Economic recovery: A long way to go

Stronger policies and a favourable external environment supported the nascent economic recovery during the 2009-10 period. Real GDP growth accelerated from 6% in 2009 to 9% in 2010, averaging 7,5% by end of last year.

This was despite the fact that economic recovery (which is not growth in real terms since we are yet to go back to pre-1999 levels) started from a low base and was concentrated on primary commodity sectors in mining and agriculture, both of which are sensitive to exogenous shocks.

Structural impediments weighed heavily on manufacturing and utilities, which used to be the locomotives of growth and employment creation.

As Professor Tony Hawkins observes elsewhere in this edition of our paper, we must not read too much into what has been happening, although credit must be given to those working hard to revive the economy.

The fact is the economy is in transition, from a meltdown through a rebound and now towards a slowdown caused by internal and exogenous factors. The rate of recovery which Zimbabwe has been going through over the past three years is normal in countries that have undergone dollarisation and exchange-rate stabilisation after serious economic upheavals.

He said such growth patterns were followed by either a long period of plateau growth or a sharp reversal and steep decline.
This is very important to note to avoid authorities settling in a new comfort zone thinking they have turned the corner when the reality is that nothing much has changed in institutional and policy terms since 2009 to support sustained recovery.

Although the macro-economic situation has stabilised and normalcy restored in the economy and local markets, as shown by some indicators at the moment, recovery, let alone growth, is still a long way off. This is now particularly so given volatile internal and external factors affecting the economy.

A combination of internal and external problems buffeting the local economy, Hawkins said, highlighted by the current balance-of-payments crisis and rising vulnerabilities in different sectors, will dampen Zimbabwe’s economic recovery and growth.

On the domestic front, Hawkins said factors militating against improved economic performance included a fall in agricultural output, stunted performance by the mining sector, a continually deteriorating balance-of-payments position and the ongoing liquidity constraints.

The banking sector is currently reeling from a liquidity crunch, threatening to reverse the gains made since 2009. The liquidity crisis reflects underlying problems in the economy.

It is also a manifestation of poor economic performance, low-capacity utilisation by industry and depressed demand against a backdrop of low disposable incomes. The current liquidity crisis is further attributable to volatile short-term transitory deposits and limited lines of credit. The problem of low savings due to poor salaries and wages, as well as low interest income against high operating costs and “hot money” is worsening the crisis.

All these issues show that the economy, despite an average 7,5% growth in the past three years, is still not yet out of the woods.
With the global economic slowdown, now dramatically highlighted by the euro-zone crisis and the Greek bailout, weaker commodity prices, tighter credit markets, reduced capital inflows and a marked deceleration in South Africa’s economy –– Africa’s biggest economy and Zimbabwe’s largest trading partner –– it becomes clear that prospects of sustained economic recovery are under threat.
If you factor in rising oil prices and international currency turbulence, it further becomes clear we are in a state of flux.

However, government can alleviate the situation by dealing with the following problems: Unanswered policy questions on rationalising land redistribution, indigenisation, debt relief, currency regime, privatisation, public sector reform and the rule of law, as well as elections. This is what is fuelling uncertainty and instability internally and which requires urgent attention.

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