DARK clouds hover over the performance of the country’s economy in 2021 characterised by the Covid-19 pandemic, the increased cost of living and policy inconsistencies threatening to override the positive gains recorded last year.
Finance minister Mthuli Ncube has projected that the economy would rebound this year and record a growth of 7,4% on the back of a strong recovery in agriculture, mining, electricity generation, construction as well as the transport and communication sectors.
There had been some progress made last year on the economic front. The stabilising of the exchange rate mainly through the introduction of the foreign currency auction market in June last year had helped to stabilise prices as well as improve access to foreign currency by companies. The reduction in the inflation rate from a high of more than 800% in July last year to just over 400% had also been encouraging even though it remained unsustainably high.
However, the increase in tariffs by the government has threatened to bring the efforts to stabilise the economy to nought. In the 2021 National Budget, as part of its strategy to increase revenues for the year which is expected to be ZW$390,8 billion (US$4,6 billion), excluding retained revenue, Ncube announced that fees and charges for public services would be reviewed upwards. This includes upping toll gate fees for light vehicles from ZW$45 (US$0,55) to ZW$120 (US$1,48).
Reserve Bank of Zimbabwe governor John Mangudya expressed his frustration at a recent Zimbabwe National Chamber of Commerce business review meeting warning that the steep increases in prices of tariffs could threaten market stability.
“To increase the price by 120% in an economy where inflation is 5% and below, month-on-month, is not being responsible. We, as advisors to the government, have advised the same line and have said it because we do not want to lose stability because of prices of public utilities. We would be shooting ourselves in the foot,” Mangudya pointed out. “Business tends to copy what the government is doing. So, the Zinara issue on tollgates of ZW$45 (US$0,55) to ZW$120 (US$1,48) was quite high … the psychological effect will affect business.”
The complaints by Mangudya about the increases indicate the lack of coordination between fiscal and monetary authorities which does not bode well going into the New Year.
The Consumer Council of Zimbabwe (CCZ) has bemoaned the steady increase in prices, saying the trend defies the stabilisation of prices brought about by the foreign currency auction as well as the decline in inflation.
Rose Mpofu, the CCZ deputy director, said businesses must ensure that prices are realistic especially compared to what is obtaining in neighbouring countries.
“We appreciate very much all the information that we are getting about the stabilisation and also particularly the inflation rate which is going down, especially the month-on-month. However, we continue to realise that in fact prices are not really going down. In fact, sometimes prices are going up,” Mpofu said at the recent ZNCC 6th Annual Business Review Conference held in Harare.
The year has started with the prices of basic commodities rising. Despite the government attributing the increases in prices of commodities to profiteering, the price increases are more likely to have been triggered by the increase in electricity tariffs and fuel prices among other things. This could not only stoke inflationary pressures but increase poverty among the generality of Zimbabweans.
The performance of the economy has got off to a false start at the beginning of 2021 according to CEO Africa Roundtable chairman and economist Oswell Binha.
“The Zimbabwe economy continues to suffer from endemic structural problems, all as a consequence of a dearth of confidence and trust particularly on public policy, processes and public institutions. While the government has attempted to invest efforts in attracting back this lost trust, legacy issues compound the negative effects of these structural challenges. 2021 has had a false start,” he said.
Binha said the tightening of restrictions by the government this week to curb the surge in Covid-19 infections will have a devastating impact on the country’s fragile economy.
“The phase two of the pandemic has ripple effects on the economy as a whole and the net effect is the wholesome breakdown in macro-economic activities. The measures which have been announced and being implemented assume that the defined essential services work in isolation from the entirety of the economy. It is a wrong assumption. Our economic structure has simple, but integrated value chains which neatly feed into each other. Social services, agriculture and mining among other essential services, depend on both upstream and downstream linkages to fully operate. These linkages are clearly outside the bracket of the so-called essential services,” Binha pointed out.
“Industry will, again, be forced to deal with a plethora of labour issues over and above the costs of compliance to new requirements of the reduction of the prevalence of Covid-19. Fiscal budget dedicated to Covid-19 testing, prevention and treatment will certainly be beyond the current allocations. In summary, the economy will budge due to the impact of Covid-19 and indeed accompanying adjustments by economic players to the recently announced fiscal and monetary policy instruments.”
Business consultant Simon Kayereka concurs that Covid-19 pandemic will cripple the economy in 2021.
“The year 2021 is suddenly not looking great. To start the year on a national lockdown with the majority of companies all under lockdown means that more than half of our economy will not be functional,” Kayereka said. “Covid-19 will have a greater impact on the economy this year than last year. I do not see us achieving the growth that was forecast by the Finance minister.”