Why economic recovery remains a pipe dream

ZIMBABWE has, this week, been reflecting on the end of the first quarter of 2021.

The economy started on a promising note, with the manufacturing sector capacity utilisation rising to 47% in 2020 up from 36,4% in 2019.

However, this was not enough to give impetus to recovery efforts that began under a new government in 2018. In fact, Zimbabweans endured difficulties as prices of essential goods spiralled.

But authorities insisted that year-on-year inflation was falling. It became difficult to understand the economic dynamics.

Key economic indicators were massaged to give the impression that the government was on top of the situation. But evidence proved contrary.

The Reserve Bank of Zimbabwe (RBZ) stuck with a 7,4% growth target projected by government in December 2020. It even predicted that annual inflation, will by end of 2021 stand at less than 10% from 240%. Zimbabwe aims to be in tandem with regional trends by year end.

But that would be out of sync with reality. The foreign direct investment (FDI) to support this growth is stagnant. Zimbabwe has been receiving a small fraction of US$5 billion in investment that has been flowing into its neighbours.

Instead, diaspora remittances of up to US$1 billion last year supported households.

Remittances, however, will not translate into growth because these are amounts sent to families for consumption. That is a drawback to Zimbabwe’s growth targets.

Authorities have failed to address political upheavals that have scared away FDI. It seems political leaders have not learnt from past mistakes.

This week, the opposition stalked fires of political uncertainty after threatening “winter of protests”.

This worries fund managers, who are entrusted with billions of dollars to choose investment destinations. They question the safety of their investments in a politically volatile environment. Political instability certainly has a negative effect on business and economic growth.

Elsewhere, positive movement towards a solution to the suspension of Old Mutual and PPC from the ZSE last year have not materialised.  These actions send clear messages that Harare is closed for business. Even if it entertains FDI, it has no capacity to deal with problems. Instead, it unleashes politicians to scare investors.

The economy, already frustrated by the Covid-19 scourge will take sharper blows out of this and little or no recovery will be achieved.

One needs to study funds being allocated towards disinvestments at the forex auction system to understand the crisis at hand. If one adds decaying infrastructure, policy flip-flops, a volatile currency and the wrath of Covid-19, there is a gloomy future lying ahead. It is a real test of character for President Emmerson Mnangagwa. He has to solve this complex puzzle before preaching recovery.