Zimbabwe’s economy appears to be grinding to a halt. Business has all but stalled and economic hardships can be felt across all sectors of the economy. Agriculture, the lifeblood of the economy, is suffering from the devastating effects of the El Niño-induced drought while commodity prices continue to depress the mining sector.
The Ritesh Anand Column
The strength of the US dollar has made the country uncompetitive from a regional perspective. While any hope of international support in the short-term is likely to vanish with the recent enforcements of the indigenisation laws.
We seem to be contradicting ourselves. On the one hand, we are actively engaging the international community seeking support and foreign direct investment while on the other hand foreign-owned businesses in Zimbabwe are threatened with closure. Surely, any investor is going to think twice before investing in the country.
Many countries have some form of indigenisation, not only has the structure and implementation in these countries been beneficial to all parties concerned, but the implementation of policy has been clear and systematic. Ours is a fragile economy and I am sure there is a limit to how much battering it can take before it grinds to a halt.
We can expect some revenues from tobacco auctions while firming gold prices will provide some respite for gold producers, but what about the rest of the economy? Save for a few manufacturers, most firms are inefficient and uncompetitive. The strong dollar makes holidaying in Zimbabwe expensive. It’s cheaper for tourists to see the Victoria Falls from Zambia. In fact, the weakness in the South African rand makes it and attractive destination for many tourists. The service sectors, including financial services, have recovered but that’s mainly due to cost-containment rather than revenue growth.
I’m often asked what hope there is for Zimbabwe. I shrug my shoulders, but remain hopeful. I can see some light at the end of the tunnel. I just don’t know how we are going to get there. We need to see wholesale and meaningful changes in not only investment policy, but policies in general and there needs to be consistency and reliability in the implementation of such policies.
We need greater focus on the economy and what needs to be done to encourage economic activity. We need to think carefully about how we can restore productivity to the agricultural sector. We need to shut inefficient manufacturing operations and focus on areas in which we have some competitive advantages. We need to promote domestic and international tourism by making it cheaper for tourists to visit the country. How many Zimbabweans can afford to go on holiday in Zimbabwe? What happened to the two-tier pricing system where local tourists paid less for hotels? We need to continue building on the confidence in the financial sector. The recent cash shortages do not help.
Zimbabwe is not alone as the global economy shows signs of weakness. China is likely to experience a slowdown this year and will drag most emerging markets with it. The sharp decline in commodity prices has had a devastating impact on many African economies that relied so heavily on rising mineral prices. Zimbabwe benefited from the tail end of the boom in commodity prices so the sharp fall in commodity prices have had a limited impact on the economy.
The flip side is that we remain saddled with debt with little or no hope of settling this anytime soon. Settling our outstanding arrears with international financial institutions (IFIs) remains critical.
While Zimbabwe appears to have successfully completed the IMF-led Staff-Monitored Programme (SMP), the real work begins with the implementation of a more comprehensive and ambitious economic reform programme.
At the conclusion of the mission, head of the IMF delegation, Dominico Fanizza issued the following statement:
“Economic difficulties have deepened. Zimbabwe cannot wait and needs to act now. The El Niño-induced drought has hit the economy hard. Lower commodity prices and the appreciation of the US dollar have compounded difficulties. Policy action is needed to reverse this trend.
“Once the SMP is completed successfully — as an initial step toward reform and re-engagement with international partners — a comprehensive and ambitious economic transformation programme is needed to revive the Zimbabwean economy and to cement support among international partners.
Zimbabwe needs to take bold and decisive action to stem the economic slowdown. In fact, government needs to think carefully about reversing the trend and restoring economic growth in Zimbabwe. Fiscal discipline remains critical given the lack of resources. This heightens the urgency of re-engagement with the international community.
So I remain hopeful that we will do the right thing. The successful resolution of Zimbabwe’s external debt payment plan will be an important step towards normalising relations with IFIs and will allow Zimbabwe to eventually seek IMF financial support. It will also send strong signals to the international community, reduce the perceived country risk premium and unlock affordable financing for government and the private sector. This, together with policy reform, will help to achieve sustained economic development through economic transformation and improve living conditions for the people of Zimbabwe. Without this Zimbabwe will continue to drift aimlessly into the abyss. It’s about time we decided what it is we really want?