Zimbabwe is projected to face persistent economic headwinds in the short to medium term as the domestic economy remains vulnerable to both endogenous and exogenous factors, leading UK-based global economic research firm, Fitch Solutions says.
By Golden Sibanda
The research firm believes Zimbabwe continues to be susceptible to internal and external factors, amid dim growth prospects this year, despite highly skilled human capital and vast resources.
This tallies with Finance and Economic Development Minister Professor Mthuli Ncube’s 2019 prediction that the economy is this year projected to contract by 2 percent on the back of natural disasters and negative impact of ongoing stabilisation reforms.
However, the Treasury chief reckons that while the country’s economic prospects do not look too pleasing, at least this year, reforms undertaken thus far under the Transitional Stabilisation Programme (TSP) have put the economy in good stead for recovery.
Fitch said Zimbabwe’s economy remains exposed to major headwinds that include unpredictable weather, commodity price shocks, low industrial productivity and forex constraints.
“These risks are compounded by internal factors such as high reliance on primary sector exports, high import demand, endemic corruption, low confidence in property rights protection, high financing costs and a yawning infrastructure deficit,” Fitch said its in latest Country Risk Report.
Fitch added that businesses operating in the country in 2019 will face rolling electricity outages — necessitating the use of alternative power sources and sporadic fuel shortages.
Zimbabwe is facing acute shortage of power, and relies on imports to ameliorate the impact, due to extremely low water levels at its biggest power plant, Kariba South, and antiquated equipment at Hwange Power Station, its only other major power plant.
“These factors combined with volatile (foreign currency) availability, high inflation for inputs and rigid labour market regulations significantly lower the country’s competitiveness relative to its Southern African neighbours, such as Namibia, Botswana and, to a greater extent, South Africa,” Fitch Solutions opined.
Zimbabwe, Fitch said in the country risk report on Harare, has significant human capital and vast resource potential, which could drive economic development, but this was contingent upon fiscal and monetary normalisation, which Government is working on.
The global research firm said monetary policy normalisation was intrinsically tied to improved governance, transparency, increased investment openness and meaningful re-engagement with multilateral lenders and the global community in the years ahead.
Zimbabwe has posted major milestones on the reform front, including liberalisation of the exchange rate, fuel procurement, establishment of an independent forex market, reintroduction of local currency and fiscal consolidation.
Minister Ncube indicated though that major economic reforms will subside, as the process moves towards the end of the year with focus set to shift to measures aimed at boosting industrial productivity, job creation and competitiveness of local producers.
Amid the floundering economy, Zimbabwe is experiencing acutely high inflation at 176 percent in June this year, crippling power shortage and a dollar crunch, grossly high unemployment, low productivity across sectors and yawning infrastructure deficit.
In fact, the manufacturing production, currently averaging 42 percent, has sauntered over the last decade and half, with the average industrial capacity utilisation consistently hovering below 50 percent for the better part of the period since dollarisation in February 2009.
Efforts are, however, underway to clear arrears to global multilateral lenders such as International Monetary Fund, with whom the country is running a staff monitored programme, World Bank and African Development Bank to re-establish external lines of credit.
President Mnangagwa has also been driving engagement and re-engagement agenda to grow and re-establish relations with erstwhile western State enemies as well as reintegrate Zimbabwe into the international family of nations.
This comes after nearly two decades of isolation, sparked by a bilateral standoff with Britain over the land issue, which together with poor policies of the previous administration, precipitated decades long economic meltdown.
It is estimated that Zimbabwe lost nearly half its gross domestic product in the decade to 2008, getting some respite and achieving most growth and recover between 2009 and 2012 before growth tapered off and instability set in again.