HomeBusiness DigestMugabe re-election economic albatross

Mugabe re-election economic albatross

WHEN President Robert Mugabe and his Zanu PF party won the 2013 July general elections, their major task was to revive an economy which was already showing signs of distress in the run up to the polls.

Taurai Mangudhla

And after the announcement of Mugabe and his party’s victory, the nuts slowly began to come off.

Mugabe in September appointed his Cabinet to implement the party’s economic blue print -Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset).

Analysts say cabinet has largely failed to spearhead and inspire economic transformation in its first six months in office as the economy continues to underperform.

Econometer Global Capital head of research Takunda Mugaga said the Mugabe-led government was badly struggling largely as a result of a legacy of incompetency and corruption built by some of the cabinet ministers over the years.

“A legacy of mediocrity and corruption built by some of these cabinet ministers over the years is very difficult to shake off,” Mugaga said.

“I think the failure of this cabinet to ride on the anti-corruption wave that Information minister Jonathan) Moyo built at ZBC (Zimbabwe Broadcasting Holdings) is unforgivable.”

Mugaga said the new government has managed to inspire confidence among international investors as shown by foreign listed Atlas Mara’s US$265 million investment into ABC Holdings, reports Wallstreet bankers had rescued Obert Mpofu’s struggling Allied Bank and Russian investors eyeing Tetrad. He said government’s silence on indigenising the financial services sector was beginning to pay dividends.

“(Former Reserve Bank of Zimbabwe Governor Gideon) Gono is enjoying the last laugh and his closeness with the President could be an assurance that his views on indigenisation will be upheld and this in itself could be an attraction,” he said.

Treasury’s state of the economy report for February 2014 paints a gloomy picture so far, showing a total of about 15 companies in the metals and engineering subsector were reported to have closed during the month of February as the manufacturing sector remained under pressure, with a number of companies facing acute financing challenges.

“Furthermore, sales of consumer goods were reported to have declined by 25-30% during the month, reflecting intensification of the liquidity crisis in the economy,” reads part of the treasury report.

Independent economist John Robertson said the new government brought nothing new in policy terms. If anything, government has reinforced its indigenisation policy which has already proven to be a deterrent to foreign investment.

“We still depend on importing basics and we have seen jobs and tax shrinking,” he said, adding the economy has shrunk as exports also fell compared to last year.

He said Atlas Mara’s investment in ABCH was because the regional banking group was a viable business that did not require to be rescued.

“ABCH is a Botswana registered institution with assets not only in Zimbabwe so they are not tying their fortunes to Zimbabwe only,” said Robertson.

He said the country needed investment in the productive sector where there was more job creation as opposed to the service industry.

The economy is underperforming and Finance permanent secretary Willard Manungo says government missed revenue targets by 6% in the first quarter of 2014 although collections are expected to improve as per tradition in the remainder of the year.

A February treasury report shows revenue collections during the month of February 2014 amounted to US$248 million against a target of US$273,3 million, resulting in a negative variance of US$25,3 million.

In January revenues stood at US$251,7 million versus a target of US$278,6 million. Cumulatively, revenue collections to February 2014 amounted to US$499,6 million against a cumulative target of US$551,9 million, resulting in a negative variance of US$52,3 million or 10, 47%.

Reflecting the general slow-down in economic activity, revenue collections for the first couple of months of 2014 are lower than those recorded during the same period last year.

The report said recurrent expenditures, at 96% of total expenditures, continued to crowd out capital spending, with only 4% being disbursed for capital projects.

Of the February 2014 recurrent expenditures, 58% went towards employment costs whilst 38% was for current transfers. During the month of February, the budget balance stood at a negative US$16,8 million, down from a positive balance of US$17,8 million in January 2014.

The liquidity crisis persists with money supply growth in January 2014 declined by 1,1%, from the US$3,932 billion recorded in December 2013 to US$3,888 billion in January 2014.

Year-on-year inflation declined from the 0,41% recorded in January 2014, to -0, 49% in February. Month-on-month inflation also slowed down to 0, 05%, down from the 0,14% recorded in January.

Major drivers of the decline in prices included food and non-alcoholic beverages, education and transport.

Going forward, inflation is expected to remain subdued due to depressed aggregate demand, stable international oil and food prices, as well as strengthening of the US dollar against currencies of our major trading partners.

“In this regard, deflationary pressures experienced during February will continue to affect the economy in 2014, due to an extending negative output gap,” said Treasury.

During the month of January, imports declined by 15% to US$487,5 million from the US$576,6 million recorded in December 2013.

The decline in imports (especially raw materials) can be attributed to the low activity in the manufacturing sector.

Foodstuffs, motor vehicles and fuel contributed the bulk of the imports in the month. The trade gap for the month of January improved to US$209,3 million from the US$324,7 million
realised in the month of December 2013.
Erratic power supply affected industry as average electricity generation capacity during February was 991 MW/h against a target of 1 017 MW/h.
This poor performance, Treasury said, was attributed to unplanned outages at all thermal power stations which saw government resorting to imports as well as load shedding in order to cover the supply gap.
Mineral output remained depressed during the month of February 2014, with gold and nickel registering significant declines. Gold output decreased from 926,8 kgs in January to 831,3 kgs in February mainly on account of production slippages from large scale producers.

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