THREE months into Zimbabwe’s ambitious economic blueprint, the National Economic Development Priority Programme (NEDPP), the country’s econom
y is still experiencing a steep decline.
Inflation, which had reached an all-time high of 913,6% when the programme was launched in April, is now sitting at close to 1 200%, with interest rates hovering at over 900% — an insolvency alert to businesses, particularly those sitting on high borrowings.
According to private sector-commissioned studies, 60% of manufacturing companies have experienced significant decline in output volumes.
More than 15% of manufacturing companies are operating at less than a third of their capacity, with another chunk of a similar fraction operating at between 30% and 49% capacity.
Nearly nine out of every 10 manufacturing companies are unable to cover their costs and make full use of their standing capacities.
Government’s domestic debt last month touched an all-time high of $48 trillion, and there are fears this could bloat further due to growing fiscal profligacy.
Economic commentators are forecasting a budget deficit of over 10% during the year.
What government ministers had sold as a panacea to Zimbabwe’s economic depression is failing to provide the required cure, creating a deep sense of disillusionment among business leaders. Those who welcomed the programme with glee are beginning to realise the government sold them a dummy.
In fact, government had, during the launch of NEDPP, said that the project was a joint effort between the government and the private sector.
“There is a very low confidence level across the board,” said Luxon Zembe, the immediate past president of the Zimbabwe National Chamber of Commerce, speaking at a recent Institute of Personnel Management of Zimbabwe convention.
Zembe said despite the hullabaloo about an economic turn-around, the “reality on the ground” was a forbidding image of a distressed economy.
There is an acute shortage of foreign currency, with the country only managing to provide 10% of national requirements.
Economic distortions are prevalent in the economy, creating arbitrage and corrupt business practises.
Multiple fuel and maize prices as well as fickle exchange rates are fuelling the corrupt tendencies.
“There is a food crisis due to poor agricultural productivity by incompetent farmers,” said Zembe.
Prices of basic commodities are doubling every month, and the rich are getting richer while the poor are getting poorer “by the day”, he says.
“The dollar value is now a joke,” said Zembe. “The highest note in Zimbabwe ($100 000) cannot buy bread or a bottle of Coke.”
He said Zimbabwe had lost 50% of its key skills base to the diaspora.
Zembe, who was part of the business delegation at the launch of NEDPP, said government had in the past ignored recommendations from business, resulting in dire consequences for the country’s economy.
Zimbabwe’s gross domestic product has contracted by a cumulative 40% over the past eight years, and it has the largest budget deficit in the world at 10%.
The country has experienced the steepest fall in foreign currency earnings of 60%.
Life expectancy has been rapidly falling, as well as the standard of living.
Over 70% of the country’s population is considered poor.
Zembe said the NEDPP was a result of government’s dismissal of past economic recommendations from the business sector.
Although not saying whether or not the programme was failing, he pointed out that business confidence was at its lowest since 2000.
“Levels of confidence (in business and the economy) dropped from 50% to 9% between 2000 and 2005,” said Zembe.
Since Independence in 1980, Zimbabwe has had no less than 10 economic growth and poverty reduction related programmes.
These include Growth with Equity (1981), the Economic Structural Adjustment Programme (1991), Poverty Alleviation Action Programme (1994), and Zimbabwe Programme for Economic and Social Transformation 1996-2000. Since then, there have been identical economic blueprints such as the Zimbabwe Millennium Economic Recovery Programme (2001), the Ten Points Plan (2002), the National Economic Revival Programme (2003); and Zimbabwe: Towards Sustained Economic Growth — Macro-Economic Policy Framework for 2005-2006.
None seems to have sustained business confidence, forcing most entrepreneurs to either give up or scale down.
The NEDPP was expected to create economic stability within six months to October 2006.
Zimbabwe has experienced a major humanitarian emergency due to the deteriorating economy, immense policy constraints and the devastating effects of HIV/Aids since the crisis set into the economy in 2000.
In a paper delivered at the University of Pretoria’s Institute of Strategic Studies, Professor Tony Hawkins of the University of Zimbabwe’s Graduate School of Management, said Zimbabwe had in recent years “relied on the international community to help feed a country that seven years ago was a substantial net exporter of food and agricultural produce”.
“This is merely the tip of the iceberg — the start of a protracted process of donor dependence that will last for decades,” Hawkins said.
Although inflation marginally declined from its peak of 1 194% in May, economists say the situation remains gloomy.
The government through the Zimbabwe National Security Council chaired by President Robert Mugabe formulated the NEDPP. Mugabe announced what he described as “evident revival of our economy” during his state of the nation address in July 2004.
Under the NEDPP, the government seeks to mobilise US$2,5 billion within the next three months, boost efforts to stabilise the economy, reduce inflation and increase agricultural production.
The programme also aims to help enhance savings and trigger investments inflows into the country.
Mugabe said last week that policies the government had introduced were beginning to bear fruit.
He said foreign currency inflows were beginning to increase through foreign investments.
“I won’t say much now, but between now and December a lot is going to happen. We cannot fail and we cannot collapse,” Mugabe was quoted as saying in the state media.
Clearly, the NEDPP has failed to deal with the basic reasons behind the country’s spectacular economic decline.
These include skewed economic policies, a breakdown of the rule of law, and the government’s destruction of the commercial farming sector, previously the bedrock of the country’s economy.
Zembe said there was a “worrying level of pessimism towards the recovery process”, and that positive changes in agricultural productivity and political and economic policies were needed.
He said the government should embrace a “nationally shared economic vision” and embrace market economy policies which are coherent and consistent.
Hawkins maintained: “The social and economic damage in instances — certainly to agriculture and manufacturing — is not just long-term but permanent. It will take at least a dozen years to regain the living standards of the 1990s.”