ZIMBABWE’S economy is evidently sinking deeper into crisis as weak economic fundamentals paint a gloomy outlook picture. The Confederation of Zimbabwe Industries (CZI) reports that capacity utilisation has dropped to 36,4% and is likely to slide further to about 27% if corrective measures are not taken to fix the economy.
Trade data shows a sustained imports compression and these imports partly include key factors of production such as energy and grains used in manufacturing cooking oil, bread and maize-meal. From the fiscus side, little to no progress has been recorded in dealing with underlying fiscal re-arrangements. The reform of parastatals, including the restructuring of the civil service, remains unattended to, despite being a key component of the re-organisation of the economy. These are some of the key challenges weighing on Zimbabwe’s potential turnaround.
Soaring inflation, fuel queues, shortages of basic commodities, a weakening exchange rate, a contracting economy and depressed demand sound like 2008 reloaded.
Perhaps it is time to start asking why lightning has struck the Zimbabwean economy twice and how this economy can be reinvented and redefined. To jog your memory, following the GNU in 2008, 2009 saw the dollarisation of the economy in an attempt to tame Guinness World Record-high inflation. Did it work? Of course it did, owing to a combination of a stable currency and confidence built out of a solid political set-up. The economy showed signs of recovery as deflation came into the picture with GDP targets met, a first since Zimbabwe was born in 1980.
However, since dollarisation, our trade deficit averaged -US$2,5 billion and we remained a net-exporter while industry capacity utilisation remained below 50%, save for 2011. So what had really happened? These dynamics were largely informed by a decimated industry, which had almost crumbled and therefore could not satisfy local demand.
Although relative stability was achieved, which allowed for fiscal realignment, the fundamental economic challenges were not clearly solved. Recurrent expenditure still gobbled up a sizeable chunk of the fiscus and the import bill was untenable relative to exports. The exporting of manufactured goods was discouraged by the strong US dollar and the civil service remained archaic with incompetent personnel, antiquated systems, rigidities and red tape which resulted in inefficiencies and gross losses.
Zimbabwe requires 120 million litres of milk annually and can only supply about 75 million litres, while the balance is supplemented by imports from South Africa at an average monthly requirement of US$20 million. To meet Zimbabwe’s daily bread demand of 1,5 million loaves, we must produce 350 000 metric tonnes of wheat but our current output stands below half, having to import wheat from as far afield as Europe. Soya beans for cooking oil is a similar narrative: 400 000 tonnes is the national demand and our output is less than 200 000 tonnes.
I will not talk about maize, except to highlight that the World Food Programme estimates eight million Zimbabweans are in need of food aid. This never used to be the case until the fast-track land reform programme.
Having once been a net exporter of agricultural produce, now is the time to revisit our land tenure rules. It is necessary to give farmers with capacity bankable land tenures so agriculture can become commercially viable once again. As it stands, more than half of the arable land is non-bankable as farmers do not own it.
Except for 2011, industry capacity utilisation has been faring below 50%, having come off 11% to 36% in 2019. Analysts expect a further dip in 2020 to a meagre 27%. Foreign direct investment plummeted 64% in 2019 from US$749 million in 2018. To entice international investors into Zimbabwe, we have to do way more than just preach “Zimbabwe is open for business.” It is vital that we implement consistent policies that ensure economic stability and protect the interests of the investor.
The discussion continues in the second edition named Reinvest, re-configure Zimbabwe to focus on key investment areas for this economy going into the digital, green future.
Gwenzi is a financial analyst and managing director of Equity Axis, a financial media firm offering business intelligence, economic and equity research. — firstname.lastname@example.org