Zimbabwean economic recovery to be difficult, slow: Old Mutual

HARARE – Zimbabwe’s economic recovery is expected to be “difficult and slow” as prospects for re-engagement with the international community and access to capital seem more unlikely, according to insurance and property sector giant, Old Mutual Zimbabwe.

The economy has gone through two year of downturn, falling by 6 percent in 2019 and estimated to fall again by 4,5 percent this year, according to the 2021 Pre-Budget Strategy Paper released by Treasury a fortnight ago.

Other market watchers are seeing worse with the IMF and the African Development Bank, forecasting 2020 economic decline of above 10 percent.

Treasury expects 2021 to be better with a GDP growth rate of 7,4 percent, while the IMF projects a 4,5 percent growth rate. However, Old Mutual Zimbabwe, is not so optimistic pointing to latest developments on the sanctions front as factors that might result in a difficult and slow economic recovery. 

Old Mutual sees the extension of the sanctions list, which saw the inclusion of businessman Kuda Tagwirei and Sakunda Holdings Limited as a risk to international re-engagement.

The insurance giant sees international re-engagement as critically important particularly given the economy has been in a recession in the past two years. To recover, the economy would need international support in form of access to lines of credit and investments.

“Foreign investment and funding are therefore vital to develop industries and increase employment,” reads part of Old Mutual’s third quarter report.

The insurance giant’s view on foreign investment and the need for re-engagement, is in line with Government’s thinking with the 2021 Pre-Budget Strategy Paper stating that in 2021, “the thrust is to continue to deepen the engagements and re-engagement process”.

“Normalisation of relations with various governments and international institutions remain our top commitment” reads part of the Pre-Budget Strategy Paper.

Old Mutual suggests more should be done pointing out that “credible economic and political reforms are the preconditions for successful re-engagements and lifting of sanctions.”

According to the insurance giant, the recent extension of the sanctions list, signals that there is still a long way to go before the country can register success in its re-engagement drive.

“With international re-engagement prospects seeming even more unlikely and prospects of accessing foreign capital remote, economic recovery is expected to be difficult and slow,” Old Mutual said.   

Interestingly, the past week revealed how far the country is in making any meaningful engagement with western countries.

While Government, supported by regional countries and organisations such as SADC, called for the unconditional removal of sanctions early this week, western countries, represented by their local embassies remained adamant that sanctions will remain in place until certain conditions are met.

Government used the 25th of October to commemorate SADC Anti-Sanctions Day, with the African Union (AU) and the South African government adding their voices to calls for the unconditional removal of sanctions against Zimbabwe by the United States (US) and the European Union (EU).

Using his Twitter handle, and responding to the United States’ Assistant Secretary of State for African Affairs Tibor Nagy, Minister of Foreign Affairs and International Trade Sibusiso Moyo said “the label that sanctions placed on our country limits our access to lines of credit and investment, thus reducing employment and increasing poverty.

“You may want sanctions to be targeted, but the reality is that all Zimbabweans are negatively impacted,” he added.

However, Nagy was digging in and reiterated that the sanctions were targeted, a view that was repeated all the weekend by the embassies of the United States, the United Kingdom, the European Union among other western embassies.   

Meanwhile, Old Mutual is of the opinion that the country is not yet out of the woods when it comes to exchange rate stability.

Zimbabwe has experienced the stability of the Zimbabwe dollar for nine consecutive weeks on both the official and parallel market, but market watchers, including the CZI, ZNCC and now Old Mutual believe it’s early days yet and more still need to be done.

“Although the appreciation has presented some economic stability in the interim, the risks of further depreciation remain high given the anticipated increase in aggregate demand and imports as the local economy and economies of key trading partners open-up.

“In addition, pressure on government expenditures considering wage demand increases and agriculture funding will possibly increase the monetary base, subsequently weakening the value of the local currency,” the financial services giant said. – Business Weekly