Zimbabwe’s route to recovery

IN July, both the fiscal and monetary authorities laid down blueprints which embodied various policy proposals for the economy and the monetary sector.

At face value, a country with an estimated unemployment rate of over 80%, a debt overhang estimated at over US$6,7 billion, and manufacturing industry operating well below full capacity, the pronouncements in those manuals might be considered kindergarten solutions to the country’s economic problems. The case of Zimbabwe’s economic recovery remains debatable in public opinion where several advocates of economic growth and development have continued to suggest differing solutions for the economy.
Several economic blueprints such as Sterp 1 &2, as well as the three year Macroeconomic Framework, were introduced after the formation of the inclusive government in a bid to resuscitate the ailing economy. But the success of these roadmaps is being retarded by lack of funding. However, notable progress has been made since the introduction of the multicurrency system and the signing of the global political agreement  with the country recording real GDP of 5,7% and improvement from 9-digit to single digit inflation (June 2010 year on year was 5,3%).
For quite some time the country has been internationally isolated because of various factors which are part of country risk ratings. Thus, the next question would be: Does Zimbabwe’s economic condition defy universally agreed economic principles? Across the world, each economy has a pivot industry, for example, agriculture has always been the leading sector for Zimbabwe before the economic malaise started. From recent budget review figures, projected growth in the mining sector has overtaken agriculture in total contribution to GDP.
In 2010, agriculture is expected to grow by 18,8% whilst mining is projected to grow by 31% in 2010. In the mining sector the talking point currently is the discovery of alluvial diamonds in Chiadzwa with some economic agents saying that proceeds from exports could be a major contributor to the national income, going forward.
The recent sales which generated $56 million have already raised expectations in the country with the most notable one being suggestions by certain sections of the civil service for the proceeds to be used to increase salaries. While it is within any employee’s right to demand a raise from the employers, it is regrettable that rather than prioritising growing the economy, many are actually seeking just to boost their current consumption. Although the National Treasury has been resolutely declaring that ‘‘what we gather is what we eat’’, it will be imperative also to invest what we gather to enjoy increased benefit later.
Part of the anticipated revenue streams should be deliberately channelled towards the financial sector to enable banks to spread it to needy sectors with the overall objective to increase productive capacity beyond 50%. Critical areas such as energy also need to be prioritised in the deployment of any revenue because it is difficult to grow the economy without adequate and stable power supply.
Seesaw in business confidence, “business as usual mindset”, debt servicing difficulties, policy discord and inconsistency in business law enforcement add to the pool of factors which have deprived the country of foreign direct investment , liquidity and foreign currency inflows thus corroding the country’s economic growth engines. Mining, agriculture, manufacturing and tourism have their targeted growth forecasts but high cost of funds and shortage of capital has been problems for these sectors since the introduction of the multicurrency system.
It is acknowledged that the pendulum had swung too far for Zimbabwe, but there are various overlooked simple things which make us continue to revise GDP or other economic growth indicators downwards. There is need to refocus our own fundamentals which repel foreign direct investment, for instance, and the ease of doing business in Zimbabwe. This refocus is a recovery prescription for attracting foreign currency inflows in fragile economies where low GDP levels reduce reliance on votes of credit.
Revenue generation enhancements measures which do not cripple industry and investment promotion activities are important factors to achieve sustainable economic recovery.
As the Finance minister Tendai Biti rightfully said, “Foreign direct investment and indeed domestic investment are essential in expanding the production base, thereby; creating headline employment, aggregate demand and surplus rent which is the basis of savings and more investment.”
Recently, privatisation has been tabled, with the intention to simultaneously boost revenue and improve efficiency in parastatals. Privatisation of public utilities is commendable and has some success stories but it has to be supported by comprehensive and consistent privatisation law for it to be a success.
For the year 2010, growth was originally forecast at 7% but was revised down to 5,4% by  Biti . The budget review coming with real GDP sweeteners and a recast of the underlying fundamentals which propel us to reduce growth forecasts is important. It might be an uphill task to achieve the forecast without such a review given the already downgrade of 1,6 percentage points. This would mean that we scout for another solution to improve foreign exchange inflows essential for economic growth. Therefore, the road to recovery may not require complex metrics as it is neither bumpy nor slippery but rather in need of much more straightforward remedies.

 

Jealous Chishamba

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