By Best Doroh
THE 2008 national budget, whose thrust is “geared towards stabilising the economy, increasing productivity and lowering inflation”, was crafted under very
difficult conditions, emanating from rising inflation, shortages of foreign currency and energy and continued economic decline.
Despite acknowledging the gravity of these challenges, the Minister of Finance surprisingly predicted that the economy will recover from an estimated decline of 5,7% in 2007 to register a positive growth rate of 4% in 2008.
However, the International Monetary Fund, in its October 2007 World Economic Outlook, predicted that the Zimbabwean economy will decline by 3,6% in real terms in 2008. Economic growth in sub-Saharan Africa (excluding Zimbabwe) is expected to increase from 6,1% in 2007 to 6,8% in 2008 underpinned by economic stability, solid capital injections and strong international demand for primary resources from Africa, particularly commodities.
Global economic growth, on the other hand, is expected to decline from 5,2% in 2007 to 4,8% in 2008 as a result of ongoing financial and credit crisis in the US and high oil prices.
The Finance minister’s economic growth projections for 2008 are premised on an anticipated, but unspecified, growth in the SMEs sector as well as a recovery in the agricultural sector, driven by the government’s ongoing Farm Mechanisation Programme and continued funding support under Aspef.
In fact, the minister seems to have based the 2008 projections on a continued recovery in tobacco, groundnuts, soyabeans, sunflower and horticulture sub-sectors, whose output is estimated to increase by 39%, 51%, 46%, 24% and 3%, respectively, in 2007.
However, given that activity in the other real sectors, particularly mining, manufacturing and services is anticipated to remain depressed in the short to medium term, and considering that the agricultural sector contributes only 15%-20% of national output, the minister’s overall economic growth projections are rather optimistic.
In fact, the mining sector continues to be adversely affected by shortages of skills, undercapitalisation and smuggling of minerals, with gold, nickel, asbestos and chrome output reported by the Chamber of Mines to have remained depressed during the first 9 months of 2007. The minister appears to believe that the RBZ-initiated small-scale miners recapitalisation programme and the budget allocation of $6,3 trillion (US$1,9 million using the Old Mutual Implied Exchange rate) to the Mining Industry Loan Fund will resuscitate capacity utilisation in the capital intensive sector.
The US$1.9 million seems too little to effectively cater for the country’s many small scale miners, considering that large entities like Murowa have earmarked funds amounting to US$250 million for expansion of only one mine.
In addition, in spite of the negative inflationary impact of previous production sector support facilities such as PSF and Aspef, the minister hopes that the Basic Commodities Supply Side Intervention (Bacossi) fund will successfully rejuvenate activity in the manufacturing sector and result in improved production levels and economic growth for the sector.
However, although data on the manufacturing sector continues to lag behind, with latest RBZ figures indicating that the sector declined by 7% in 2005, the Confederation of Zimbabwe Industries noted earlier in the year that the sector was operating at 30% capacity. Thus, given the adverse effects of the foregoing foreign currency shortages and price controls, the manufacturing sector is expected to continue underperforming in the short to medium term. In addition, distortions in the manufacturing sector are expected to adversely affect activity in sectors such as distribution, hotel and leisure, among others.
Despite the 26% increase in tourist arrivals from 1,5 million during the first nine months of 2006 to two million during the corresponding period of 2007, the number of tourists from major foreign currency generating markets like Europe and America remains depressed. In fact, mainland Africa accounted for 92% of total arrivals in 2007, up from 91% in 2006. The continued decline in tourist arrivals from European and American markets is, however, no longer entirely due to negative international publicity, but it is also caused by the overvalued exchange rate