Gono sets himself impossible targets

Conrad Dube 

POLITICAL uncertainty before and after the March general election will frustrate economic growth targets set by the Reserve Bank of Zimbabwe governor Gideon Gono in his monetary policy sta

tement last week, analysts say.

They said Gono failed to highlight the importance of a peaceful election in economic recovery, only saying that a “soul lost in this election is a piston lost in the economic engine” of the country.
 
The analysts noted that a violent election would decelerate progress in the economic recovery programme and upset bilateral and multilateral investment agreements.
 
Gono, the analysts argued, failed to speak authoritatively on the importance of political stability, government bureaucracy, foreign investment and quality of life which he spoke about in 1996.

“Foreign investment is absolutely necessary if countries are to grow, and in this regard, southern African countries must spare no effort in attracting that foreign investment if we are to make it,” Gono told delegates to an International Herald Tribune-sponsored southern Africa Trade and Investment Summit on Zimbabwe in 1996.

He then gave an 11-point checklist which he said investors ideally looked for before committing their funds to any particular region or country. The checklist included political stability, economic strength and government policies as they relate to exchange control.

Analysts are also concerned that lack of clear investment policies, and decisive action against unruly political elements will pose more challenges to business this year than last year and hence disrupt major investments as investors adopt a wait-and-see attitude.

“Not much progress will be done in the first half of the year as investors sit on the fence wondering what could happen before and after the election,” Zimbabwe National Chamber of Commerce president Luxon Zembe said.
 
“Unfortunately people judge us on the basis of our past elections which have been marred by violence.
 
“A peaceful election is one of the critical factors if we are to attain the set targets. Gono’s economic intentions also need to be addressed at the political level to succeed,” Zembe said.

In his policy statement, Gono said some Bilateral Investment Protection Agreements (Bipas) were caught up in the fast track phase of the land reform programme, and Zembe said this would also affect foreign direct investment which the economy desperately needed.

He said private property and property rights were “sacrosanct” and welcomed the settling up last year of an inter-ministerial taskforce to make sure these were observed.

Economist John Robertson said: “The governor is cautiously admitting that the land reform programme has not been successful and that the restoration of property rights has become important but there is need for clear action on the government’s attempts to restore property rights.”

Gono, who wants to reclaim Zimbabwe’s glory of yesteryear, has set ambitious targets for economic growth, foreign currency generation and inflation.

For all major competitive export categories, Gono has set “stretch” targets chasing the 1996 foreign currency generation levels of US$3,9 billion. Gono targets official foreign currency inflows of US$3,1 billion this year and US$3,9 billion in 2006.
 
The governor expects to “consolidate the gains made in 2004, and help government to integrate macroeconomic policies across all sectors, so as to successfully graduate our economy into its first year of positive growth which is projected at between 3-5%, from a 30,7% cumulative decline over the years 2001 to 2004”.

Gono also wants to reduce inflation to between 20-35% by year-end from the December rate of 132,7%.

Agriculture is expected to remain the backbone of the economy, contributing about 16,5% of total output and as much as one third of total foreign exchange earnings. The sector’s output is projected to increase by 28% in 2005, following an estimated decline of 3,3% in 2004.
 
The sector has utilised about $1, 642 trillion or 57,1% of the total disbursements under the productive sector facility, giving the sector considerable headroom to recover, according to Gono.
 
But sectoral output has declined by almost 50% since the start of the land reform programme five years ago and analysts say the decline has affected overall economic growth and foreign currency inflows.

Gono however explained that the attainment of this recovery was predicated on the timeous availability of agricultural inputs, financing arrangements and technical assistance to new farmers.

He stressed that the programme requires more “sweat, blood and toil”.

What he did not say though was how foreign currency inflows reached the record levels in 1996. Tobacco inflows in 1996 were US$702 million compared to last year’s US$185 million and a 2005 target of US$250 million. Inflows from manufacturing in that year of glory were US$740 million, while last year’s inflows reached US$207 million.
 
Manufacturing is forecast to bring in US$306 million this year.

Services raked in US$1,7 billion in 1996 in stark contrast to a paltry US$84 million in 2004 and the 2005 target of US$101 million while the diaspora brought in US$1,1 billion in 1996.

For the economy to operate fully, the country needs monthly inflows of at least US$250 million or US$3 billion annually, but last year only about US$2 billion flowed into the country.

Analysts question the wisdom of comparing 1996 figures and 2005 figures in nominal terms without zeroing in on volume and economic factors prevailing during the two periods. They say the targets are unrealistic.

Opposition Movement for Democratic Change secretary for economics, Tendai Biti, said: “Comparing 1996 foreign currency inflows with current inflows is not the best way to underpin targets. For instance, $200 million in 1996 is equivalent to almost $50 million now. The governor is making nominal comparisons which do not take into account effects of inflation.”

The Zimbabwe dollar was trading at around $10 against the US dollar in 1996 but has since depreciated to about $8 000 on the black market and $6 200 on the RBZ’s diaspora rate.

Inflation in 1996 was around 20% while annual expenditure was around 50% of GDP. Inflation in December 2004 was 133% and government expenditure is at 82% of GDP.

Gono’s figures are also in contrast with other professional forecasts for this year. For instance, Finhold expects GDP to decelerate by minus 3,5% from last year’s minus 6,4%.

Zembe highlighted that confusion in the mining industry raises alarm. “Investors are not sure of government’s intentions especially with regards to terms of foreign participation in the mining sector. Policy consistency is key in achieving economic revival.”

He said it would not be possible to achieve such ambitious levels of production when capacity utilisation in manufacturing sector was around 50%. “If we are to export more, capacity utilisation will need to be trebled.”
He added that international relations must be restored to increase direct foreign investment.

Robertson said the governor’s inflation targets were not supported by his plans on the funding of parastatals and local authorities to the tune of $10 trillion.

The $10 trillion windfall to parastatals and local authorities under the 18-24-month Parastatal and Local Authorities Reorientation Programme (Plarp) is three times more than government’s domestic debt of almost $3 billion, according to Robertson.

Gono said under this programme, the RBZ would issue medium to long-term stock to raise seed funds amounting to $10 trillion, which will go towards implementation of Plarp. He said that targeted outlays would primarily be for the specific uplifting of worn-out public enterprise capital, human resource rationalisation and development.

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