HomeOpinionZim’s economy on path to recovery?

Zim’s economy on path to recovery?

BY VINCE MUSEWE

THE above question needs interrogation. Opinion differs among various stakeholders. However, one thing that is certain, is that the high the expectations set by President Emmerson Mnangagwa at his inauguration in 2018 have not been fully met.

A significant number of citizens feel short-changed because they expected a more inclusive government after former president, the late Robert Mugabe and more political tolerance of opposing views. The 2019 violence against citizens by the army and police has not improved the situation including widespread incarceration of opposition party officials, prominent activists and journalists.

Secondly, the economy has not performed as expected due to internal and exogenous factors which have subdued recovery prospects.

In the period 2018 to 2020, high inflation continued to diminish the purchasing power of disposable incomes and Zimbabwe saw disgruntled civil servants (teachers, doctors and nurses) continue to fight for better incomes while those in the informal sector struggle to make ends meet.

In October 2018, the minister of Finance, Mthuli Ncube, launched the Transitional Stabilisation Programme (TSP) to stabilise the economy by addressing governance, macro-economic stability and re-engagement, inclusive growth, infrastructure and utilities and social or human capital development. The TSP ran from October 2018 to December 2020, followed by national development strategies, with the first one (NDS1) running from 2021-2025.

The TSP focused on stabilising the macro-economy and the financial sector, introducing necessary policy and institutional reforms, transforming to a private sector led economy, addressing infrastructure gaps and launching quick-wins to stimulate growth.

In the period 2018 to 2020, Zimbabwe managed to create mixed results, with the most prominent ones being achieving a budget surplus for the first time in many years after a protracted period of as much as 40% budget deficit, broadening the tax base, increasing infrastructure spend, somewhat stabilising the United States dollar exchange rate through the establishment of formal foreign exchange auction system, a key factor in managing inflationary pressures, achieving a trade surplus due to increasing locally manufactured product through import-substitution  and agreeing on the terms of the land compensation issue for white farmers subject to availability of international funders.

The TSP, however, fell short on institutional reforms, particularly the privatisation of state enterprises, creating new formal jobs, increasing foreign direct investment flows (critical for increased productive capacity of the economy), failure to deal with the foreign debt albatross entailing re-engagement with external creditors for purposes of resolving the external debt overhang including arrears clearance and a lacklustre approach to dealing with corruption and plugging revenue leakages.

The Covid-19 pandemic added to Zimbabwe’s problems, particularly in the health, public transport, education and social services sectors thereby exposing inherent vulnerabilities of the economy due to lack of investment in these areas for many years.

It also resulted in an estimated GDP contraction of 10% while inflation soared to 622, 85% in 2020 from 226, 9% in 2019. Prior to the pandemic, the economy was in recession contracting by 6% in 2019. This was due to instability and a runaway inflation caused mainly by a volatile US dollar exchange rate, which was fuelled by the informal foreign exchange trading, the removal of subsidies on fuel and electricity prices and increased money supply due to excessive domestic government borrowing.

There are conflicting perspectives on whether Zimbabwe was indeed put on a sound economic footing by the TSP. Prominent economist, Eddie Cross, sits on the optimistic side together with politicians and Finance minister Mthuli Ncube.

Cross is correct in his views that post Mugabe, Zimbabwe inherited no savings base, an under-performing agriculture sector, high import bill of essential goods, a significant brain drain, failing state institutions, a fiscal deficit, an overvalued currency, high subsidies, dilapidating infrastructure and international isolation. And it is correct that some of these issues have been getting attention resulting in significant improvements in agriculture output, a reduction in imports, a fiscal surplus due to better budget management, the removal of subsidies albeit inflationary and an increasing infrastructure spend.

However others, these being independent economists, part of the business sector, academics and labour argue that there has been no fundamental social impact on the lives of ordinary citizens whose disposable incomes continue to decline.

A majority of Zimbabweans are self-employed in the informal sector and, despite their contribution of an estimated 70% to gross domestic product; they remain marginalised in a survivalist economy and suffer from lack of delivery of basic services such as clean water, access to medicines, decent housing, quality education and access to public transport services.

Added to this, is the deterioration of both public and social infrastructure, which negatively impact on the quality of life, especially within urban areas.  There also have been no tangible improvements in the ease and cost of doing business due to regular government interventions on trade, monetary and pricing policies, failure to reform key state enterprises and a generally unattractive investment environment.

In a nutshell, although the macro-economic indicators may look promising, the micro-economic indicators do not reflect the optimism as articulated by political leadership. The folly arises due to the measuring of macro-economic indicators in the formal economy from which data is collected while the majority of the population operate and survive outside it, in the informal sector which is neither regulated nor does it have reliable collectible sources of economic data.

Zimbabwe’s economic outlook for 2021 does not hold much promise for recovery. Although the agriculture sector is expected to perform well due to exceptional rainfall and increased investment in that sector, the economy will be negatively impacted by a number of factors, which include mismanagement of the economic impact of Covid-19 pandemic, subdued productivity in the mining sector, inconsistent government policy, failure to deal with corruption, incessant revenue leakages especially from the mining sector, debt distress and arrears, low international reserves and above all, political instability and the slow pace of promised political reforms.

Of critical importance will be the financing of future economic growth. According to the African Development  Bank 2021 economic outlook report, Zimbabwe has been in debt default since 2000 with a total public debt of US$11,1 billion (53,9% of GDP) and 96% of that debt is external and includes US$6,4 billion in arrears to international financial institutions, bilateral and private creditors.

Attempts to deal with the debt arrears conundrum failed in September 2019, which has seen the country being frozen out from any new loan inflows including access by the private sector to offshore credit facilities.

The country has therefore continued to rely of domestic sources of borrowing and on non-Paris club members like Afreximbank, which has continued to provide support, and China since no international financial institution will resume any lending until the arrears are cleared. The issue of the need for debt transparency continues to be topical.

In August 2020, Zimbabwe launched the National Development Strategy (NDS1) expected to run for the period from 2021 to 2025.

However, Zimbabwe has had a total of 20 economic blueprints since independence in 1980, all of them well articulated but the inability to build the necessary capacity to effectively implement, monitor and measure progress and political interference has resulted in lack of tangible development.

There are certainly two narratives on whether Zimbabwe is on the path to recovery. The politicians and their supporters peddle the narrative that things are getting much better while the opposition, labour and academics believe that this is a fallacy for political gain and that there have not been any fundamental visible changes by the post Mugabe government.

In fact some even argue that things have gotten worse, especially with regard to freedom of speech and association including human rights.

On the economic front, as long as disposable incomes continue to decline, there are subdued new investment inflows and there is no fundamental restructure of the economy, the Zimbabwe economy cannot be expected to reach its full potential any time soon.

Musewe is an independent economist and author. These weekly New Perspectives articles are coordinated by Lovemore Kadenge, independent consultant, past president of the Zimbabwe Economics Society and past president of the Institute of Chartered Secretaries & Administrators in Zimbabwe. Email: kadenge.zes@gmail.com and mobile: +263 772 382 852

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