While Finance minister Tendai Biti and his colleagues in government are painting a rosy picture of the situation, analysts such as Professor Tony Hawkins and other are sceptical about the economic outlook.
So the question is: Which direction exactly is the Zimbabwean economy heading? Is the current growth in the economy real growth or recovery? And how has the growth recorded in the three years’ post-dollarisation measured against the standard of living of ordinary Zimbabweans? Is the growth cascading down to the people?
The country is currently facing a multitude of problems mainly emanating from the current political stalemate which has worsened the country political risk profile, ultimately stalling foreign capital inflows necessary to boost capacity utilisation and production in the economy.
In his 2012 budget statement, Biti projected the economy to grow by 9,4% in 2012 against a background of improved performance in sectors such as agriculture, mining, tourism, social sectors, finance and electricity.
He said the growth would be propelled by momentum from the 2011 fiscal year in which the economy was estimated to grow by 9,3%, with the mining and agricultural sectors contributing mostly to this, having benefited from firm international commodity prices.
However, analysts are not convinced by Biti’s projections. Hawkins argues a combination of internal and external problems highlighted by the current balance-of-payments crisis and rising vulnerabilities in different sectors would impact on economic growth.
But Biti says the positive performance in 2012 is expected to be underpinned by further growth in finance, expected to increase by 23%, mining 15,8%, tourism 13,7%, agriculture 11,6%, manufacturing 6%, and transport and communication 6%.
Analysts say the ongoing liquidity constraints in the banking and finance sector will limit lending towards the productive sectors of the economy, thus undermining Biti’s forecasts.
They say this would severely impact on the gross domestic product and curtail projected growth figures.
Central Bank governor Gideon Gono has indicated the banking sector remains “safe and sound”, notwithstanding underlying risks posed by the operating environment, notably volatile deposits, absence of an active inter-bank market and lack of an effective lender of last resort function, market illiquidity, cash-based transactions and limited access to external credit lines.
“The weak and troubled banks in the sector are few, small and of low systemic importance. Collectively, as at 31 December 2011, these institutions had a combined market share below 5% in terms of total assets, deposits and loans,” Gono said recently.
But the current liquidity situation is increasing vulnerabilities within the fragile financial services sector. Banks are currently facing serious liquidity problems and that in turn affects lending to productive sectors of the economy and growth. The real situation on the ground shows more banks treading on shaky ground, having difficulties managing their liquidity positions given the late processing of electronic transfers and caps on cash withdrawals. Their loans-to-deposit ratios are also unsustainably high, leaving them further exposed.
“If the situation remains unchanged, there is a great risk of failure of more than one financial institution and because of systemic risk, the whole sector may collapse,” said one economic analyst who preferred not to be named.
A fortnight ago, Gono announced a series of measures in a bid to contain the liquidity crisis but analysts are asking if they can restore stability in the turbulent sector. Some analysts, including Industry and Trade minister Welshman Ncube, say the measures are cosmetic and would not address the problem.
Gono has indicated that as at February 3 2012, bank deposits had improved to US$3,5 billion but loans remained static around US$2,8 billion, indicating tight liquidity conditions. In this state of flux the situation is changing fast and that position could have deteriorated. The stock market started the year on a turbulent note given the overhang of the indigenisation laws which dampened confidence in the market in 2011. The economy has lost billions due to the uncertainty created by the chaotic indigenisation campaign.
Heightened calls for the implementation of the indigenisation policy last week resulted in low sentiment in the markets and stocks are expected to take a further nosedive.
As a result the projected performance of the financial sector in 2012 still remains largely inflated given the situation on the ground and that the sector remains clouded by many factors which can underpin the estimated 23% growth.
Biti says the projected growth in agricultural production of 11,6% in 2012 takes into account the number of financing facilities established by government, the banking sector, co-operating partners, seed and fertiliser suppliers in support of the preparation for the 2011/2012 agricultural season.
But Hawkins projects a fall in agricultural output because of lack of preparedness and farming inputs. The rainfall situation is also a cause for concern. Recent hailstorms in some parts of the country, which experienced heavy rainfall, could affect the tobacco output estimated at 150 million kgs in 2012.
Despite good rainfall in some parts of the country, the Zimbabwe Farmers Union indicated in its weekly bulletin last week that the rest of the country, especially the southern provinces, namely Masvingo and Matabeleland provinces and low-lying parts of Manicaland, Midlands and Mashonaland provinces had experienced very long dry periods which have adversely affected crops and grazing areas.
“In most of these cases, the crops have permanently wilted and even if the rains were to come now, most of the crops will not recover,” said the ZFU.
Biti also says mining will be a major driving force behind overall economic growth in 2012, benefitting from further private capital injections, international commodity prices and anticipated initiatives to minimise electricity supply interruptions.
The sector is currently dogged by the disruptive indigenisation policy as Indigenisation minister Saviour Kasukuwere pounces on major mining concerns demanding they relinquish their shareholding to government or its proxies.
Kasukuwere last week issued a 14-day ultimatum to mining giants Zimplats and Mimosa, further fuelling uncertainty on the long-term viability of the mining sector. Partly due to these problems, Hawkins projects a stunted performance for the mining sector in 2012.
What is clear is that the economy may be facing serious problems ahead, derailing Biti’s plan and stalling recovery at a time when Zimbabwe needs to sustain high levels of growth to get back to the pre-1999 levels.