By Paison Tazvivinga
A new year is often impregnated with an analysis of the economic prospects for that year. Zimbabwe is not an exception, a lot has been said, even the Finance minister Mthuli Ncube in his budget presentation, argued that the economy is expected to grow by 5.5%, driven mainly by better rains which will drive the agriculture sector. The mining sector is also expected to be an anchor with better mineral exports revenue.
The greatest dichotomy faced by any meaningful assessment is to balance the multiplicity of stakeholders, chief among them, the politicians and the general citizenry. However, we can all agree that any meaningful/positive economic performance must translate to the lifting of the burden of economic hardships on the shoulders of the general citizenry. It is for this reason that some found it implausible to celebrate quantitative accomplishments such as GDP targets and account surpluses whose true meaning is a privilege of a few technocrats or those that commit to understand them.
It is against this backdrop that the author is of the view that 2022 may not be as rosy (to the general citizenry) as authorities try to portray. Although GDP growth may be registered, it is prudent to take responsibility of both the positives and the negatives. Without drastic policy shifts, the author agrees with Farai Mutambanengwe (Business Executive & Entrepreneur in a ZES whatsapp discussion forum) that the nation is going to witness:
- Persistent high inflation based on continuing high money supply growth;
- Continued depreciation of the local currency on the back of the above and failure to transition to a market determined exchange rate;
- Increased re-dollarisation on the back of the above;
- Uneven/lumpy growth in a few sectors but most sectors will perform dismally;
- Many formal businesses will fold, while informal businesses will continue to thrive. This may lead to missed targets on revenue collection;
- Increase in inequity and widening of rich/poor divide and uneven spatial development;
- Increased labour unrest as wages are steadily eroded by inflation;
- Rising political temperatures also likely to shift attention from redressing core economic issues, especially as the ‘technocrats’ are now looking to consolidate political power;
- Revival of Covid affected sectors like tourism and hospitality could provide some positive momentum to overall GDP growth; and
- Overall, GDP growth likely to be low single digit in the +-3% region.
For the common man, the perception will be of a continued worsening of their status. Unlike last year where there was a sense of reprieve after the trauma of 2020 and lockdowns, 2022 will just be a year of steady erosion of buying power. For that reason, side hustling will be entrenched which means lower formal productivity. Businesses will need to be creative around incentives, but brain drain is inevitable.
A closer look at the above shows that the two main sources of the problems bedevilling us are exchange rate distortions and money supply. The foreign currency auction system is not living to the realities of an auction system. Rather, it is more of an allocation system, serving the ‘elites’ at the expense of others. It would be better to liberalise (float) the rate to be a better reflection of market fundamentals of supply and demand. Authorities also need to support the local currency by accepting it for local transactions as doing so cultivates confidence in the transacting public. A dysfunctional money system where the government does not even accept its own currency for payment of government services is a recipe for disaster.
The issue of “scarce” foreign currency which in a way is one of the reasons of the establishment of the forex auction system reflects some misunderstanding. Foreign currency arises from our government creating access to international markets for the average Zimbabwean. This means putting in place policies that support business growth. In a market where most established industrial companies have failed to remain afloat, it makes sense to support the remaining few and nurture the small businesses to see the light of day. Excessive taxing of businesses does no good, rather it reflects the authorities’ insatiable desire for more revenue at the expense of a shrinking tax base. After all, the economy’s problems are not revenue based, they are more of expense side challenges. Proper management of our expenses will solve a magnitude of our problems.
“As a nation we have failed to create opportunities for the average Zimbabwean to serve the world. Compare with South Korea, a population of 51 million people which export US$85 billion in integrated circuits, US$45 billion in cars, US$38 billion in refined petroleum. All these industries were created by the Korean government. We are sitting and waiting for an antiquated industry to recover? What made it die in the first place”. If we really apply ourselves to supporting businesses to be more export oriented, we can build a behemoth out of the otherwise faltering industries.
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At the end of it all, it all boils down to the issue of governance. In 2022, all we are asking from authorities is for them to do the correct thing. Economic fundamentals must be respected, we cannot cheat the markets hence we need to align our actions with market best practices. By nature, economies are affected by multiple variables and economics tries to quantify and relate those variables. Every economy will have a different set of variables and the best remedy for the same condition may vary because the causes are different.
Despite the above, there are also set frameworks on which all economies are based and the monetary system is one of those. Debasing of the currency through printing is a no because the result is always the same. We can play around with variables like interest rates, statutory reserves, among others but not the monetary base. We, therefore, need to reduce the rate of money printing; the planned 56% is way too high against a perceived growth rate of just around 5%.
Markets also generally work better than controls except in the case of failure or emergency. Micro control of markets will lead to policy failure, as in our case. Markets hardly fail, rather they expose our shortcomings in managing the economy.
- Paison Tazvivinga is a Development Economist and can be reached on [email protected]
- *These weekly Insights articles published in The Standard are coordinated by Lovemore Kadenge, independent consultant, past president of the Zimbabwe Economics Society (ZES) and past president of the Chartered governance and Accountancy Institute in Zimbabwe (CGI Zimbabwe. Email- [email protected] and mobile no. +263 772 382 852
