The government and the private sector have been working tirelessly to resolve the situation. Banks have done their best, if we look at the average loan to deposit ratio of around 80 percent.
The monetary authorities have also tried to abet liquidity by dealing with nostro accounts, with the government cashing on some of the special drawing rights. However, the liquidity situation is still precarious, and has left many companies distressed and marginalised.
Many companies are now struggling to compete. The twin evils of lack of credit and lack of competition has seen these distressed and marginalised companies either scaling down operations or closing down.
Companies are operating in an environment which requires them to have a viable business model. Once this is in place they have to consider what prevents them from being competitive.
Most companies would blame lack of capital, high labour costs, high utility costs and competition from imports.
The first issue that needs to be dealt with is how companies can raise much needed capital. This should be done through sale of shareholding, as opposed to loans that are difficult to secure and have high interest rates. Disposal of non-core properties and assets is something else to consider.
Secondly the issue of cost of production needs to be addressed. Currently two factors have been driving the cost of production. The first one being the cost and unreliability of local utilities, especially electricity, water and transport and the second one being high cost of labour.
It is therefore important that, where the cost of utilities is making a company uncompetitive, an audit should be done to explore more efficient production techniques.
Where the cost of labour is making the company uncompetitive, a special dispensation should be granted to the company to lower its wage and salary bills. In fact, there is need for the entire system of arbitration to be examined. The government should make it a matter of policy that no arbitrator can award an increase above the increase in the consumer price index without detailed and extraordinary justifications. These justifications become automatic grounds for appeal against the award. Further, as a matter of policy, the Government should ensure that no arbitrator can award an increment where the majority of companies in a sector are loss making and losses are an automatic grounds for exemption from National Employment Council wage awards.
Imported goods
Lastly, there is need to tackle the immense competition from imported products. Although it can be appreciated that tariff protection is effectively asking the consumer to subsidise business, there are instances where tariff protection can be justified.
Firstly, where the company has a credible plan to achieve competitiveness without tariff protection, in a reasonable period of time, say two to three years.
Secondly, where the cost of this protection is justified by a cost benefit analysis that compares the cost of protection in terms of higher costs to the benefit to the economy in terms of jobs created. In these instances, it would be highly recommended that time-bound tariff protection be afforded to companies that can meet the above criteria.
We cannot afford to have private enterprises going bust in a free market economy such as ours, especially when the government is limited in scope to deal with the consequences.
Post published in: Business