FINANCE minister Mthuli Ncube yesterday stuck to his bullish 2021 projections, reviewing gross domestic product (GDP) targets up to 7,8%, after predicting in November last year that the economy would expand by 7,4%.
The growth announced in the 2021 mid-term budget review will be anchored on a rebound in a string of key sectors including tourism, which he projected would expand by an ambitious 6,4%, despite being battered by a relentless Covid-19 pandemic.
Presenting his review in Harare, the Treasury boss said the projection would also be anchored on positive spinoffs from a good agricultural season following high rainfalls received this year.
Bullish international mineral prices and the scaling up of a vaccination drive to combat the Covid-19 pandemic, which has held back spending power and precipitated job losses in the past year would also underpin economic growth, the minister said.
“GDP growth for the year 2021 is projected to remain strong at 7,8%, slightly above the 2021 National Budget growth target of 7,4%,” Ncube told legislators in parliament.
“The strong rebound of the economy is anchored on better 2020/21 rainfall season, higher international mineral commodity prices, stable macroeconomic environment and managed Covid-19 pandemic.”
His growth projections fall in line with decelerating inflation rates, which slowed to 56% this month, after ending the year 2020 at about 336%.
However, while price hikes have been trending at a slower pace in the past seven months, Zimbabwe’s inflation has remained of serious concern to industrial recovery. Ncube said measures put in place so far would further push the inflation rate down, ending at about 30% by December this year.
That would be good news for Zimbabwe, whose growth efforts have been held back by the inflationary charge, but foreign currency shortages and currency depreciation could continue to militate against the bullish figures projected yesterday.
Headwinds stemming out a high-country risk precipitated by debt distress could be among the biggest hurdles, although yesterday, the minister said a formidable plan to pay debts and become a “good debtor” had been put in place and payments will start soon.
Ncube increased the growth projection for agriculture from the initial 11,3% to 34%, saying this would ride on higher-than-expected performance in almost all crops particularly maize, groundnuts and sorghum.
Despite the decimation of the tourism sector, which has seen hotel occupancy rates decline to between 10% and 12%, from 48% in 2019, after visitors cancelled international travel to avoid the deadly contagion as the pandemic blazes, Ncube projected the sector to grow by just over 6%.
“The global vaccination programme currently underway is expected to mitigate against loss of lives and any further economic disruptions. The sector remains resilient in the face of the ongoing challenges and a focus on domestic tourism remains the major hope in the interim,” Ncube said.
“Consequently, the sector is projected to grow by 6,4% in 2021, riding on domestic tourism. Government will continue to support tourism players through financial assistance under the Covid-19 stimulus package in order to achieve sustainable recovery of the sector.”
He said measures were being rolled out in the mining sector to compensate for the first quarter loss of production as well as sealing of leakages in order to attain the original growth projection of 11%.
Ncube said despite Covid-19-induced lockdowns, the manufacturing sector would rebound by 7% in this year. This, he said, was largely on account of continued macro-economic stability, favourable 2020/2021 agriculture season and localisation of value chains.
“In addition, companies are projected to benefit from improved electricity supply,” Ncube said. He projected a 13,9% growth for the power sector predicated on improved inflows into Kariba Dam, where Zimbabwe operates its biggest hydro-power plant, whose capacity was beefed up in US$553 million investment in 2018.
Continuous maintenance work at Zimbabwe’s thermal power stations and recent reviews of electricity tariffs to cost-recovery levels would enable power producer, Zesa Holdings, to rehabilitate its power stations, the minister said.
Ncube said the trend on mobile data preference remains strong and the sector is expected to grow by 2%, driven by internet data, as digitalisation is scaled up with operators repositioning themselves by upgrading and automating their networks to enhance agility to deliver new services and applications to meet the fast-changing and versatile consumer demand.
He said the retail and wholesale trade sectors would grow by 5,1% in 2021.
“In the outlook, the retail sector stands to benefit from ongoing reforms which are strengthening the economy, overall invigoration of domestic production through strengthening of domestic value chains, tax reforms which cushion employees, as well as rolling out of various social protection schemes under the Covid-19 Stimulus package,” Ncube said.
He said the construction sector would grow by 2,6%. This, he said will be driven by implementation of the ongoing government projects in the areas of energy, transport, water and sanitation, education, housing and agriculture (irrigation development), among other projects.
He said it will also be driven by institutional housing projects, envisaged stable supply of electricity; and alternative investment strategies by banks to hedge against incidences of macro-economic volatilities
On inflation, Ncube projected that inflation will fall from the 56,37% this month to between 22% and 35% by the end of the year. This is the first time in more than two years that the inflation rate has dropped to double digit figures.
When the government introduced the Zimbabwean dollar as the sole legal tender in 2019, through Statutory Instrument 142 of 2019, inflation soared to three-digit figures.
The inflation rate shot to 830% in July last year as the local currency was severely weakened, and incomes and pensions which were indexed to the local currency were decimated as a result of SI 142 of 2019.
Government then made a U-turn last year and brought back the multi-currency regime ostensibly to ameliorate the impact of the Covid-19 pandemic.
The introduction of the foreign currency auction system in June last year, and the crackdown on mobile money transactions helped to slow down the rate of inflation.
Economist Godfrey Kanyenze said he is more concerned about the quality rather than the quantum of the growth rate.
“We should not be haggling over the quantum of the growth rate but we should be quizzing the sustainability of our growth which is reliant on external factors and not based on structural reforms,” Kanyenze said.
He pointed out that the country has experienced high growth rates before, particularly during the government of national unity between 2009 and 2013, but it has not translated into uplifting the lives of the poor.
Kanyenze said the current growth rate was not broad based and inclusive of the country’s population particularly at a time that nearly half the country’s population are impoverished.
“We seem to be focused on quantum when we need to do all we can to engender a decent job rich recovery,” he said.
He said the inflation projection is achievable as the government is simply undoing the fiscal indiscipline that had wreaked havoc on the economy.
Economist Prosper Chitambara said the growth rates projected by Ncube are possible given that the country is coming from a very low base as a result of two years of negative growth characterised by droughts.
However, he warned that the inflation projection could be hampered by the increase of the premium on the parallel market.