Zimbabwe: Multi-sectoral impact of liquidity crunch

Thursday 17th October, 2013 on Newsday

In financial economics, a liquidity crisis refers to an acute shortage or “drying up” of liquidity, according to Wikipedia. To all intent and purposes, that is what Zimbabweans have had to endure since the adoption of the multi-currency regime in February 2009. Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono has attributed the liquidity crunch to the underperformance of the major sources of liquidity and broad money supply in the economy, namely export earnings, Diaspora remittances, offshore lines of credit, foreign direct investment and portfolio investments.

To illustrate the extent to which the dearth of liquidity has troubled our financial markets, in February 2012, then Industry and Trade minister Welshman Ncube confirmed that Cabinet had spent at least two hours in one of its meetings debating the country’s liquidity situation and its impact on economic recovery. Though the effects of the liquidity crunch on the economy are manifold, this instalment focuses on some of the many ways in which the cash squeeze has manifested itself.

In the real estate sector, a manifestation of the liquidity crunch has seen an increase in the number of businesses vacating central business district premises, downsizing or altogether closing down; leaving behind acres of unoccupied space. This has resulted in a significant increase in rental arrears, which obviously has negative implications on rental income growth.

Additionally, the liquidity crunch has reared its ugly head in the sector through constrained access to lines of credit. Liquidity challenges were, during the 2012 festive season, blamed for forcing local tourists at holiday resorts such as Victoria Falls to cut back on activities in order to manage their expenses.

The unavailability of cash meant some domestic tourists spent fewer nights at holiday resorts compared to prior years, attributing this to negative financial circumstances. At the time, Hospitality Association of Zimbabwe president Tich Hwingwiri acknowledged that while hotels were 100% full in terms of room occupancy, the numbers did not correspond or translate into figures for participation in a variety of other recreational activities.

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