After a decade of economic meltdown a unity government formed by President Robert Mugabe’s Zanu PF and opposition MDC parties in 2009 brought hope for economic revival, but things have changed again.
The inclusive government managed to instil confidence in the economy as evidenced by the double-digit growth between 2009 and 2013, but since Mugabe secured parliamentary majority and formed his own government after winning the 2013 polls government has failed to meet its growth targets.
As soon as Mugabe’s government was formed, fears abounded over the fate of the multi-currency regime dominated by the US dollar, that formally came into effect in 2009 after hyperinflation had rendered the country’s local currency worthless.
Despite maintaining the multi-currency regime, a key pillar of economic stability, growth has tumbled since, in what analysts say is a show of lack of confidence in the current leadership and policies.
In 2013, the economy grew by 4,5% before decelerating further to 3,5% in 2014 — according to state figures — below the ruling party’s average target of plus 5% between 2013 and 2018 under its economic blueprint, ZimAsset.
Government has already been forced to reduce its 2015 growth projections from 3,2% to 1,5%, citing underperformance of agriculture, with the tobacco crop missing its targets.
Declining commodity prices, mostly for gold, diamonds and platinum on the international market, have also negatively affected the economy.
It seems Mugabe is the only one projecting an economic take-off as the International Monetary Fund (IMF) has warned Zimbabwe’s economic prospects looked dim this year.
Oxford University’s research unit NKC African Economics (NKC) last week said Zimbabwe’s economy could grow by a mere 0,9% in 2015.
Mugabe’s perennial “bad boy” image since he started the controversial fast-track land reform programme in 2000, launched operation Murambatsvina in 2005 which destroyed slums across the country, and crafted the investor-spooking Indigenisation Act, among other things, worsened sovereign risk, driving away potential investment.
NKC reported Zimbabwe’s overall sovereign risk outlook is no longer seen as stable, but negative. Its outlook deteriorated, with prospects of being downgraded further due to the failing economy and squabbling within the ruling party.
“This adds to the country’s already long list of factors contributing to a poor rating, including external debt arrears in the billions of dollars, a history of rule-of-law violations, as well as the lack of a sovereign currency,” said NKC in a report.
Zimbabwe’s public and publicly guaranteed debt stood at US$8,4 billion as at end June 2015, according to the Ministry of Finance. The country has demonitised the Zimbabwe dollar through hard currency payments on outstanding Zimbabwe dollar bank balances.
“The negative outlook on our “C” rating implies that the country’s sovereign risk assessment could be downgraded to “D” towards the middle of next year (and) in our view, political conditions in the country will deteriorate further over the coming six months, while a continued positive performance under the IMF staff-Monitored Programme (SMP) — a key linchpin in securing external debt relief — is in jeopardy,” reads part of the NKC report.
NKC said Zimbabwe was placed on a “C” rating following the country’s economic and political turnaround in 2009 to signify the progress made in ending the 2002-2008 recession that witnessed a halving in real economic activity. The research firm added that improvement was seen during 2009-2013 though the economic and political environment has deteriorated over the past 18 months.
“President Robert Mugabe — with declining physical and mental capacities — is seeing a major economic take-off on the horizon that is simply not there. In the absence of a significant series of positive developments over the next few months, Zimbabwe’s political risk rating will face a downgrade in early 2016. Combined with the deteriorating economic environment, this could push our sovereign risk rating for Zimbabwe to a bottom-of-the-barrel ‘D’,” it says.
Economist Prosper Chitambara agreed with NKC’s assessment, saying policy inconsistency, political instability and an unstable economy affects the country’s risk profile.
“That affects the risk profile because it has a bearing on the rate of return. Investors are not sure what their real or potential returns on investments are in such a risky environment,” said Chitambara in an interview with businessdigest.
He said the economy was definitely weakening this year due to underlying structural bottlenecks and lack of production as industries continue shutting down.
“We need policies that are competitive,” said Chitambara.
NKC said Mugabe’s 10-point plan presented in his less-than-30-minute state of the nation address lacked a semblance of practicality. “There have been so many undertakings (all reversed) to remove the obstacles to foreign investment in Zimbabwe, such as the Indigenisation and Economic Empowerment Act and the twisting to and fro on land issues, that any new undertaking must be taken with the proverbial pinch of salt,” said NKC.
The stark fact of the matter is that even if the Mugabe regime stands by its word this time — and there is no guarantee that is even likely — the removal of all the obstacles and hindrances to economic growth by tomorrow would only help Zimbabwe to recover over the next two decades, according to non-governmental organisations such as Zimbabwe Crisis. Anything is better late than never, but the signs are that Zanu PF is reluctant to change.
NKC said the Zimbabwean economy expanded by an average of 10% per annum during 2009-12 as it picked the low-hanging fruits of recovery following the cumulative 50% drop in economic activity during 2002-08.
However, the 2013-14 period recorded declining growth as fiscal revenues (as percentage of GDP) declined, the value of tobacco exports declined, and the scourge of deflation took its toll on local productive capacity.
“The major economic take-off envisaged by the president is not factored into our medium-term outlook for the country and can only become a possibility with a change in political leadership, and the achievement of significant external debt relief,” it says.