THE global economy has been grossly affected by the Covid-19 pandemic which is inflicting rising human costs worldwide.To protect lives and enable healthcare systems to cope, governments have resorted to isolation, lockdown and widespread closure to slow the spread of the virus.
The public health crisis is having a severe impact on economic activity. As a result of the pandemic, the global economy is projected to contract sharply by 3% in 2020, much worse than during the 2008-2009 financial crisis.
In a baseline scenario, which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound, the global economy is projected to grow by 5,8% as economic activity normalises, helped by policy support.
Zimbabwe suffered massive economic recession in 2019 with growth estimated at -10,1% (International Monetary Fund -7,1%) in 2019, down from 3,5% in 2018 due to the impact of Cyclone Idai in the first quarter of 2019, which caused substantial damage to infrastructure and crops, as well as continued inflationary pressures, liquidity shortages, adverse impact of austere reforms and generally depressed demand.
A further decline, of -6,5% is expected in 2020 compared to the government’s 3% growth projection, highlighting the impact of drought, Covid-19 and constrained private consumption. Drought conditions are weighing on hydropower production, constraining activity in all sectors of the economy. Slow progress towards a stable “mono-currency” regime continue to weigh on confidence, grossly affecting economic activity.
Inflation has remained elevated with the year-on-year figure closing 2019 at 521% due to unstable currency, cash shortages, energy shortages (fuel and electricity), impact of drought, policy inconsistencies and low confidence levels.
The economy is expected to remain in hyperinflation throughout 2020. Monetary policy formation will be particularly challenging given the combination of economic recession and hyperinflation.
The core view is that monetary policy will start to normalise from 2021, on the expectation that improvements in agriculture and mining output, as well as domestic energy production, will lead to a rise in foreign exchange reserves, improving the Reserve Bank of Zimbabwe’s ability to support the currency.
However, renewed drought or persistent efforts to monetise fiscal deficits could see sustained hyperinflation.
Given the under-performing economy, the outlook for the banking and financial services sector remains extremely poor, reflecting the myriad of challenges facing the industry and the country’s wider economy.
Higher public spending, as a result of reconstruction efforts following Cyclone Idai, Covid-19 and drought relief, mean the government will be increasingly reliant on the banking sector for borrowing, leaving limited sovereign support capacity.
The sector will remain dominated by public borrowing, as the government is still excluded from international markets and, as a result, very limited growth in private lending activity is expected. This will leave banks reliant upon transactional fees to shore up profits in the short term.
Then comes an extremely polarised political environment! The sustainable solution to Zimbabwe’s economic malaise is closely linked to a harsh and extremely non-tolerant political climate which is stoked by the broader use of social media. With no vibrant and independent institutions and to a certain extent arms of the state, oversight becomes difficult with the fourth estate (media) becoming the citadel of polarity.
Corruption becomes a way of life in the southern African state and the only short-term means to confront it effectively is two-pronged: firstly the transparent selection of commissioners to lead the Zimbabwe Anti-Corruption Commission (Zacc), and secondly, empowering the commission to have prosecutorial powers as is the case with some neighbouring nations, including Zambia.
In terms of cost or loss, Zimbabwe loses an average of US$3,5 billion to US$4 billion per annum through corruption, an astonishing state of affairs, given Zimbabwe’s gross domestic product size and levels of poverty.
Last but not least, Zimbabwe’s impatience with the transatlantic nations’ insistence on both political and economic reforms only points to a grave future for the nation.
It is common knowledge that with an election slated for 2023, the relations between Harare and Washington as well as Brussels could continue deteriorating, leaving us to conclude that sanctions will remain intact beyond five years from now.
The recent labelling of Harare as an “adversary” by Washington following the cold-blooded murder by police of George Floyd, an African-American, in Minneapolis, testifies to how the Trump administration will handle Zimbabwe as part of its foreign policy going forward.
I remain or shall be guided by pessimistic views in my forecasts. However, the paper was moderate in its approach, given the possibility of some positive shifts in policy direction, but I do insist that my forecasts are predominantly pessimistic. In other words, pessimistic forecasts are much more realistic in this situation.
The country is experiencing the weakest opposition politics since the formation of the MDC in 1999, now characterised by internal fissures and factional battles.
Nelson Chamisa will recover from the internal conflicts in his party to challenge for 2023 elections, but will still lose to President Emmerson Mnangagwa in 2023 by almost similar margin to 2018 elections.
The currency slip will be witnessed in the fourth quarter of 2020 which will see the economy fully re-dollarising following the parallel market hitting US$1:ZW$130-ZW$150
The government will defend the local currency through managing growth in broad money supply, which will see the local unit closing the year 2020 at US$1:ZW$100 on the parallel market with the interbank rate at US$1:ZW$55.
Official year-on-year inflation will close the year at 1 800% spearheaded by the issuance of Treasury Bills (TBs) to incentivise Covid-19 impacted businesses. Subsidies to push up reserve money as Treasury and the central bank will be under pressure to deal with a vulnerable populace.
To close the year slightly above 400% annualised with money supply containment for the year to bear fruits, the Zimdollar will remain weaker on the alternative market whilst controlled on the official market.
Only information communication technology companies will benefit from the switch to e-commerce. Digitisation in banking sector will gather momentum.
The after-effects of Covid-19 will be sector-wide in terms of technological breakthroughs. Data will be the most sought-after product which will see massive growth for mobile network operators, agency banking and fibre service providers both retail and wholesale.
Foreign direct investment (FDI) inflows into Zimbabwe will decline to 2009 levels of US$102 million from the current US$259 million levels.
A marginal decline of FDI will average US$200 million with a number of foreign companies exploiting the gap created by the negative impact of the Covid-19 lockdown and the toxic policies of the present government.
Diaspora remittances will plunge significantly to an average of US$215 million from the current figure of US$619 million. The net effect will even be worse, considering the increased pressure on resources after Zimbabwean economic refugees have been deported back home following the lockdown across the world with South Africa and Botswana being the largest contributors.
The government’s delay in re-opening informal trade from the lockdown is evidence of a sector which will be under pressure for the next two years.
The restructuring of state-owned enterprises (SOEs) is not a possibility this year. They will remain a fiscal drain and their inability to cope with technological advancement might even worsen their woes as we head to the 2023 elections.
We expect the consummation of the Zimbabwe Investment and Development Agency (Zida) Act, the establishment of a proper institution and structures. However, the fruits will only to be realised after three years. In our well-considered view, no SOE to be privatised either in 2020 or 2021.
The influence of non-governmental organisations (NGOs) shall largely focus on the strengthening of accountability mechanisms whilst fighting corruption. Political reforms shall not be part of the agenda for NGOs and civil society organisations. Rather, they are likely to push President Emmerson Mnangagwa to tackle corruption before any external budgetary support can be extended to Zimbabwe. Given the way he took power, it remains a pipedream that he can realistically tackle corruption anytime soon.