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‘No recovery without savings’


THE Labour and Economic Development Research Institute of Zimbabwe (Ledriz) says lack of incentives for investment into pension funds has perpetuated the country’s long-running economic meltdown.

Zimbabwe has been affected by two phases of hyperinflation that have eroded savings in pension funds and other institutions like banks.

The first phase hit Zimbabwe between 2000 and 2008, when annual inflation reached 500 billion percent, according to the International Monetary Fund (IMF), while the second has been rocking the markets since 2019.

“There is no incentive for people to invest in pension funds,” Prosper Chitambara, chief economist at Ledriz told delegates at the Zimbabwe Association of Pension Funds conference in Nyanga recently.

“If you look at the 2020 Insurance and Pensions Commission report, it said the pension benefit per pensioner last year was $21 000, which translates to about US$200 using the current official exchange rate, and about US$20 per month (using the parallel market exchange rate). This is a strong disincentive for people to invest in pension funds. As long as we are in chronic high inflationary and the economy has negative interest rates, as long employers and employees are struggling to pay contributions, this will affect the efficiency of the pension industry. These macroeconomic challenges loom large and those will need to be addressed quite comprehensively. Even investment opportunities in money market instruments have been affected by the chronic high inflation environment. As long as interest rates are negative, there will be no incentive to invest,” Chitambara noted.

He added that a high propensity by Zimbabweans to spend at the expense of saving had affected saving. Savings channeled into banks, insurance companies and pensions funds are usually accessed by firms carrying out big infrastructure projects as loans.

These funds anchor economic growth through the development of services like road systems, which not only drive logistical efficiencies, but also create many jobs, leading to improved disposable incomes.

Experts say countries with little or no savings face problems ranging from collapsing infrastructure to job losses and subdued demand.

All these factors have crippled Zimbabwe since the economic crisis began in 2000.

“In China from 1978 up to around 2018 their savings to GDP ratio has averaged around 40%,” Chitambara said.

“In other words, for every dollar they earn in China they save 40 cents and their investment to GDP ratio has averaged around between 30-35%. And no country can prosper without high savings and investments to GDP. So, the benchmark that has been set by the World Bank and IMF is 25% of both savings to GDP and also investment to GDP. We are not getting these basics right. We need to focus and emphasise on savings and also on investments,” he said.

The Ledriz economist said if not addressed pressures on exchange rates will affect the investments, as such there is a need to stabilise the macroeconomic situation in the country.

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