Economic meltdown to persist: Analysts

ZIMBABWE’S economy is seen haemorrhaging further in 2017 due to continued de-industrialisation and dwindling revenues against growing fiscal demands ahead of the 2018 general elections as well as the anticipated damage from the introduction of bond notes.

By Taurai Mangudhla

The economic distress may manifest in the form of fuel and food shortages as the country’s nostro balances deplete due to crumbling exports, analysts warned.

Lack of policy consistency and infighting in the ruling Zanu PF party are also expected to retard progress in government while militating against fresh funding and aid.

In 2016, the Zimbabwean economy was under stress on account of a tight liquidity crunch coupled with a myriad of macroeconomic challenges that culminated in low domestic production across several sectors including agriculture, mining, manufacturing, tourism, construction and the service industry.

As a result, government officials were forced to swallow their pride and revise downwards economic growth projections from initial targets of 2,7% to 0,6% as the country paid the price for poor policies and lack of consistency, coupled with corruption and generally poor governance.

Although government projects a modest 1,7% economic growth in 2017 mainly on account of a rebound in agriculture and a firm mining sector, analysts believe the projections could be pie in the sky.

Economist Prosper Chitambara said problems of 2016 will escalate into 2017.

“(The year) 2016 was a very difficult and challenging year economically and 2017 may be more challenging macro economically with looming elections in 2018,” Chitambara said.

“There will be a lot of pressures on fiscal expenditures in 2017 while key reforms are unlikely to be implemented.”

Zimbabwe has suffered successive budget overruns due to recurrent expenditure, with the civil service wage bill gobbling 97% of the US$4 billion cash budget as at September 2016.

Economist Tapiwa Mashakada said 2017 is likely to be a meltdown year whose performance will be worse than 2016.
“In December 2015 I predicted that 2016 was going to be a tough year. Yes, it was tough indeed but wait for 2017, I think 2017 is going to be a meltdown year,” Mashakada said.

He said the introduction of bond notes and the shortage of foreign currency, in particular the United States dollar, spell doom for the economy and could result in currency rationing and is likely to be among factors driving inflation to about 10%.

“We are going to see bond notes flooding the market and the withdrawal of the US dollar as domestic legal tender.
Foreign exchange rationing will be introduced and banks will reintroduce FCA accounts,” Mashakada added.

Continued de-industrialisation that has seen thousands of companies close shop or downsize over the years resulting in dwindling corporate taxes and pay as you earn contributions from the formal sector are also seen inflicting further harm on the economy in 2017.

Although Zimbabwe’s manufacturing sector capacity utilisation increased by 18% to 47,4% this year, experts say this figure only looks good on paper as it was largely due to distortions stemming from the closure of hundreds of companies that are no longer considered in a nationwide survey.

By August last year, at least 236 companies had shut down.

“The budget will remain in deficit as productive sectors will remain dormant for lack of any discernible economic stimulus package. The budget deficit will worsen as the state will begin to roll out patronage funds on projects to woo votes,” Mashakada said. Voter registration and preparation for the polls will drain the economy, he added.

“There may be another humanitarian crisis as the state fails to provide basic social services. Zanu PF factionalism will reach crescendo levels, rendering government dysfunctional. Fresh funding is highly unlikely in the face of such macroeconomic instability.

“We may begin to see shortages of fuel and food as the nostro accounts gradually get depleted. These are not far-fetched scenarios unless something dramatic happens in politics to bring back sanity and confidence.
Unfortunately, Zanu PF is incapable of introducing economic reforms.

“In short, the economy will remain in its junk state in 2017. Which brings the question of whether there is any co-variance between economic collapse and votes. Empirical evidence of failed states shows that in a failed state, ruling parties retain power by dolling out state funds to social bases that are cloned to become voters of the ruling party.”

Charles Dhewa, CE of agricultural-focused company Knowledge Transfer Africa, said good rains alone will not inspire agricultural growth.

“There is an issue of inputs which should be distributed on time. We need inputs such as fertilisers because our soils are tired and they need fertilizers,” Dhewa said.

“The other aspect is that of markets. We have poor infrastructure to send the goods to the markets and farmers are failing to send the goods to the market and they incur loses.

“Apart from that there is an absence of a good market and farmers are producing crops and not getting paid, this dampens their spirit and there is no production in future,” Dhewa added.

Confederation of Zimbabwe Retailers (CZR) president Denford Mutashu said for retailers, the economic outlook is positive as retailers anticipate industry capacity utilisation to improve tremendously owing to government intervention in the form of Statutory Instrument 64 of 2016 which prohibits the importation of certain goods without prior clearance.

To achieve positive results, Mutashu said, the country should remain focused on production and improve the foreign currency earnings through exports and diaspora remittance inflows.

Mutashu said prices have remained very stable in the sector while inflation has remained under check, creating a platform for growth in the retail sector.

“The growth in the retail sector will be premised on many focal areas that include point of sale transactions as we move to a less cash economy, mobile money and availability of locally manufactured goods,” Mutashu said.

“The current Shop Licences Bill will be tabled before parliament and should be expedited to ensure positive gains in the sector from reduced cost of doing business. The sooner it’s passed as law the better.”

The flexibility in the regulatory environment, the CZR president said, is on its own a huge pull factor and will attract investment to the sector.

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