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Economic recovery in Zimbabwe?

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Economic recovery in Zimbabwe?

Zimbabwe’s prospects for economic recovery and growth are good – provided it can tackle the political challenges head on and begin to work towards national unity and cohesion. Minister of Finance Patrick Chinamasa’s November budget has set out to curb profligate spending as well as woo international investors back to the country. By Allen Choruma.

Zimbabwe has what it takes to be a prosperous country. It has abundant natural resources, a good climate, decent infrastructure, an educated populace with one of the highest literacy levels in Africa, a huge diaspora population and a peace-loving people. Yet, despite all these attributes, Zimbabwe has lurched from one crisis to another including an economic meltdown that produced a level of inflation unprecedented in human history and led to the humiliation of having to abandon its currency (once one of the strongest in Africa) as an acceptable means of exchange. 

Add to this the destruction of both its agricultural and industrial sectors (again, once the pride of Africa); the severe contraction of its mining and commercial sectors; an economy-induced migration that ran into the millions; chronic unemployment; rampant corruption; crippling domestic and foreign debt; eroded investor confidence; and destructive political fragilities, and you would think it would take a miracle to turn the country around.

But such a miracle is possible. The country’s fundamentals are strong. A great deal of the country’s economic illnesses can be laid at the door of human agency rather than natural calamities. What has been broken by human agency can be mended by human agency.

The new political dispensation has provided the much longed-for break in the vicious downward spiral. The new establishment now has the breathing space to tear up the old blueprint and redraw a new one, fire-fighting on the one hand whilst also laying the foundation for an economically robust Zimbabwe on the other.

The political dimension

A democratic Zimbabwe where there is observance and respect of human rights and dignity, rule of law, separation of powers (state, government and legislature), safeguarding of the constitution, press freedom and so on are essential ingredients in maintaining peace and political stability in Zimbabwe. They are also critical in creating an enabling environment for re-building the economy through mobilisation of both domestic and foreign direct investment.

Corruption has become so rampant and embedded in Zimbabwe that it has now become the scourge of Zimbabwe’s economic development agenda. For example, between 2005 and 2015, $15bn worth of diamonds was siphoned out of the country. This amount is four times the size of Zimbabwe’s 2017 budget of $4.1bn.

 Zimbabwe is ranked 150 out of 168 in the 2015 Corruption Perception Index (CPI) survey published by Transparency International (TI). The TI CPI is based on expert opinion and measures the level of public sector corruption on a scale of 0 (highly corrupt) to 100 (very clean). 

Zimbabwe scored 21 on the TI CPI, indicating a rise in corruption, compared to a score of 41 in 1999. It is yet to be seen how the new administration will handle the issue. There is growing public pressure for all the bigwigs who have been named in corruption scandals to be prosecuted.

President Mnangagwa has pledged to step up the fight against corruption. 

Zimbabwe’s current GDP stands at $14bn and has the potential to treble in under 10 years. Multilateral institutions economic growth forecast for 2017 is at 2.30% (0.60% 2016), while government projects 3.7% growth.  

The unexpected political changes that have taken place in Zimbabwe have already started making an impact. Investor confidence is slowly returning and the government announced a bullish growth rate of 4.5% for 2018, buoyed by economic reform policies highlighted in the 2018 budget presentation in November. 

The 2018 budget shows that for the nine-month period, January to September 2017, actual government expenditure stood at $4.65bn against a budget of $3.1bn, resulting in a whopping expenditure overrun (deficit) of $1.55bn which is expected to peak at $1.707bn billion by end of December, 2017. This is a clear indication of the Mugabe administration’s huge appetite for unbudgeted expenditure. 

The 2018 budget stands at $5.071bn, with total expenditure of $5.743bn, resulting in a fiscal deficit of $672m. If the Zimbabwean economy is to recover going forward there is a need to significantly reduce government expenditure through implementation of cut throat measures, some of which are outlined in the 2018 budget.

Actual employment costs (civil service), for January to September 2017, at $2.567bn, accounted for 91.3% of total revenue collection ($2.812bn). With employment costs at close to 92% of revenue collections, only 8% of revenue will be left to finance operations and capital expenditure. The records of the civil service are so porous that “ghost workers” are said to be gobbling up a whopping $21m a month.  

The re-engagement of the international community to help rescue the Zimbabwean economy is critical. The new administration has to move away from ideology and dogmas that repel international investors from Zimbabwe.  

The “Look East” policy needs to be reviewed, to open up Zimbabwe to other international investors irrespective of their geographical location. Zimbabwe needs investors from all directions – east, west, south and north. Yes, relations with China are strategic but the country should look beyond China. It needs to restore relations with the West, i.e. the UK, US, European Union countries, multilateral creditors such as the IMF, the World Bank and so on.

Already the British Foreign Secretary, Boris Johnson, on the sidelines of the AU-EU summit in Abidjan in November, indicated that Britain is willing to support Zimbabwe to build its economy, stabilise the currency, and extend a bridging loan to help clear WB and AfDB loans depending on how the democratic process unfolds.

There also needs to be a re-engagement of the Zimbabwean diaspora, estimated at five million people scattered mainly in South Africa, the UK, US, EU and Asian/Pacific countries. Diaspora remittances (through formal channels) to Zimbabwe, between January and June 2017, amounted to $784m, compared to FDI for the same period of $140m. The majority of diaspora remittances are made through informal channels and combined remittances are estimated to be in excess of $2bn per annum. 

The Diaspora Infrastructure Development Group (DIDG) for example, is a company incorporated in both Zimbabwe and S Africa and is spearheaded largely by Zimbabweans living in the diaspora. Its objective is to unlock foreign capital inflows towards development of Zimbabwe infrastructure and other public sector development programmes. The DIDG recently participated in the $400m National Railways of Zimbabwe rehabilitation programme. 

Debt overhang

Zimbabwe cannot move forward if it does not address its debt overhang. The Lima Report presented by the Reserve Bank Governor: Zimbabwe Strategies for Clearing External Debt Arrears and Supportive Economic Reform Measures, dated October, 2015, listed Zimbabwe debt at $10.8bn, out of which $5.6bn was in debt arrears. 

This figure is comprised of bilateral debt (Paris and Non Paris Club: mostly EU countries, of $3.6bn), multilateral creditors (IMF, AfDB etc, $2.6bn), private sector external debt and other creditors ($4.6bn).

In his budget speech, Finance Minister Patrick Chinamasa said the controversial Indigenisation Act, which requires all firms to be 51% locally owned, is being amended and the law would only apply to diamond and platinum sectors. The act, introduced by Mugabe is 2009, acted as a brake on foreign investment into the country. 

The land question needs to be revisited with a focus on productivity and clearance of legacy issues around land reform. Agriculture contributed 21.6% to the Zimbabwean economy in 2016, with mining at 5.1% and manufacturing at a paltry 0.3%. From these statistics it can be seen that the Zimbabwean economy can be quickly revived by unlocking value from its land resources. 

Apart from exports, a thriving agricultural sector will act as a supply of raw materials into the manufacturing sector and bring back life to the Zimbabwean manufacturing industry which is predominantly agro-based.

The mining sector has for long driven the generation of foreign currency through mineral exports. Despite abundant mineral resources, Zimbabwe is yet to fully benefit from these resources. If the proceeds from Marange diamonds had been handled through the treasury, Zimbabwe by now could have wiped out all its foreign debt and rehabilitated its entire ageing infrastructure, creating opportunities and thousands of jobs in the process.

As the World Bank puts it – the fundamentals for economic growth and poverty reduction remain strong for Zimbabwe provided the country can tackle its political fragilities and build a consensus around inclusive and competitive investment policies. 

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