Challenges ahead for Mnangagwa as economy stutters


HARARE – A bleak outlook characterised by growing expectations to end Zimbabwe’s political impasse, a weakening currency, power and foreign currency shortages stare in the face of President Emmerson Mnangagwa’s administration.

Business leaders have warned that the economy is expected to deteriorate further in the next 12 months as the country’s woes escalate on the back of skyrocketing prices of goods and services, low domestic demand, coupled with low production. In his 2020 National Budget, Finance minister Mthuli projected the economy to grow by 3% this year from a negative growth of 6,5% in 2019 buoyed by agriculture.

Foreign currency crunch is also hammering industries, while hyperinflation, recession and a record unemployment continue to dog the economy, a situation which has left companies under stress. Last year, the economy was characterised by relatively tight fiscal measures with cash shortages, liquidity challenges, capacity utilisation and crippling power outages. Zimbabwe, since May last year, endured the worst power cuts in three years.

A reliable and affordable electricity supply is a key enabler in the productive sector. Commercial and domestic consumers are subjected to more than 18 hours without electricity because of dwindling water levels at the Kariba Dam. Companies are reeling from rolling power blackouts, with companies losing significant amounts of dollars due to power cuts alone.

Companies are battling increased cost pressures, varying from direct economic costs, indirect costs, and social costs. Indirect and social costs are equally important components when considering the impact of power interruptions. Several captains of industry said this week this will force many companies to further cut back on output, a situation which is likely to result in serious workforce lay-offs. Lower output and higher prices coexist and feed on each other.

The other risk is that many companies are debt –ridden and are failing to pay their obligations because interests on debts are accruing additional charges, pilling pressures on already struggling companies. The economy is also battling curtailed net capital flows, declining investor confidence, rising unemployment, rising prices and dented sentiments.

The World Bank warned in the absence of international support, Zimbabwe macroeconomic challenges may persist.

“With dwindling reserves, there is a high-risk exchange rate overshooting, contributing to inflationary pressures,” said the World Bank, adding Zimbabwe’s fiscal deficit is projected at around 4.9% of GDP in 2019 and will gradually decrease to 4.5% and 4.4% of GDP in 2020 and 2021 respectively. Continued cash shortages as well as weak targeting of public spending on social safety nets are seen constraining social programmes and the impact on poverty.

“Real GDP growth, said the World Bank, is projected to pick up to 2.7% in 2020, driven by a rebound in agriculture as rains largely return to normal. However, shortages of foreign currency and electricity are projected to persist in 2020, negatively affecting the recovery of industry and services.

“Weak domestic demand is likely to translate into a small current account deficit in 2019 (around 1 percent of GDP) which is likely to slightly increase in 2020 given continued foreign currency shortages,” the World Bank said.

Extreme poverty in Zimbabwe is estimated to have risen from 29% in 2018 to 34% in 2019, an increase from 4.7m to 5.7m people. Poverty is projected to remain stagnant in 2020 as positive impacts of a rebound in agricultural production will be countered by the negative effects of continued high inflation, further undermining the purchasing power of the poor.

Last month, a UN agency said Zimbabwe is facing its worst hunger crisis in a decade with half of the population (7.7m) food insecure. World Food Programme spokesperson Bettina Luescher said that almost US$300m was needed urgently to supply some 240,000 tonnes of aid to avert hunger caused by a climate disaster and economic implosion.

Government will this year tackle the demands for salary review by the civil service with some sub sectors threatening to rollout strikes to force government to the negotiating table. Accounting for the lions’ share of formal labour, the civil service’s conditions of service are a benchmark for the rest of industry.

Apex Council secretary-general David Dzatsunga told Business Times that the workers’ body, representing all 16 civil service unions, is waiting for government to address their welfare concerns this month. He said the workforce is restless and has low morale. Government’s 230 000 strong work force is working under protest because of poor working conditions.

Dzatsunga said civil servants are demanding the lowest paid among them to get US$475 equivalent at the prevailing interbank rate in the face of the spiralling cost of living, where the bread basket for a family of six is now pegged at ZWL$4 000.

“We want government to adjust our salaries to the interbank rate so that they are in tandem with October 2017 salaries of US$475 for the lowest paid worker,’’ Dzatsunga said.

Mnangagwa has very little room to manoeuvre as budgetary demands far outweigh resources in 2020. Government is currently facing a job strike from the medical doctors in government hospitals who for the past two months have been refusing to report for work and demanding to be paid in foreign currency. Treasury has promised a cost of living adjustment allowances for its workers to cushion them against the inflation which is eroding workers’ income.

Dzatsunga said civil servants were struggling and heavily indebted as they were borrowing money to report for work. He said if government does not heed their call they will embark on weekly demonstrations or sit-ins at the workplace.

Raphael Makota, vice President of the Senior Hospital Doctors Association, said medical professionals are also facing the problem of low morale resulting in the job action. Zimbabwean hospitals have not been functioning well since March last year. Things have come to a standstill in the last three months.

Hospitals have run out of essential drugs and sundries and a lot of essential hospital equipment has either broken down either needing urgent repair or complete replacement. Even the most basic things like syringes are hard to come by in hospitals. The hospitals have now turned into a dangerous place for patients.

Doctors can no longer afford to come to work as wages are too low. Inflation has ravaged their earnings leaving them unable to afford a living. The hospital working environment has now become unsafe for both the patients and the doctors alike. The patient is coming to a hospital with erratic nursing services. This has left the doctors and the hospitals incapacitated. Government has fired about 430 medical doctors for participating in the industrial action.

Progressive Teachers Union of Zimbabwe (PTUZ) president Takavafira Zhou said teachers are also demanding better working conditions. The teachers’ want their children to be exempted from paying fees in all government schools. PTUZ also wants government to provide residential stands for teachers as the ZWL$120 they are getting monthly as accommodation allowance is not enough to rent a single room in the country, according to Zhou.

Companies are questioning government’s commitment to deal with the current economic challenges. In a statement accompanying Powerspeed’s financial statement for the year ended September 30, the firm’s chairman Simba Makoni said actions by the country’s leaders do not seem to reflect reality on the ground.

“It is difficult to tell where our country is going. Statements of, and actions by our leaders do not seem to reflect the reality of everyday experiences of citizens,” Makoni said. “The country yearns for a coherent, credible, macroeconomic policy framework, and regulatory regime, within which economic agents can operate and plan for the future.”

Business executives expect the situation to deteriorate this year. Delta Corporation chairman, Canaan Dube, said the economy was yet to settle from the turbulence caused by transition from the multi-currency system to the Zimbabwe dollar and the accompanying policy measures in line with the Government Stabilisation Programme.

“The operating environment is expected to remain challenging,” Dube said in a statement accompanying the financial statement for the period ended September 30. He added: “Our production and distribution operations were disrupted by the shortages of electricity and fuel, which in themselves are a manifestation of the limited availability of foreign currency. The sourcing of imported goods and services remains constrained by the shortages of foreign currency, particularly in view of the backlog in settling past due obligations.

“Consumer spending remains low as incomes have lagged the escalation in prices of goods and services. The Company has been adversely impacted by shortages of potable water, electricity and fuel. Volume performance is thus constrained and significantly below last year across our product offering.”

The economy is also battling fast depreciating local currency. A weaker Zimbabwe dollar is fuelling inflation. Although government stopped publishing annual inflation rate after it reached 176% in June last year, it is estimated to be hovering around 500%. Month on month inflation rate was 17% in November. The economy contracted by 6.5% in 2019.

Government, however, expect the economy to grow by 3% this year. There is widespread pessimism over economic conditions this year. Miners are in trouble. Some are said to have suspended some shifts this week to avoid trapping miners underground when the electricity cuts out. To worsen the situation, ZESA has been accused of disregarding an agreement with miners to ensure uninterrupted power supply, a situation which has cost the resources industry millions of dollars in potential lost output.

This has angered the miners who say ZESA’s failure to honour the agreement will put the economy in peril because miners are among the biggest consumers of electricity in the country and are already grappling with weak profits that could be compounded by potential output loss due to power outages of up to 40%, according to the latest survey by the Zimbabwe National Chamber of Commerce.

On the political front, former South Africa president Thabo Mbeki is this year expected to broker talks among Zimbabwe’s main political parties as the economy flounders. Zimbabwe’s main opposition leader Nelson Chamisa wants Mbeki to mediate over negotiations between his party and the ruling party led by Mnangagwa.

Mnangagwa, however, wants negotiations to fall under the ambit of the Political Actors Dialogue. – Source: Business Times