BY PAISON TAZVIVINGA
ZIMBABWE’S economic sentiment remains negative among the general populace. There are several sources for this negativism driven mainly by the low disposable incomes among citizens and aggregate demand, which has slumped to unviable levels, thus slowing business activity.
The evolution of the Covid-19 pandemic also shattered hopes for businesses and the general populace, as is the asynchronous nature of green shoots of recovery — some sectors of the economy are recovering but some still lag behind.
These challenges have cultivated persistent and pervasive public pessimism. Consequently, many have drowned into the belief that the country is on an irreversible downward trajectory.
Pessimism could easily be dismissed as a perceptive distinctiveness, except it has real and dangerous consequences that impede the country’s progress. Primarily, we fail to recognise the progress we are making as a country.
Notably, Zimbabwe managed to stabilise some of the key macroeconomic indicators, hopefully this can be sustained overtime; inflation (although still high) is slowing rapidly — in February, month-on-month inflation rate stood at 3,45% compared to the 5,43% in the previous month. The fiscal authorities are running a budget surplus, something unheard of from time immemorial.
Industrial capacity utilisation is gradually rising — now averaging 61% from around 5% in 2017. The currency rate has relatively stabilised of late, so has money supply and added to that, an improved trade balance.
This suggests that the economic reforms are bringing about a sub-optimal equilibrium, which is a strong foundation for economic prosperity. It also brings about a contrarian view to the negativism common in the populace.
The relatively flat exchange rate has provided certainty for importers and exporters thereby encouraging more international trade and the result has been an improved trade balance.
The forex auction system has also contributed to thwart inflationary pressures as it provided a stable market exchange rate, a welcome development with positive long-term effects. On the other hand, an increase in manufacturing capacity has resulted in the resurgence of more local goods on the shelves.
I concur that we still have massive challenges, chief among them, domestic and external debt overhang. Furthermore, we still have policy issues like induced petroleum price instability — a consequence of unnecessary self-determined inefficiencies, also leakages in the gold sector are a concern and need to be addressed as a matter of urgency.
These challenges stimulate fear and lack of confidence in the system and they affect the country’s risk profile. But, current indicators are proof enough that we have the ability to gain traction over these challenges. They can be conquered (as the economy stabilises and grows) even though public pessimism regards them as signals for inevitable economic demise.
Furthermore, we need to be careful not to attribute all of the past economic underperformance to policy missteps, we cannot ignore the role of exogenous factors. For example, the agriculture sector has been vulnerable to natural disasters in the past years.
Persistent droughts and Cyclone Idai have all contributed to lower yields and exacerbated poverty in rural areas, where farming is the main source of income. These aggravated the debated land reform programme, which remains a politically sensitive matter to date.
However, there are reasons to be positive with the new policy to compensate former white farmers and a good rainy season. Regardless of its sensitivity, it is important to note that some East Asian economies attest to the belief by most development economists that land reform and growth in the agriculture sector is the first underpinning pillar of sustained growth. Therefore, an improvement in the agriculture sector is an important anchor for future economic growth.
I also do agree with the sentiment that to fix the country’s challenges we need to acknowledge the current problems and come up with realistic practical plans of action that will provide sustainable solutions. While it is correct, there is a need to be careful to avoid seeing the challenges as insoluble and the country’s economic decline in the past as inevitable.
We have a history marred with economic mismanagement, but we have learnt and we seem to have admitted that we had it wrong before. Granted that we have learnt and, assuming we are safe from exogenous factors such as Cyclone Idai and the impact of Covid-19, surely, we are guaranteed of better prospects. Therefore, our eyes must not be blindfolded by the myopic obsession with the problem of the day. This only serves to distract us from seeing the progress we are making as a country.
In this regard, pessimism will only ingrain negative sentiments about the risky profile of our country and when that happens, not only will we stop saving and investing, but we will also scare away foreign investors whom we must attract by our own actions.
There is a huge country risk premium arising from negative perceptions about our country and that affects access to capital which we are still in need of to fill the huge void especially in infrastructure development.
The country had long neglected investment in infrastructure, but currently we see activities in road and dam construction, among others.
The biggest impediment, however, is that internal resources are not enough to cater for infrastructure investment hence the need to attract foreign resources.
Overall, from the perspective of key economic indicators, the country’s macroeconomic outlook appears positive. Zimbabwe has a lot of potential, but, because of the past economic sins, the process to enjoy the fruits thereof might be messy. What is needed now is twofold:
Leaders must ensure that all the policies and activities ultimately deliver real improvements to quality of life. At the end of it all, economic prosperity must be felt by the ordinary citizen as the burden of challenges lightens by each passing day.
Economic growth must never remain a science understood only by a few, but must address the problems faced by the people.
And citizens need to acknowledge the progress that our country is making and create hope in the process. Yes, we cannot run away from the fact that there are challenges but we must acknowledge that they are solvable.
This suggests that we need to seek for the silver lining in the dark cloud and invest in our country, only then can we bring real change and address the fundamentals crucial for economic prosperity. As Adrian Gore said: “Attitude drives fundamentals not the other way around”.
Tazvivinga is a development economist. These weekly New Perspectives articles are co-ordinated by Lovemore Kadenge, immediate past president of ZES. — firstname.lastname@example.org or mobile +263 772 382 852