Short term infrastructure funding an economic Achilles heel

Dr John Panonetsa Mangudya

IT is widely agreed in every corner of this country that there is need to repair and construct new infrastructure in order to move with modern times.

Infrastructure has been neglected for close to three decades since the Economic Structural Adjustment Plan (ESAP) stalled the national infrastructure drive.

However, the current leadership has taken it upon itself to repair and construct roads in places which were overdue.
Dams which were planned over 30 years ago have begun to be constructed, some which had stalled in the past 6 or so years ago are being resumed and some planned during the Rhodesian era are being implemented.

These developments are being applauded as they were overdue and could ease pressure on business and serve the ever growing population.

However, the infrastructure drive has come at a cost in the form of currency depreciation and inflation. The parallel market is feeding from the construction industry as these companies do need parts, equipment as well as savings in foreign currency.

With the delays at the RBZ run foreign currency auction system, some industry players have resorted to the black market to source forex for spare parts and additional equipment which need no delay in order to beat targets.

Reserve Bank Governor, Dr Mangudya earlier in the week told the parliamentary portfolio committee on budget and finance that the infrastructure drive is noble but is the biggest cause of inflation.

Dr Mangudya said, “We do believe that government has done very well in paying contractors, in terms of using short term money for a long term project. What normally happens and what is happening in other countries is that they get long term money from AfDB and IMF which they use to construct roads and Dams.”

“Zimbabwe has been doing it through short term money since we have no access to foreign money, without demonizing ourselves, we have done very well as a country in terms of public works. So this is where the mismatch comes in, and therefore using budgetary money has a cost, and the cost is inflation.”
Dr Mangudya added that inflation being felt in the country, besides the imported one, was the downside risk of a good policy.

During his visit earlier this week, African Development Bank President Dr Akinwumi Adesina told a press conference that the private sector needs to move in and help government in order to reduce the shocks of this type of infrastructure funding.

“The government is doing a great job of repairing and constructing new infrastructure but they need the private sector to compliment them,” Dr Adesina said.

According to the AfDB president, most of Africa’s debt is going towards infrastructure development but the difference with Zimbabwe’s situation is that there is no long term external funding.

Dr Adesina added that, “Infrastructure is funded by long term loans in order to avoid economic consequences such as inflation. If you check, 78 percent of debt in Africa is long term infrastructure debt and this is how it should be done in order to protect the economy from shocks,” he said.

Speaking at the same event, Minister of Finance and Economic Development Prof. Mthuli Ncube said government had to do the necessary work despite lack of long term financing.

“Colleagues, we do agree that government is doing well in terms of infrastructure and we should continue on such a trajectory.

“However, we need long term financing in order to rein in inflation and stabilize the currency which will also lead us to a better economy with more jobs,” Prof Ncube said.

Developmental Economist Crispen Maradze commenting on the issue said, “This country had last seen road construction in the 1990s. Take for example, the Harare Masvingo highway, it was now a death trap yet it was the route to the region’s busiest inland border. So at the end of the day we needed to work on the infrastructure despite the cost.”

Analysts agree on the fact that infrastructure had to be improved at all costs but some argue that the shocks could have been reduced had it been done in a less populist way of biting more than we can chew.

Another Economist Dr Prosper Chitambara said, “The country was overdue for infrastructure development because we are falling behind in the region, and also our population has been growing at a rapid scale which needs to be catered for. Yes, it is not desirable because the population is facing the consequences via inflation.”

“Unfortunately we cannot source long term external funding so we will have to do with what we have as funding methods. However, what needs to be done is to slow down and make a targeted approach rather than a holistic approach,” Dr Chitambara added.

Other schools of thought say domestic funding of infrastructure development should come from the private sector or more suitably from pension funds which make up some sort of long term financing.

“So I really believe it is time to look at our pension funds and make sure that they are investing in infrastructure as an asset class to be able to make sure that the economy has the kind of infrastructure that it needs to move forward,” Dr Adesina said.

This comes as the minister of finance has reiterated numerous times on the importance of pension funds in the development of this country’s infrastructure be it through public private partnerships or with them going it all alone. – Business Weekly