2008: Another Year Of Marked Economic Decline

WHEN banker Nigel Chanakira recently described the country’s state of the economy as a “dead man walking” at the Confederation of Zimbabwe Industries annual conference, his remarks were seen by some delegates as insensitive.

The year 2008 will go down as a historic one for both good and bad reasons on the economic front.
The country’s official inflation rate was 100 580,2% in January rising to 231 million % in July.

Inflation figures have not been announced since, with independent economic analysts estimating the rate to be above one billion percent.

The Zimbabwe dollar continued to lose value against major currencies, resulting in the economy being “dollarised”.

Reserve bank Governor Gideon Gono removed 13 zeroes from the currency in a move which has not been helpful as it was not backed by increased production from all major sectors of the economy.

So bad has been the economic environment that Gono introduced 27 new denominations this year alone.

A closer look at numerous papers presented at business forums since the beginning of the year  and government’s economic blueprints to date  points to one thing — Zimbabwe’s comatose economy is desperately in need of salvation.

This desperation has heightened amid delays in the formation of an inclusive government between President Robert Mugabe and leaders of the two Movement for Democratic Change formations –– Morgan Tsvangirai and Arthur Mutambara.

First to come was the United Nations Development Programme Comprehensive Economic Recovery in Zimbabwe. Then came the government-authored Economic Recovery Package for Zimbabwe, which again pinned hopes of economic “recovery” on new governance.

The latter probably the last economic recovery plan for the year revealed a drop in investment growth to below 4% of the Gross Domestic Product. The current recession also saw the country dropping to 158 from 154 out of 181 economies rated in the World Bank doing business category.

Given the import-driven nature of Zimbabwe’s economy, this decline could further paralyse virtually all sectors in dire need of foreign exchange.

University of Zimbabwe Graduate School of Business professor Tony Hawkins is however sceptical whether the formation of a new all-inclusive government would result in immediate buoyancy.

“We should be realistic and mature about the post crisis period,” Hawkins warned. “Indigenisation without external lines of credit is not enough to resuscitate the economy. It could take up to 15 years for the economy to reach mid-90s levels.”

Agriculture once the mainstay of the economy faced one of the toughest seasons in history despite a massive mechanisation programme to back the sector. Widely publicised as the “Mother of Agricultural seasons”, the 2007/2008 cropping season turned out to be a failure when it emerged that more than two thirds of the country’s 12 million population required food aid.

The current season could be a replica of its failed predecessor despite government’s assurance of adequate food production. Resultantly, this could push food inflation in the coming year.

An international aid agency Famine Early Warnings Systems (FEWSNET)  said Zimbabwe’s combined commercial and humanitarian cereal imports must triple by March 2009 to meet the country’s requirements for the remainder of the marketing year.

The country’s depressed manufacturing sector struggled throughout the year with depressed capacity utilisation due to  low capitalisation  and damaging price controls in June 2007.

Now estimated to be below 10%, capacity utilisation in the manufacturing sector continues to be subdued despite the September 26 decision by government to legally allow business  to trade in foreign currency.

The Foreign Exchange Licenced  Wholesalers and Retailers (Foliwors) which were ostensibly established to generate foreign currency needed to boost industry might not generate the $900 million which government said was required to improve capacity utilisation to 80% in the coming year.

Statistics indicate that exports of manufactured goods amounted to US$113,04 million in the first six months of the year compared to US$473,17 million recorded during the same period last year.

The wide discrepancy between the Foliwors and regional prices might not generate the desired foreign exchange in the year ending December 31. Evidently this has resulted in continued shopping sprees across our borders. This is a blot to local industry and could stifle government efforts to manage runaway inflation now estimated to be over a billion percent.  

To show the magnitude of desperation in the sector, delegates at the CZI Congress in October emphasised  “restoration”— which appears to be the only  key to economic turn around.

The mining, once a key generator of ofreign currency, bore the brunt of the economic meltdown. Several gold mines closed, platinum and chrome mines suspended operations in the last quarter of the year on the back of depressed world market prices.

 
Statistics by the Chamber of Mines of Zimbabwe since the beginning of the year pointed to one thing — an all time low in production of most minerals. This downward trend led to the suspension of Fidelity Refiners and Printers from London Bullion Market Association due to below par gold deliveries.

This decline in production has been blamed on a plethora of reasons, chief among them being the delays by the Reserve Bank to pay over US$30 million owed to the gold miners.

These delays have seen frantic attempts by the Chamber of mines to engage government and the central  bank over the matter. Recently the chamber started to lobby government to suspend the central bank bullion trading licence. This year gold production is expected to hit an all time low of 4,5 tonnes compared to 27 tonnes at peak.

Diamond mining in Marange has also failed to attract foreign exchange to the formal market due to a reported dogfight by government departments over control of the gems.

The Reserve Bank, which is understood to have a keen interest in the diamond fields, however blamed smuggling for the low returns.

Currently contributing US$50 million in forex receipts, tourism recorded another 58% decline in the first six months despite frantic efforts by the Zimbabwe Tourism Authority to carry out publicity campaigns to save the country’s bartered image. This figure represents at most 3% of GDP.

This decline could prevail in the wake of recent travel warnings by US government on American citizens that was triggered by a dilapidated health delivery sector and reported increase in politically motivated abductions by suspected state agents.

The financial sector has not been sparred from the recession.  Hyperinflation became the byword by most bank officials as most institutions struggled to provide cash to multitudes of depositors.

In May the Reserve Bank relaxed the foreign exchange policy when it introduced the ongoing interbank feorx market. This development received a fair dosage of approval only to be widely condemned after reports that the rates were  managed by the central bank. Resultantly the then new exchange rate regime lagged behind the parallel market rates.

So redundant has the interbank bank rates been that the central bank chief recently admitted that he was now purchasing foreign exchange on the parallel market which he termed the United Nations rate.

The month of August saw the Reserve introducidng a new currency after years of using bearer cheques.

The banks also reintroduced old coins as well as well as new ones which almost immediately lost value due to hyperinflation. November was a bad month for the stock  market.

The central bank cracked the whip on suspected fraudulent dealers on the bourse resulting in all trading stopping. Market watchers now await whether the Securities Commission would restore activity at what had become the alternative investment option for many.

“The year has been a very challenging for banks both financially and otherwise,” said Bankers Association president John Mangudya. “Banks do not do well in an economy that is shrinking.

Next year should be a year to focus on production so that we can tame this monster called inflation. Once we improve on production, our clients will have more to bank and the financial sector will then respond positively.”

BY BERNARD MPOFU