Fixing Zimbabwe economy not an overnight job




Prof. Mthuli Ncube

Fixing a broken economy is not kindergarten stuff, neither is building one for prosperity of the majority of citizens; otherwise no country in the world would be poor.

By Golden Sibanda

And Zimbabwe is no exception.

The worst and longest economic crisis in the modern industrial world, the Great Depression in the United States had devastating consequences for American society.

At its lowest depth (1932-33), more than 16 million people were unemployed, more than 5 000 banks had closed, and over 85 000 businesses had failed.

Millions of Americans lost their jobs, their savings and even their homes. And for a country like Zimbabwe, that saw very little growth over nearly two decades to expect miraculous recovery in less 12 months could be too much to ask.

The script of Zimbabwe’s economic meltdown reads almost the same since the banking sector crisis of 2003, through the hyperinflationary decade to 2008 that saw banks and companies collapse and hundreds and thousands lose jobs.

Economists take

But is there light at the end of the tunnel?

Former University of Zimbabwe economics lecturer and ex-Treasury advisor Professor Ashok Chakravati contends about this time next year, assuming the reform process paces up and Zimbabwe has a good rainy season, things will be better.

“The World Bank says it will take about 10 years (for the economy to recover), but I don’t think so. If we follow the right policies and reform programme paces up and we have a good agriculture season (Goods rains projected this year), I think middle of next year we will be in a better situation,” he said.

Economists say, the battering Zimbabwe’s economy has taken over a decade and half meant the economy could not be fixed in a year; and the best one could hope for, within such a short period, was stability then recovery and growth.

Many people have loft expectations because of what happened under dollarisation, with a lot of people believing the economy had completely emerged from the quagmire of the devastating effects of ill fated decade to 2008.

This was after Zimbabwe dollarised and formed Government of National Unit, managing to stabilise and started to recover on the back of the use of a strong, stable currency. Beyond that, very little was done to fix the economy.

Nonetheless, the millions of suffering Zimbabweans want Harvard trained Treasury chief, Finance Minister Professor Mthuli Ncube, to wave the magic wand and instantly provide solutions to the litany of ills besetting the domestic economy.

Among the myriad of challenges rocking the Zimbabwe’s economy is the high rate of unemployment, galloping inflation, broken down infrastructure, low industrial and agricultural productivity, a high debt overhang and foreign currency shortage.

But Professor Ncube and President Mnangagwa have, been unequivocal about the daunting task of fixing Zimbabwe’s decades long economic meltdown, which they say will not be an overnight job, neither will it be without pain.

Since his inauguration, President Mnangagwa has also demonstrated his commitment to break with the past and superintend the reform process, which went off in earnest soon after, under his rallying call “Zimbabwe is Open for Business”.

Reforms thus far

And Zimbabwe’s Treasury chief reckons that while cries from the pain of Government’s ongoing austerity measures have reached a crescendo, his interventions appear to be fixing the engine for it to start firing on all cylinders again.

He has already instituted an awful lot of reforms since taking over last September, among them the dreaded reintroduction of a domestic currency, floating exchange rate and liberalising fuel procurement, separating FCA accounts and increasing fiscal revenues.

That regardless, Minister Ncube insists, he is not done yet, at least until yearend, with the major macro-economic reforms to set the economy firmly on a strong footing for sustained recovery, growth, productivity and job creation.

After 2019, Minister Ncube says focus will shift to prosperity interventions that entail enhancing production and productivity, competiveness and job creation.

However, billions of dollars will be required to kick-start and support production in manufacturing, agriculture, mining and infrastructure among others, but reality is that Zimbabwe has very little financial options right now’ a potential handicap.

How did we get here?

Introspectively, there are varying arguments as to why Zimbabwe finds itself in the kind of economic situation it has been over nearly two decades; some argue the economy has suffered from bad policies while others cite the impact of sanctions.

Part of bad policies often cited for Zimbabwe’s problems is land reform policy and indigenous and economic empowerment law, which expropriated white owned farms and firms.

Others mention alleged toxicity of Zimbabwe’s politics, and still others blame the country’s participation in the ward in the Democratic Republic of Congo in the late 1990’s as having negatively weighed on the once vibrant domestic economy.

Whatever the cause, Zimbabwe needs to find the formulae to restart its economy and economists believe that while the task is daunting, the process is well on course, but will require a bit of time, effort and dedication before results trickle.

Light at end of tunnel

Economist Prosper Chatambara said it will take upwards of two years for the ongoing reforms to start bearing fruit given that interventions such as institutional reforms, rebuilding key economic enablers and state enterprise reforms take time.

But he said that bad economic policies, mostly taken for political expedience and endemic corruption, were some of the issues that precipitated collapse of the economy.

“I think we are where we are because of poor policies and I think over a long period of time we allowed political convenience to override economic rationality and so here we are now; harvesting the fruits of what we planted,” he said.

It is a fact though that Zimbabwe’s fall from grace really became evident at the turn of the millennium after the Southern African country embarked on repossession of previously white owned farms to distribute to the landless majority.

Between 2001 and 2008, the World Bank estimates that the country lost nearly half its estimated US$16,4 billion gross domestic product (GDP) and entered a period of hyperinflation, company collapses and jobs losses, until dollarisation in 2009.

The economy was to briefly recover between the years 2009 and 2012 when growth averaged 7 percent, which coincides with the period when Zimbabwe used a basket of currencies largely dominated by the United States dollar.

But since the elections of 2013 won by former President Robert Mugabe, the economy went on a tailspin, again, that culminated in US dollar cash crunch in 2016.

This saw introduction of surrogate currency bond notes and coins, introduced as an export incentive.

Our problems

Notably, once Africa’s bread basket, Zimbabwe now sometimes referred to in some quarters as Africa’s basket case, unable to maintain consistent food security.

With unemployment at record highs, estimated at around 90 percent, Zimbabwe also faces acute shortage of foreign currency required to import critical things such as fuel, electricity, raw materials, machinery and basic goods.

Zimbabwe imported US$6 billion worth of goods in 2018, 21 percent increase on prior year and shipped out just US$4 billion in the same year, and after production nosedived between 2001 and 2008, it must rely on imports.

The Confederation of Zimbabwe Industries (CZI)’s manufacturing sector survey report for 2018 shows that the country’s industrial capacity, which it rose marginally by 3,1 percent to 48 percent, remains far below its optimum.

And drastic exchange rate swings since onset of reforms in 2018, amid a US dollar crunch, have brought a spike in imported inflation, which saw the annual rate sky-rocket from 5,39 percent in September 2018, to 176 percent by June this year.

The African Development Bank (AfDB), in its latest infrastructure report on Zimbabwe, estimates the country needs least US$33 billion to close its infrastructure gap, including roads, rail and energy.

Interventions

It is, however, worth noting that as inexhaustible the list might be of the macroeconomic challenges besetting the Zimbabwe economy, a coterie of reform initiatives have been instituted to realign key macroeconomic fundamentals.

Under measures outlined in the transitional stabilisation programme (TSP), Minister Mthuli Ncube (pictured) is pursuing re-engagement with multilateral and bilateral lenders to repay its outstanding debts and restore borrowing rights for cheaper credit.

Since defaulting on its obligations at the turn of the millennium, Zimbabwe has not been able to borrow to cover its external sector positions. But the country’s proposed arrears clearance plan was approved at annual meeting of the IMF and World Bank in Bali, Indonesia.

Zimbabwe is also working with the IMF on a staff monitored Programme (SMP) to reform and rebalance key macro-economic fundamentals including reducing the fiscal and current account deficit before it can access fresh credit.

And the results of the wide array of reforms have started to show with Minister Ncube indicating Treasury is posting primary budget surpluses since November last year; cumulatively $803 million in the first six months of 2019.

Harare has also made moves to rejoin the Commonwealth Nations, where it was booted out in 2001 after taking back land from former white farmers to redistribute to the landless black majority.

The efforts also make part of efforts by Harare to reintegrate into the global family of nations by mending relations including with everyone including western countries that have imposed sanctions on it in 2001.

Zimbabwe in June reintroduced local currency. While it appeared; and many observers felt the country was not ready for local currency; Minister Ncube said that there was no alternative for a country without adequate forex supply and reserves.

Amid the shortages, Government was faced with demands for paying its workers in hard currency, which it did not have, as well as a litany of other external obligations.

While many predicted doom after local currency reintroduction, the move has proved a masterstroke, ensuring acceptance of domestic currency as sole legal tender; this also after Government scrapped multicurrency and the US dollar.

Government has also covered some significant ground on doing business reforms; starting a business, registering property, enforcing contracts, getting credit, trading across borders etc; but a number of targeted reform areas have yet to be completed.

Mechanisms to curb the scourge of corruption have started, though got quite frenetic in the last few weeks, which saw the high profile arrest and prosecution of former Environment, Tourism and Hospitality Minister Prisca Mupfumira. – Herald