HomeBusiness Digest Zim’s economic recovery under threat

Moyo Tipped to Bounce Back Into Politburo

Hawkins, who lectures in business studies at the  University of Zimbabwe,  said the current  economic recovery since 2009 — which he emphasised was strictly speaking not growth in real terms — was under growing threats from internal and exogenous factors.

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

He said the global economic slowdown, weaker commodity prices, tighter credit markets, reduced   capital inflows and a marked deceleration in the South African economy are among the external factors negatively impacting on the prospects of sustained  recovery in Zimbabwe.

Hawkins said rising oil prices, where Brent crude sprung from US$105 a barrel to US$120 a barrel in the current quarter, and international currency turbulence were also affecting local recovery.

“Given that 93% of Zimbabwe’s exports are commodities, it is the impact of the global slowdown on commodity demand and prices, arising mostly from the eurozone debt crisis, that is the biggest threat,” Hawkins told an Alpha Media Holdings strategic planning meeting on Monday.

He said tighter global financial conditions meant that credit lines would be harder to access and more expensive. Foreign direct investment would also not improve since Zimbabwe was a high political risk country. The impact of this  might not be great because the country was unlikely to attract much capital anyway, he added.

Hawkins warned that the slowdown in South Africa could intensify regional and import competition, especially if the rand, which devalued by 18% last year, stayed weak while the dollar remained around current levels.

He forecast agriculture to decline by 12% on the back of  35% fall in  maize plantings, more than 60% downturn in cotton and soya output and a 10% drop  in tobacco production.

Mining output would be constrained by electricity supply, he indicated. According to industry figures, power supply utility Zesa is failing to meet national demand for electricity by  nearly 700 megawatts. The utility has an installed capacity of 1900 watts against an output of 1200 watts and peak demand of up to 2100 megawatts.

Hawkins said royalties and fees government was levying on mining companies ate into the sector’s cash flows, especially given weaker commodity prices and rising costs.

Volatile commodity prices were worsening the country’s balance-of-payments position, forcing the authorities to curb imports and offshore payments. Hawkins estimates that by the end of last year, the country’s balance-of-payments position was a negative US$2 billion.

This situation would continue to worsen the country’s liquidity position given that many banks were fully loaned up, the cost of credit was increasing and credit lines constrained by a combination of the eurozone crisis and domestic political uncertainty.

Against this background, Hawkins said he expected the economy to grow at a much slower pace over the next two years, reaching a growth plateau, since fundamentals of the failed state were still in place and little had changed institutionally and  in policy terms.

He stressed the economy was in transition from a three-year period of rebound since dollarisation, growing at an average rate of 7,5%. Such rates were normal for countries that would have undergone exchange rate stabilisation.

“After three strong rebound years since dollarisation, the economy will lose momentum in 2012/13 and since it is in transition from a three-year period of rebound of 7,5% a year, it will reach a growth plateau of, say, 5% annually,” said Hawkins.

“This is not abnormal since many countries that have taken an exchange-rate stabilisation route enjoyed a strong rebound.  It was this exchange-rate stabilisation that defined the post-crisis economy, not a makeshift, dysfunctional administration like the GNU (government of national unity).”

He said such growth patterns were followed by either a long period of plateau growth or a sharp reversal and steep decline.
The Zimbabwean scenario coincided with favourable events which included a boom in international commodity prices, diamond exploitation, increased tobacco output and macro-economic stability in the aftermath of dollarisation.

Stronger policies and a favourable external environment supported a nascent economic recovery during 2009-10 period. Real GDP growth accelerated from 6% in 2009 to 9% in 2010.

However, economic growth 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.

Hawkins said there was a lot of unanswered policy questions on rationalising land redistribution, indigenisation, debt relief, currency regime, privatisation, public sector reform and the rule of law.

He said it would be difficult to expect sufficient investment to sustain an economic growth rate of 8% without convincing rational answers to these policy questions amongst others. More likely 2012 would be below trend growth at around 4% to 5% at best.

Hawkins pointed out that since the GNU was always intended to be transitional, it was not realistic to expect such a government of opposites to coalesce magically into a united administration capable of making strategic policy decisions that would improve investor confidence.

“Indeed, the eurozone crisis and the Arab Spring are reminders that there is no such thing as certainty in politics, business or economics. The best we can do is to adapt to what is happening, rather than pretend to be able to change or influence it,” Hawkins observed.

He pointed out that in addition the economic downsides and domestic political  risks play a critical role in influencing economic recovery and growth.

Hawkins said Zimbabwe’s economic prospects depended on various scenarios, including the following:

 

  • The constitution is agreed, referendum late 2012, elections by mid-2013.
  • Constitutional deadlock — president calls elections under the existing constitution late 2012 or GNU is “timed out” by April 2013.
  • Parties (go back to negotiating and) agree GNU-11
  • President steps down, election within 90 days sometime in 2012/13. (In fact, if the president steps down under the GPA and current constitutional arrangement, he is replaced by another Zanu PF leader. However, outside the GPA and Constitutional Amendment No. 19, if the president steps down parliament sits as an electoral college to elect a new leader for the remainder of his term — Amendment No. 18).

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