THE most daunting challenge the Zimbabwean government will face this year is restoring economic stability and growth in a dollarised economy that is recovering after it had shrunk by 60% between 2000 and December 2008.
The economy is expected to grow by 8,1% this year.
Analysts say the immediate economic challenges facing the country are ensuring that companies increase capacity utilisation, tackling corruption, paying external and local debts, increasing exports, obtaining lines of credit and overcoming foreign currency shortages.
Social challenges include inconsistent power and water supplies, poor infrastructure, and a deteriorating education and health system.
However, Zimbabwe appears to be recovering from the disaster the country had been facing over the last 10 years.
Analysts said obtaining loans to kick start businesses would be a major challenge this year. There was a complete freeze in credit markets as banks were unwilling to lend much due to a high risk of default.
Write-offs constituted a huge chunk of the losses being reported. The cancer appeared to be a complete loss of confidence in the financial system.
Economic analyst Sonny Mabheju told businessdigest this week that there will largely be a follow-up to the 2010 challenges since there were no significant changes in the business environment last year.
“The usual challenges of poor infrastructure, unreliable economic enablers and political perceptions with the related impact on local and international business confidence have all crossed over into 2011 and are likely to be with us for the greater part of 2011. Economic recovery is therefore likely to remain below the economy’s potential,” he said.
Mabheju said there was need for sufficient amounts to fund all sectors involved in the reconstruction and expansion programs, from private sector, quasi-government and government.
Another problem was that Zimbabwe was still regarded as a very high-risk investment destination. The country slipped one place to number 157 on the World Bank Doing Business 2011 out of a total of 183 economies.
“There is also need to ensure that the business environment is not over influenced by perceptions of political developments. Government and quasi-government institutions on their part should ensure there is an enabling environment for business to prosper,” Mabheju said.
He said most of the problems in Zimbabwe needed medium-term to long-term solutions both locally and internationally.
“Although we dollarised, the total economy needed a much longer recovery period and one can say we are still in that process of recovery. What is important as we go forward is to ensure that we underpin that recovery process by adopting policies that support economic recovery,” he said.
However during the last week of December last year, Finance minister Tendai Biti posted on his Facebook page that 2011 would be a much more difficult year because of liquidity shortage and products that are not competitive.
Last year Zimbabwe also fell six places down the global economic competitiveness ratings to 136 out of 139 ranked economies, the Global Competitiveness Report 2010-2011 issued by the World Economic Forum said.
The country however improved its position on the global Corruption Perceptions Index for the second year in a row, but remains very low on the international scale.
In the 2010 index published by Transparency International, Zimbabwe scored 2,4, up from 2,1 last year. The country is now ranked 134 this year, up from position 146. The 2010 result is a vast improvement from 2008 when Zimbabwe was ranked 166, the country’s worst ranking ever.
Economist David Mupamhadzi said availability of capital will be key in the speedy economic turnaround and resolution of major grid-locks,
“Policies that enable more credit to flow freely in the economy, at the same time focusing on labour-intensive projects to create more employment are needed,” he said
Economist Brains Muchemwa told businessdigest that the absence of long-term financing options and high cost of capital will be the major challenge for many businesses in 2011.
“The resultant impact on competitiveness will result in many companies, especially those competing with low cost global producers, facing serious viability challenges,” he said.
“The rising domestic incomes premised on the raised civil service salaries will to some extent provide the relief to industry that has been suffering from weak domestic demand.
“However the issues of competitiveness will remain key to individual company survival, and companies that would be able to review their operational efficiencies to become efficient low cost producers stand a bigger chance to benefit,” Muchemwa said.
Following a visit to the country, last year in November the International Monetary Fund said Zimbabwe’s economic outlook was looking up, but the country needed to institute structural reforms around tenure system and address rigidity in the labour market.
“Fully unlocking Zimbabwe’s growth potential would require significant progress in structural reforms. Priority areas include: reducing labour market rigidities, establishing security of land tenure, clarifying ownership requirements under the indigenisation legislation, and addressing concerns about governance in the diamond sector,” said the team leader Vitaliy Kramarenko.
Although Zimbabwe’s economy is on an upswing, Kramarenko says government should strengthen the business climate, although he sees the 2011 budget generating a cash surplus.
“Supported by renewed efforts to strengthen policies and favourable shocks, the Zimbabwe economy is completing its second year of buoyant economic growth after a decade of economic decline.
“Regarding favourable shocks, higher gold and platinum prices boosted exports and government revenues, a significant appreciation of the rand has eased competitiveness pressures, and favourable weather conditions have contributed to higher agricultural output,” Kramarenko said.
Economic analyst Eric Bloch told businessdigest that the key challenges likely to confront businesses in 2011 will, “regrettably, and potentially be avoidable if government would, very belatedly, address issues that negatively affected business in 2010 such as cash shortages, unreliable power supplies, political stability and an environment that attracts investors.
“Government should work vigorously to restore absolute political stability, which is a prerequisite to accessing Foreign Direct Investment and international lines of credit to the money market and to commerce and industry,” he said.
According to the Confederation of Zimbabwe Industries, average capacity utilisation for the first half of last were rose to 43,7% from 32,3% recorded during the same period last year.