IT is a common sight for torrential rains to show up uninvited to Samba dance ceremonies in Rio de Janeiro. The authorities in Brazil used to publicise meteorological information to allow for spiritual mediums, who claimed to have rain dispelling powers to intervene. It was all brought to a halt five years ago when the city of Rio elected an evangelical mayor.
Zimbabwe had its fair share of economic challenges, and in inviting the professor of economics to mend a battered economy, he made a great attempt, fiscal deficit was experienced for the first time in as many years, indeed it is not a moment to question whether it was a primary surplus or not, rather it was a surplus, when the nation began to dream, a virus with a corona shape surfaced, unsurprisingly, this compelled the Southern African nation to lock itself and the dreams evaporated.
The Covid-19 pandemic, which has hit almost all corners of the world is bound to reshape international relations with different simulations on whether it will unite the globe or create a unipolar system, which will be anti-globalisation like has been witnessed of late when United States President Donald Trump expressed disdain for important institutions such as the World Health Organisation (WHO) and recently the World Trade Organisation (WTO).
Hubei province in China, where Covid-19 originated from, experienced more than 65 000 cases and a fatality rate slightly below 3%. By contrast, the rest of China which boasts of almost 1,4 billion is claiming to have suffered less than 16 000 cases with a fatality rate of about 0,4%.
I believe Chinese officials’ attempt to suppress news of the disease gave the virus the wings, then came end of February, the World Health Organisation was full of praise for China’s approach to lockdown following the outbreak.
It is the same praise song, which cost it a budget of almost US$400 million from White House, which had been accusing WHO through its boss, Tedros Adhanom of Ethiopian nationality of being China-centric.
In retaliation, Tedros cried foul claiming racism has been haunting his doorsteps for the past four months. Tedros’ record has been controversial in the eyes of the Western world, the deafening silence of the Democrats to save Tedros from the Trumpism noises could confirm it is a US position that WHO is against US. He is the same Tedros who at one-point honoured Zimbabwe’s late president Robert Mugabe with a role as a WHO ambassador, so certainly the WHO boss has been under the watchful eyes of the West for some time.
How can Zimbabwe position itself post the Covid-19 pandemic, what shape of industry are we expecting, who are going to be the biggest winners and losers following this rampage by an invisible enemy. All these questions will require sober and chivalric leadership to confront.
Zimbabwe is currently grappling with a currency conundrum. The only reliable estimate of the fair exchange rate remains the parallel market.
In trying to contain the pressure of a volatile exchange rate during the Covid 19 zone, the government resorted to fixing the exchange rate at 1:25. This proved convenient but has a risk of expediting the disappearance of the local unit once the local down is lifted. The demand for raw materials will spike, replacement costing will be dominant, recovery pricing will be a common sight and all this will push up the exchange rate.
Once business goes back to normalcy, it is a given that the fixed exchange rate will be lifted, but the question being asked is that it will be moved to what rate and at whose expense.
For exporters who have lost a lot, including the opportunity cost of holding onto their stocks, an unreliable exchange rate will not be an option, which therefore means the government has to monitor but not suppress the exchange rate to the levels we are witnessing, this is regardless of the intentions being noble, the consequences will be unintended for that matter. Which therefore means the domestic currency is under threat and the possibility of redollarising much faster than ever envisaged is more realistic than ever before.
Then comes the fiscal balances. For years Zimbabwe has been reckless on its spending behaviours. We had even underestimated the fiscal deficit to GDP to levels with a move to rebase the GDP numbers having hidden a lot of fiscal calamities. The outlook is certainly not promising on the fiscal front, with the Bretton Woods institutions not expected to come to Zimbabwe’s rescue any time soon, the lure of printing is so highly elevated whose transmission impact on the exchange rate is well documented.
The biggest cancer which calls for government to eliminate becomes the heavy subsidies. As long as the macho approach of flouting market forces and resorting to populist cum controversial pricing culture persists, the economy will find it hard to recover from the after effects of the pandemic.
The Zimbabwean government carries an unnecessary burden of almost ZW$6 billion to ZW$8 billion yearly on subsidies which translate to a heavy tax on exporters, formal businesses and the prospects for a recovery. Infact at this rate, the nation is bound to record negative GDP growth for the next three years with the sharpest decline expected next year after the economy has absorbed all the shocks.
The message is to lift the subsidies in agriculture, energy sector which include fuel as well while at the same time putting a freeze on the gold incentives. What makes these subsidies is the fact that they are not supporting tradeable goods or services, but rather insulating the domestic players from an internally generated-inflationary pressures. Then comes the trade equation with the African Continental Free Trade Area to be operationalised form July 1. How are you expected to trade with countries which can afford to pay subsidies to their private sector players? This means even after ratifying, there is need to interrogate where we can utilise derogation for the next three years as our private sector might need strong support and protection post Covid-19.
IMF has created its own “Argentinian’’ partners in Africa. Let me simplify where the phrase originates from; Argentina has failed to prosper after decades of debt binges. The International Monetary Fund has repeatedly bailed it out. The most recent, botched rescue in 2018 was the 21st time it had become entangled in the country.
Now talks are underway to sort out Argentina’s finances once again. The IMF is Argentina’s biggest creditor, holding almost US$44 billion of the US$100 billion foreign debt that Argentina wants to renegotiate. Borrowing in that country is approaching 90% of GDP.
The country is reeling from the plunge in the peso, shrivelling reserves and a bitter recession. What a darling to the IMF the South American nation has been. We equally have fellow African trade partners who fall in the same bracket as Argentina, continuous support regardless of weaker records in economic management.
Even if Zimbabwe is not to exactly copy China, its experiences hold three important lessons — to talk to the public, to slow the transmission of the disease and to prepare healthy systems for a spike in demand.
A good example of communication is President Emmerson Mnangagwa’s recent address on extending the lockdown. He certainly took advice from different quarters, business included, as Zimbabwe National Chamber of Commerce can confirm that a number of its submissions were taken on board including the just announced partial lockdown. A bad one is Iran deputy health minister, who succumbed to the virus during a press conference designed to show that the government is on top of the pandemic.
The extended lockdown of two weeks was done to deal with the second lesson which is on transmission of the disease. Zimbabwe alongside Ghana have just eased their lockdown restrictions. Zambia still has a confusing model, with Lusaka not necessarily on lockdown, but the presidential decree pushing everyone to put on masks while its health minister, Chitalu Chilufya has suggested a total lockdown. Surprisingly Zambia’s Finance minister, Bwalya Ngandu is said to have hinted that he does not have money to buy food for people in an event of a lockdown.
President Mnangagwa’s lockdown model is quite commendable, however, it must be supported by intensive testing and screening otherwise it will be an unwise move to lockdown the economy when social distancing is not practiced.
After two weeks, we expect a number of economic sectors to partially reopen with no need to fully open the economy. Restrictions should only be fully lifted at the end of May on the basis of a managed infection curve. At the same time, a complete lockdown would be suicidal in a nation where at most only 20% of the populace operate businesses in a formal way.
An extended quarantine will also lead to disruption in the marketing of one of Zimbabwe’s major foreign currency earner — tobacco. Countries which are more affected by the virus such as the US are already witnessing a war of words between Trump and governors, mostly from the blue states. This followed Trump’s sentiments last week of forcing governors to avoid a total lockdown of their states. Pennsylvania, Virginia and Maryland have witnessed demonstrations from some pressure groups calling for the reopening of their economies.
Indeed, this is a virus which has isolated the whole nation from dreaming further. The impact on employment in the short term will also be negative, for some corporates. The only way to save current jobs is to let them enjoy tax relief knowing fully well that no emergency or stimulus fund will be summoned due to the fiscal vulnerability of the Zimbabwean government. Regardless of the dangers this virus tends to pose, we should never isolate ourselves from sound decision-making which can extricate us from this sorry state.
Mugaga is an economist and chief executive officer of the Zimbabwe National Chambers of Commerce. These weekly New Perspectives articles are co-ordinated by Lovemore Kadenge, immediate past president of the Zimbabwe Economics Society . — firstname.lastname@example.org or mobile +263 772 382 852.