New Year, Same Old Problems For Economy

THE stiffest challenge the Zimbabwean government will face this year is achieving the main objective of “restoration of economic stability and growth” in an economy which has shrunk by 60% within a decade.

The country’s long and uninterrupted period of economic decline is set to persist this year as hope for an all-inclusive government, which is expected to form a platform for economic recovery, seems to be fading with both the Movement for Democratic Change (MDC) formations and Zanu PF to blame.

Over the past 10 years the economy has been cruising in reverse gear courtesy of skewed economic and political policies.

The immediate economic challenges facing the country are companies failing to open, corruption, price distortions, dollarisation and foreign currency shortages.

Zimbabwe, the spirit of whose citizens has been shackled by shortsighted economic policies, appears to be travelling on the highway to disaster.

With an inflation rate estimated to be more than 10 times the official 231 million % and financial chaos at both government and street level, the local currency has become a joke to many Zimbabweans.

Economic analysts say opening new business in Zimbabwe would be extremely difficult, as it required foreign currency which is not readily available on the market.

In November last year Zimbabwe was ranked 153 out of 178 countries in a 2008 World Bank report on “Doing Business” which looks at how regulatory environments influence the operations of business.

It was ranked lower than war-torn spots such as Iraq, Sudan, the West Bank and Gaza which were placed 142nd, 144th, and 118th respectively.  

The report analysed 10 stages of a business’s life which were starting a business, dealing with licences, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business.

The 10 indicators, which are used to analyse economic outcome and identifying reforms that have been successful and why, are then factored into the main index, “Ease of Doing Business” in which Zimbabwe has fared badly.

On starting a business, Zimbabwe was placed at position 143rd, proving that the regulatory environment governing the entry of new businesses was burdensome, according to the report. The ranking could drop further if there is no visible economic turnaround.

Zimbabwe’s rank on the index of protecting investors was 107 and according to the report, this means the country has poor corporate governance practices, high corruption and weak internal systems in most companies.

“To document the protections investors have, Doing Business measures how countries regulate a standard case of self-dealing — use of corporate assets for personal gain,” the report stated.

Independent economist John Robertson said Zimbabwe’s economic revival depends on formation of a unity government.

“We should not expect much if the country’s two political parties do not find common ground. It is a tall order for the new government, which among other things will be faced with a cocktail of problems in trying to restore property rights, boost production in all sectors of the economy, increase foreign currency inflows and have assess to balance of payment and revive all the service sectors,” said Robertson.

Robertson said nothing could be achieved if Zanu PF wanted new elections, which requires a lot of money which government did not have.

Economist Brain Muchemwa said the year had started on a bad note.

“There is a lot of confusion, from the political front, business, health and the education system. The situation on the ground does not inspire confidence or hope in any investors. The economy is now dollarised and only those companies and individuals who can access foreign currency will survive,” Muchemwa said.

If the unity government is to materialise, MDC will come in to a government which is virtually broke and heavily indebted with a foreign debt of over US$6 billion and a domestic debt nearing US$20 quadrillion.
The domestic debt figure means every Zimbabwean is personally indebted to the tune of about $142,8 billion.

According to the Confederation of Zimbabwe Industries, the manufacturing sector is operating below 30% and all major sectors of the economy are depressed.

The Zimbabwean dollar is projected to continue losing value against major currencies as there is no production to back up economic policies.

There is also going to be a problem of price controls and distortions, and the relevance of organisations like the National Incomes and Pricing Commission (NIPC).

Zimbabwe’s currency is now worthless from hyperinflation, its financial institutions in total disarray while its world-class farming estates lie idle and tourism infrastructure is grossly underutilised.

Inflation shows no sign of declining. With inflation at 4% it takes 18 years for a currency to lose half of its value, using the rule 72 recommended by the International Monetary Fund.

At 100 000% it takes about nine hours and 20 minutes for $100 to lose half its value.

And with inflation at 231 million %, if you delay your shopping by half an hour you have effectively lost 90% of the value of your money.

This means if one goes out to buy a loaf of bread and is 10 cents short, by the time they rush home to collect the 10 cents and return to the shop, the price of bread will probably have increased nearly four times.

As all structures continue to decline there is likely to be an increase in corruption this year.

Zimbabwe was last year ranked as the 14th most corrupt nation out of 180 countries surveyed by Transparency International (TI) due to the breakdown of formal procedures and structures at most institutions that are operating in an unstable economic environment.

TI Corruption Perception Index (CPI) measures the perceived levels of public sector corruption in a given country and is a composite index, drawing on different expert and business surveys.

The 2008 CPI scores 180 countries (the same number as the 2007 CPI) on a scale from zero (highly corrupt) to 10 (highly clean).

Zimbabwe, which was ranked 166th had a score of 1,8 on the CPI scale, indicating that the country was slowly heading towards the highly corrupt level.

The country’s confidence level was ranked between 1,5 to 2,7 out of the possible 10 marks.

Commenting on strengthening oversight and accountability on Zimbabwe’s rating, TI chairperson, Huguette Labelle said whether in high or low-income countries, the challenge of reining in corruption requires functioning societal and governmental institutions.

“Poorer countries are often plagued by corrupt judiciaries and ineffective parliamentary oversight. Wealthy countries, on the other hand, show evidence of insufficient regulation of the private sector, in terms of addressing overseas bribery by their countries, and weak oversight of financial institutions and transactions,” said Labelle.

“Stemming corruption requires strong oversight through parliaments, law enforcement, independent media and a vibrant civil society,” Labelle said.

BY PAUL NYAKAZEYA