Economic growth prospects bright

According to the Finance Ministry, the economy may expand by 9,4 percent next year, largely driven by the mining and agriculture sectors. This would be the fourth growth in a row since the formation of the inclusive Government and the adoption of the multi-currency regime three years ago.
Following a decade of recession, the economy grew 5,7 percent in 2009, 8,1 percent a year later and is expected to grow by 9,3 percent this year.
Mining, the fastest growing sector, would be driven by improving prices on the international market.
Agriculture would be pushed by increased production in tobacco, sugar and cotton.
But the amount of rainfall and the availability of funding would determine contribution of the agriculture sector to overall economic growth.
Finance Minister Tendai Biti did not provide enough funding for agriculture in the 2012 National Budget.
Government’s efforts to raise US$100 million through ago-bills did not yield the expected results.
Planting of tobacco and maize was also delayed due to late rains. Agronomists have warned this could have a negative impact on harvests.
Low agricultural output affects performance of the manufacturing sector as producers acquire about 60 percent of their raw material from farm produce.
This means the economy’s liquidity position will remain squeezed, as more money would be spent on imports.
The creation of new jobs will also be hampered. But manufacturing output is expected to increase gradually as more firms secure funding to recapitalise.
Tourism continues to benefit from the improving political stability and image perception management by the Zimbabwe Tourism Authority.
Macro-economic stability would be maintained through containment of inflation within single-digit levels. Authorities are hoping inflation management would be supported by the implementation of prudent economic policies that include cash budgeting and use of multiple currencies.
While the investment is returning to the mining sector, perceptions on indigenisation and empowerment, which require foreign-owned firms to localise at least 51 percent equity, will slow the inflow of new capital.
Many mining firms are likely to suspend expansion. This is likely to impact adversely on the overall growth of the sector.
Foreign investors in the mining sector are reluctant to invest because of fears the Government would take over firms not meeting the indigenisation regulations.
But this will affect foreign direct investment, considering that the indigenisation law will apply to all sectors of the economy.
The possibility of elections being held next year will keep investors apprehensive and affect their decisions to invest in the country.
As is the case with any election, investors will adopt a wait-and-see attitude, putting all their investments on hold until they get a clear indication of the new direction.
The foreign investors’ decision to continue to invest in the economy would largely be based on the country’s ability to hold credible elections.
Liquidity constraints are expected to continue into the New Year due to the slow inflow of foreign direct investment and limited export capacity.
Bank deposits have continued to be on an upward trajectory but this has not translated into lending, as the costs of funding remain unaffordable.
Deposits are transitory in nature and the limited funding has been made available at costs of between 20 and 30 percent per annum.
The high cost of funding has affected access to finance and consequently the production levels as companies struggle to recapitalise and fund operations.
However, capacity utilisation is expected to marginally improve as liquidity and FDI improve gradually, in line with economic growth.
Last year, the economy realised a paltry US$105 million in FDI, compared with US$10 billion that found its way into the regional economy during the period.
Nonetheless, policy consistency and the use of a stable currency would determine the pace of economic growth that will enhance predictability.
But key enablers, such as efficient road, rail and air transport, will also play a fundamental role in supporting sustainable economic growth.
The infrastructure is in a poor condition due to lack of maintenance, following a decade of economic recession.
According to the African Development Bank, Zimbabwe requires an estimated US$15 billion for infrastructure development.
Apart from an efficient transport system, Zimbabwe requires significant investment to improve its power production capacity to meet national demand.
Present production is an average of 1 200MW against a peak demand of 2 200MW.
Government is working on expanding Hwange Thermal Station and Kariba South to produce an additional 900MW.