement of a caveat over his four immovable properties namely stand numbers, 98, 99, 100 and 101 Glen Lorne Township 8 of Lot 40A Glen Lorne, which the Defence ministry was in the process of grabbing.

The Oman businessman said he filed the application after realising that chances were very high that he could lose his investments given the political power wielded by Muchinguri and her ministry.

“I (Shanfari) am also the primary beneficiary in the above mentioned properties in terms of the notarial deed of donation and trust (Ref 339)….in this instance I do have a clear caveatable interest, and this application is motivated by my reasonable apprehension that the respondents (Minister Muchinguri and others) are about to completely dispossess me of my properties and given the political and State power that is wielded by some of the respondents, the prejudice I stand to suffer if I do not act now, could be irreversible and the respondents have failed or refused to resolve my dispute with them amicably,” Shanfari said in his founding affidavit.

Shanfari said when the immovable properties were purchased, they were vacant stands, with no structures on them except for a small house on Stand 99 Glen Lorne. The small structure was shortly, thereafter, completely demolished to make way for the construction of new, massive and costly structure.

“I financed the construction of the main structure which was custom-made to suit my peculiar tastes and an entertainment area. After completion of the construction project, I resided at the subject property for intermittent periods, but have generally lived outside Zimbabwe for many years,” he said.

“On February 27, 2019, my agent (Alan Passaportis) received a letter of demand from the first respondent’s (Muchinguri) legal practitioners (that is Titan Law)….representing second and third respondents (Defence ministry and Rusununguko Nkululeko Holdings) interests. Titan Law alleged in the said letter that its client had regularised the ownership relating to the properties and that I was to hand over the property to the second respondent.”

According to Shanfari, all the documentation pertaining to the acquisition and ownership of the properties are presently in the custody of the Defence ministry’s lawyers.

He said sometime in 2012, he engaged Chibune & Associates Legal Practitioners to handle his legal affairs relating to his various business interests in the country. But during the same year Chibune fell ill and he transferred the files and documents to Titan Law to manage his legal affairs and business interests in Zimbabwe.

The businessman also said the documents showed that he owned the properties in his capacity as the director of Bourhill Investments (Private) Limited, Graphic Investments (Private) Limited and as a beneficiary of the Fifty Seven Folyjon Trust.

In the application, Shanfari cited Muchinguri, the Defence ministry, Rusununguko Nkululeko Holdings, Folyjon Garden (Private) Limited, Defence ministry, Deputy Chief Secretary for administration and finance, Martin Rushwaya and Registrar of Deeds in Harare as respondents. The matter is pending.

Zifa Southern Region Division One side Bulawayo City have received a timely boost in their quest to win promotion back into the country’s top-flight league after receiving a $53 000 cash injection from the local authority’s off-shoot Ingwebu Breweries. The club has since used the money to clear outstanding player signing-on fees and winning bonuses

BY FORTUNE MBELE

The club received the money last week when they beat Ajax Hotspurs to move to the top of the log standings.

Ingwebu Breweries managing director Dumisani Mhlanga yesterday made an official presentation to the club chairman Jerry Sibanda at a function held at the club offices.

An elated Sibanda confirmed that they had cleared debts owed to the players.

“We are a struggling team without resources, sponsored by ratepayers and without anything from elsewhere. We might find it hard to finish this year. Ingwebu has done us good for us to be where we are. We are now on top of the log. We are leading with 58 points followed by our rivals Talen Vision. These are guys who can score 26 goals in two matches when we have managed to score only 49 goals in 15 games. Ingwebu came on board and gave us a big cake for our boys. Everybody went home smiling last week. Now we do not owe anybody anything,” Sibanda said. Mhlanga pledged continued support for Bulawayo City going into next year.

“I am happy with my team at Ingwebu and more excited that Ingwebu has been able to give you a little something. My hope is that as we go into the New Year, we can do much better. I can assure you that into the New Year we will try by all means to support the team. Things are difficult, but we will to do our best; even as we do our budgets for 2020 we want to do better than what we have done this year,” Mhlanga said.

Bulawayo City host Binga Pirates this afternoon at Luveve Stadium with their last two games coming up against Mosi Rovers in Victoria Falls and another away game to Arenel.

Coach Try Ncube is upbeat as they push for the sole ticket to the top division.

“It’s another cup final game (against Binga Pirates). The stakes are high and we want to put up a fight to get three points,” Ncube said.

While Bulawayo City take on Binga Pirates, the Mkhuphali Masuku-coached Talen Vision will be up against Bosso90 at Crescent Sports Club at the same time as the race for the Premiership ticket heats up.

With three games to go, Talen Vision are on 55 points, just three behind City after losing to Indlovu Iyanyathela last week.

A HEALTH disaster is looming in Mutare after most suburbs have gone for almost two weeks without water supplies, while most schools have been sending pupils back home fearing an outbreak of cholera and other water-borne diseases.

BY KENNETH NYANGANI

Council spokesperson Spren Mutiwi told NewsDay yesterday that the water crisis had been caused by contamination at Odzani Treatment plant in Mutasa due to illegal gold panning activities in the area.

Mutiwi also attributed the crisis to the low water levels in the Pungwe River.

He said council was now supplying water in bowsers to health institutions, schools and suburbs, among other areas.

“Yes, we are facing serious water challenges in Mutare. The problem is coming from our water sources. Water is contaminated in the Odzani Water Treatment Plant due to illegal gold mining in the area and this has affected water production. We are taking time to treat the water as recommended by the World Health Organisation ,” Mutiwi said

“One of the challenges we are facing is that water levels in Pungwe River, one of our sources, have dropped. I believe this is due to the high temperatures.

“We have introduced stop-gap measures where we are supplying water with bowsers, we are doing it in schools, various institutions including affected health institutions and other
suburbs.”

Dangamvura high-density suburb is the worst affected, after going for almost two weeks without the precious liquid.

A resident in Hobhouse 3, Potifer Nyamavhuvhu, said they were now buying water at nearby plots.

“It’s now almost five days without water. We have resorted to buying water at nearby plots because they have boreholes. We are forking out at least $5 for a 20-litre bucket,” he said
“I hope our city fathers are doing something urgently because we fear an outbreak of water-borne diseases because some are now fetching water from unsafe sources.”

VICE-PRESIDENT Kembo Mohadi has taken his two former business partners at Malindi Storage and Logistics (Pvt) Ltd to the High Court demanding US$107 135 he claims was misappropriated by the pair.

BY CHARLES LAITON

Through his lawyers Messrs. Mugiya and Macharaga Law Chambers, Mohadi issued summons against Tichaona Mushipe and Oscar Chiromo, both residents of Beitbridge.

In his declaration, Mohadi said sometime in November 2016, he entered into a partnership agreement with Mushipe and Chiromo which operated until August 31, 2018 when he pulled out.

“The partnership operated until August 31, 2018 when the plaintiff (Mohadi) pulled out of the partnership following the misuse and misappropriation of partnership funds by the defendants (Mushipe and Chiromo) which prejudiced the plaintiff the sum of US$107 135,” Mohadi said.
He added that after the collapse of the partnership, the licence holder and owner, Malindi Storage and Logistics (Pvt) Ltd, which he owns, recalled its trading licence and invited auditors who then established that more than US$107 135 had been misappropriated.

“On April 15, 2019, the parties entered into a deed of disengagement. The parties then agreed to engage an auditor so that the parties could see what they were worth and what their obligations were to each other. After the auditor finished his work, the defendants then refused to accept the audit report for no apparent reasons. The parties have been stuck since then,” he said.

“The audit report showed that the defendants prejudiced the plaintiff of US$107 135 and are supposed to pay the plaintiff the said amount collectively. The defendants clearly breached the partnership contract and the deed of disengagement contract by failing to complete their obligations in terms of the said deed,” he said, adding that the claimed amount could also be paid in local currency using the obtaining bank rate.

Meanwhile, Mushipe and Chiromo have since entered their notice of appearance to defend the matter through their lawyers Sinyoro and Partners Legal Practitioners.

After enjoying rare inflated topline growth in the first six months of 2019 and the immediate past financial year, Zimbabwe companies are set to report a sharp contraction in earnings for the full year period to December 2019.

Equity Axis

The projection of a worse off outcome is premised on a pronouncement by the Public Accountant and Auditors Board (PAAB), a statutory board created by an Act of Parliament and mandated with regulatory oversight of the accounting and auditing profession in Zimbabwe, that companies preparing financial statements for the period July 1 onwards, are urged to adopt IAS 29. This follows a broad consultation with market players including accounting and auditing professionals which established that there was a consensus on hyperinflation in Zimbabwe.

IAS 29 Financial Reporting in hyperinflationary economies applies where an entity’s functional currency is that of a hyperinflationary economy. The standard does not prescribe when hyperinflation arises but requires the financial statements and corresponding figures for previous periods of an entity with a functional currency that is hyperinflationary to be restated for the changes in the general pricing power of the functional currency.

Zimbabwe is a classified hyperinflation economy from an accounting perspective which, however, is at variance to the economic classification.

Economists typically classify an economy as under hyperinflation if month-on-month inflation remains above 50% over three consecutive months. Zimbabwe’s monthly inflation for September was last recorded at 17,5% having been slightly up a month earlier. Annual inflation for the respective month, however, came in at 353%.

From an accounting perspective, the view is that an economy satisfies hyperinflation if certain conditions are met and does not necessarily prescribe a particular rate of inflation. According to the standard characteristics of the economic environment of a country which indicate the existence of hyperinflation include the general population preferring to keep its wealth in non-monetary assets or in a relatively stable foreign currency; amounts of local currency held are immediately invested to maintain purchasing power; the general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that currency; sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short; interest rates, wages, and prices are linked to a price index; and the cumulative inflation rate over three years approaches, or exceeds 100%.

Zimbabwe perfectly satisfies all the conditions set above in the IAS 29 standard which qualifies an economy as being under hyperinflation. The pronouncement by PAAB, therefore, follows the necessary evaluation and now companies will have to adopt the standard in the current period and the impact on earnings will be fundamental.

In the half year period to June, all listed companies reported surging earnings, driven by upward price reviews, and other once off gains such as revaluations and foreign currency exchange gains, which are all related to the economic environment. A change in reporting currency from US dollar to Zim dollar resulted in fair value gains and exchange gains which significantly drove net earnings upwards. Prices have soared by 350% year on year as September and this shows how companies benefited from price increases to boost income.

Although the quality of earnings and sustainability of earnings in this regard was questionable, at least there was no standard at present compelling companies to adjust their earnings for a more factual presentation of their earnings. With the coming in of IAS 29, companies will have to use a price index to discount their earnings, such that if the rate of price growth (inflation) is ahead of earnings growth, then a company’s results based on hyperinflation accounting will be in losses.

Old Mutual, which is the only company to have applied hyperinflation accounting on its first half earnings, reported that profit for the period under hyperinflation accounting was -$210,47 million against a profit position under historical cost accounting of $509,15 million which was a gain of 671% on the prior year. This is how exposing hyperinflation accounting is.

Old Mutual, however, stated that the magnitude of loss was exacerbated by the fact that the bulk of the group’s net assets comprised monetary assets carried at fair value and these have not increased at the same level as CPI.

This means for companies with less exposure to monetary assets such as manufacturers, the gravity of loss emanating from this specific adjustment may be less severe. Broadly this would mean to preserve value companies have to increase stock levels and contain costs, maximise production efficiency and adopt a flexible pricing mechanism which closely track CPI.

Although government has stopped the publication of annual CPI data, companies will have to continue referring to the same data, which is readily available at research houses, to inform their pricing. To investors, valuations will have to be adjusted accordingly taking note of the effect of inflation on the adjusted earnings based on hyperinflation accounting.