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GOVERNMENT’S handling of civil servants bonuses highlights policy inconsistency which continues to scare away investors, causing more volatility for an already frail economy, the Financial Gazette can report.

The investment-starved country is desperately trying to lure foreign direct investment (FDI) and access international lines of credit.

The bonus debacle came hard on the heels of an International Monetary Fund (IMF) staff assessment of government’s commitment to addressing the country’s economic crisis, over which the Bretton Woods institution said there was progress.

In its report issued a fortnight ago, the IMF said despite economic and financial difficulties, government had made progress in implementing its macroeconomic and structural reform programmes, particularly regarding clarifying the indigenisation policy, restoring confidence and improving financial sector soundness, and strengthening public financial management.

It said government’s policy reform agenda would this year continue to focus on reducing the primary fiscal deficit to raise Zimbabwe’s capacity to repay restoring confidence in the financial system improving the business climate and garnering support for an arrears clearance strategy.

Reduction of the fiscal deficit entails cutting the salary bill.

Economist, Brians Muchemwa, said it was important for government “to speak with one voice and proclaim the same policy direction to avoid discord”.

“At such time as now when Zimbabwe desperately needs long-term capital to fund infrastructure projects, it becomes very imperative that policymakers be consistent to arrest investors’ fears,” said Muchemwa.

The latest decision by government on civil servants bonuses, in which President Robert Mugabe appeared to embarrass one of his ministers for a decision he said was not agreed or discussed in Cabinet, highlighted an intensification of desperate policy measures that could only worsen the country’s attractiveness as an investment destination.

Finance Minister, Patrick Chinamasa, on April 13 announced that government had suspended bonus payments to civil servants due to fiscal constraints.

Chinamasa said the poor performance of domestic revenue inflows and the rise in recurrent expenditures continued to constrain fiscal space.

However, during his address at the Independence Day celebrations at the National Sports Stadium in Harare on April 18, President Mugabe said the non payment of the 13th cheque to civil servants was not government policy and would not be implemented, causing confusion.

President Mugabe claimed the suspension of bonuses was not approved by Cabinet. He said he and his two Vice-Presidents were not consulted over the issue.

This contradiction, according to recent media reports, has divided Cabinet, with some supporting Chinamasa and suggesting the issue had been discussed in Cabinet.

Analysts said such contradictions and bickering as highlighted by the issue of civil servants bonuses sent the wrong signals to investors.

Statistics available show that FDIs averaged 14 to 20 percent of gross domestic product (GDP) from 1980 to 2000, but declined remarkably in the last 10 years to the current annual averages of 1,1 percent of GDP.

Zimbabwe, once touted as the jewel of Africa at Independence in 1980, last year received foreign investment inflows amounting to US$400 million, the lowest in the region.

This was less than five percent of the US$9,5 billion that was pumped into the Southern African Development Community, placing Zimbabwe among the least attractive investment destinations in the region.

Economic analysts contend that despite the numerous aantages and potential that Zimbabwe enjoys, and notwithstanding the various incentives stipulated in investment laws for encouraging investment, FDIs in Zimbabwe continue on the decline.

This is because investors still face formidable barriers that government is unwilling to remove such as the indigenisation and empowerment regulations which demand 51 percent ownership for locals in business ventures.

The policy also stipulates that a certain amount of shareholding should be in the hands of employees, communities and the National Indigenisation and Economic Board for future generations.

However, the policy has been dogged by inconsistencies with ministers offering different interpretations which have unnerved investors.

Last year, Vice-President Emmerson Mnangagwa told business leaders that government would amend the legislation to lure foreign investment.

But Indigenisation Minister Chris Mushowe said there was no going back on the policy, adding locals could have as high as 99 percent shareholding.

Zimbabwe is going through an economic squeeze which is making life unbearable for citizens, with debilitating effects on industry and commerce.

Despite adopting a multiple currency system in 2009 that helped halt a decade-long economic meltdown, the country is battling to revive industries, crippled by an influx of imported goods, ageing equipment and clogged external lines of credit.

Government ministries are also delaying the re-alignment of laws with provisions of the new Constitution after they failed to submit drafts to the Justice Ministry for onward submission to Cabinet.World Bank country economist, Nadia Piffareti, said Zimbabwe needed to manage its high country risk by increasing policy consistency.

Source : Financial Gazette

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