Big bang reforms may hurt economy: Mtizwa

Joe Mutizwa

ZIMBABWE’s private sector has called on the United States to repeal the Zimbabwe Democracy and Economic Recovery (Amendment) Act to enable the country to have access to foreign lines of credit and lower the country’s risk premium.

Moreover, the sector has thrown its weight behind President Mnangagwa’s administration and the country’s economic policies, pointing out that a “big bang” approach to economic reforms may have dire and unintended consequences given the fragility of the economy.

This is according to a testimony given by former Delta Corporation chief executive Mr Joe Mtizwa to the US Senate Sub-Committee on African Relations and Global Health Policy on Thursday last week.

The sub-committee had requested an appraisal from Zimbabwe’s private sector on the present state of the economy.

The submission touched on the economic situation and political developments in the country since President Emmerson Mnangagwa took office.

In the preamble of his report, Mr Mtizwa stated that the private sector in Zimbabwe endeavours to be apolitical.

“We work with any Government in office regardless of its political leanings.”

After giving a detailed account of the state of the economy, the renowned businessman stressed that resolving the country’s economic problems should be gradual.

“The observation of the private sector is that because of the risks, the proper sequencing and pacing of the reform programme becomes crucial.

“A big bang approach to economic reforms may have dire unintended consequences given the fragility of the economy. In the absence of significant international financial support, a gradual and nuanced reform process may be more appropriate,” he said.

Challenges facing the economy

Mr Mtizwa said among the myriad of challenges facing Zimbabwe is fiscal distress. The budget deficit is projected at 11, 6 percent of gross domestic product in 2018.

Zimbabwe is targeting to reduce the deficit to 5 percent of GDP in 2019. The consensus target within the Sadc region is 3 percent of GDP.

The country’s current account imbalance remains largely unsustainable with imports projected to exceed exports in 2018. Mr Mtizwa said about 80 to 90 percent of the economy is informal, before highlighting that this reflects high levels of unemployment in the formal sector.

The southern African country is also buckling under a large public debt burden standing at US$18 billion with 54 percent of this being domestic.

Currency volatility, one of the biggest issues facing the economy, has manifested in multi-tier pricing distortions on the market.

Rising annual inflation, which rose to 20,9 percent in October 2018, is the highest in the Sadc region and has significantly eroded the value of savings.

Crisis of expectations

Mr Mtizwa pointed out that the expectations in Zimbabwe are at variance with the magnitude of challenges on the ground. He noted that the ordinary person is expecting a quick turnaround of the economy, which is not feasible.

“Zimbabwe has been in the grip of misrule for 37 years and the damage done to the economy, to the country’s reputation and its institutions will take many years, if not decades, to repair,” said Mr Mtizwa, who also chairs the forum of companies listed on the Zimbabwe Stock Exchange.

Zidera’s impact

Mr Mtizwa said the economic sanctions imposed on Zimbabwe continue to retard economic recovery in Zimbabwe.

“In Zimbabwe, trade sanctions impact negatively on economic growth through denying the country access to foreign lines of credit,” he said.

He argued that Zidera has been a great obstacle for Zimbabwe’s economic growth as it impedes the country from accessing foreign finance.

As a result of Zidera, Zimbabwean banks have lost more than 100 corresponding banking relationships over the past 10 years.

The sanctions have branded Zimbabwe as high risk, thereby resulting in foreign banks de-risking from financial intermediation.

ED’s achievements so far

Government has shifted its main focus from politics to economic matters. Zimbabwe has since opened up for business and the private sector is keen to see more work being done in promoting the ease of doing business in the country.

The President has articulated Vision 2030 whose goal is to turn Zimbabwe into an upper middle class economy by 2030 with a per capita GDP exceeding US$3 500 per annum.

Zimbabwe’s private sector has also thrown its weight behind President Mnangagwa’s decision to retire long-serving party loyalists and bring in fresh talent into a significantly trimmed Cabinet.

“Key new appointments were made in the ministries of finance, industry, mines and transport — all now headed by technocrats. The private sector in Zimbabwe welcomed these appointments,’ Mr Mtizwa said.

However, Mr Mtizwa noted that the Cabinet had only been in office since September 2018, hence it is too early to objectively evaluate their performance.

He also noted that the political space had been opened up significantly with Zimbabweans now free to express themselves openly.

On corruption, Mr Mtizwa said several prosecutions of high level people are currently underway. This, he said, indicates a tough stance against corruption.

In terms of legislation, Government has been working round the clock to align statutes to the constitution. To date, 206 statutes have been aligned to the new Constitution with only 49 outstanding.

Zim’s policies

In October 2018, Government launched the Transitional Stabilization Plan (TSP) which provides a road map to economic recovery for the next three years.

The Plan resonates well with the 2019 National Budget whose theme is “Austerity for Prosperity”. Government has also embraced the proposal for an International Monetary Fund Staff Monitored Program (SMP), which is about to commence.