‘Zimbabwe economy has potential’

Finance and Economic Development Minister Professor Mthuli Ncube

UNITED Kingdom-based global economic research firm, Fitch Solutions, says Zimbabwe possesses all human and natural factors for robust growth and development, although the absence of some key underlying fundamentals will present hurdles for quick turnaround and competitiveness of businesses operating in the country.

Regardless of the perceived and predicted hurdles Finance and Economic Development Minister Mthuli Ncube has forecast the economy to rebound from the 6 percent decline projected last year to post a 3 percent growth.

Minister Ncube announced in his 2020 National Budget statement an array of incentives and investments to jump-start the economy by supporting growth in mining, agriculture, industry, tourism and other productive sectors, assuming better rains and power supply.

The Treasury chief has also forecast improved performance of Government finances, reduced budget deficit due to ongoing fiscal consolidation and a much better business and economic environment, following drastic reforms in 2019 to lay a solid foundation for sustainable recovery.

The World Bank also shares similar positive sentiments on growth, although at a slower pace of about 2,7 percent 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, potentially affecting recovery of industry and services.

Fitch said rolling electricity outages and sporadic fuel supply are among the major constraints that will continue to weigh heavily on businesses resulting in reduced competitiveness of local products on domestic and international markets.

According Fitch Solutions’ latest report on Zimbabwe, the country’s operating environment will remain challenging over the short-to-medium term, as it remains vulnerable to factors such as adverse weather conditions, commodity price shocks, low industrial productivity and acute foreign currency shortages.

Fitch also cited issues around Zimbabwe’s reliance on the primary exports sector, high import demand, widespread corruption, concerns around property rights protection, high borrowing costs and a yawning infrastructure deficit among factors that will compound the situation for businesses in Zimbabwe.

The global economic and risk research entity said businesses operating in the country will face electricity outages as well as fuel shortages, necessitating the use of alternative power sources at an added cost.

“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 South Africa,” Fitch Solutions said.

But Fitch noted that the bumpy economic terrain has significant human capital and vast resource potential which could drive economic development.

The country’s economy has suffered from nearly two decades of economic stagnation and structural dislocation under the previous administration, which President Mnangagwa’s Government is now battling to reverse.

“The latter is intrinsically tied to improved governance and transparency, increased investment openness, and meaningful re-engagement with multilateral lenders and the international community in the years ahead,” Fitch said.

Zimbabwe’s real gross domestic product is expected to contract in 2019.

Shortages of foreign currency, fuel, electricity, severe drought and Cyclone Idai dampened economic activity especially in mining and agriculture, which experienced double-digit declines.

Production of major minerals like gold, diamond and coal fell by more than 27 percent while production of maize, the main staple food, was less than half of its level in 2018, resulting in wide-spread food insecurity.

According to the World Bank, domestic demand weakened significantly as job losses and rapidly increasing inflation eroded disposable incomes of households while fiscal austerity kept Government spending low.

“In the absence of international support, Zimbabwe macroeconomic challenges may persist.

“With dwindling reserves, there is a high-risk of the exchange rate overshooting, contributing to inflationary pressures.

“Climate related risks may constrain recovery of the agriculture sector in the medium-term exacerbating food insecurity.

“Social and political pressures could lead to policy slippage, delay in macroeconomic stabilisation and political reforms,” the World Bank said. – Herald