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Persistence Gwanyanya Analysis—
AS the nation bids farewell to 2016, we are naturally inclined to self-introspect and reflect on what the future holds for the country.
| For an economy that has been moderating for the last four consecutive years, there may be need for a deeper analysis of its economic circumstances and the available policy options to get out of this slowdown trap. |
It is arguable that under dollarisation, monetary policy would be impotent to provide a durable solution out of the low growth trap.
Structural reforms alongside fiscal policy responses would provide the necessary growth impetus in the short-term and effectively strengthen the long-term growth prospects.
Needless to mention that the success of any policy measure would depend on its effective implementation.
The low levels of activity in the real economy are worrying. Statutory Instrument (SI) 64 of 2016, which seeks to protect the local industry from unfair competition, is the only notable measure implemented during the year.
The Confederation of Zimbabwe Industries 2016 Manufacturing Sector Survey indicated that capacity utilisation increased from 34,3 percent in 2015 to 47,4 percent in 2016, largely attributable to the impact of SI64 of 2016.
Earlier in the month, the Ministry of Industry and Commerce highlighted some sector specific gains that were realised from the SI.
The cooking oil industry, which was under pressure from imports, was reported to be operating at 90 percent capacity whilst capacity utilisation of 83 percent was reported for the yeast industry, which was almost closed.
The furniture and detergents sectors’ capacity utilisation also improved from 45 percent and 30 percent to 70 percent and 60 percent respectively.
The tyre manufacturers’ capacity increased from 30 percent to 50 percent following the restriction on the importation of second-hand tyres.
The Ministry of Industry also noted significant improvements in capacity utilisation at specific companies such as Cairns Holdings Limited, Datlabs, Chloride Zimbabwe, KDV Bedding, Tregers, Associated Foods (Pvt) Ltd and Chitaitai (manufacturer of floor and shoe polish).
However, it is arguable that the inability of the production sector to step up to the plate would weigh down the efforts of SI64 of 2016. The shortage of raw materials would hinder increased production of certain protected products. The recent decrease in cooking oil capacity utilisation to less than 35 percent is instructive.
Foreign currency shortages for importation of crude oil was cited as the major reason behind this decline. This underscores the need for policies to stimulate production of both raw materials and final products.
Ease of doing business reforms
Efforts to boost production would be weighed down by the infrastructure deficit estimated at between US$14 and US$20 billion.
As such, measures to attract mainly foreign capital would be a key differentiator given that the economy is currently dissaving-11 percent of GDP.
But it is discomforting to note that FDI continues to under-perform. Reserve Bank of Zimbabwe statistics indicate that since 2009, the country only attracted around US$3 billion in FDI, which is relatively lower than investments in countries such as South Africa, Kenya and Mozambique.
A decline in foreign capital inflows to US$692 million is projected in 2016, against US$1,2 billion recorded in 2015.
This underscores the need expedite the implementation of measures to attract and retain capital, which include the ease of doing business reforms.
Zimbabwe continues to score lowly in the ease of doing business rankings; sitting at number 161 out of 189 in 2016. The slow pace to conclude the mega deals with China, Russian and the Dangote Group, is telling.
However, the fact that the Office of the President and Cabinet is now in charge of ease of doing business reforms is refreshing.
Command Agriculture
It is hoped that the resuscitation of the agriculture sector would sustain the economy given the comparative advantage enjoyed by the country in this area.
The introduction of command agriculture affirms to this believe. The scheme targets production of 2000 tonnes of maize by selected 2000 farmers at a cost of US$500 million.
Command agriculture sounds noble and if successful, it would make Zimbabwe food secure again. More importantly, it would go a long way in supporting downstream industries, which is important for job creation and resuscitation of the export sector.
The scheme is expected to result in surplus production of about 500 tonnes of maize, given that the country’s annual grain requirement is of 1 500 tonnes.
The success of command agriculture would be premised on improved productivity which itself depends on farm mechanisation and availability of irrigation equipment.
Nonetheless, the project would be weighed down by corruption and poor implementation. A reflection on the previous projects such as Operation Maguta and the farm mechanisation program would provide a good learning point to policy makers.
The selection of the target farmers would be important to avoid the previous mistakes which saw undeserving candidates benefiting from schemes.
The danger is that undeserving farmers would sell the inputs to the detriment of the success of the scheme.
An individual allocation of US$250 000 is quite enticing for the enterprising recipients of inputs to sell the same.
Developments in Marondera where cases of farmers selling coupons and other inputs provided under Command Agriculture are disturbing.
Given the high possibility of these nefarious activities, it is advisable that the drivers of the project increase their monitoring, which would be made easier by the fact that the scheme involves only a small number of 2000 farmers.
Access to finance by farmers would be key to the resuscitation of the agriculture sector. This is why the bankability of 99-year leases has been topical among policy makers during the year.
It is thought that the move would assist farmers to access finance for capital expenditure and working capital needs from the banking sector.
It is thought that limited access to finance by farmers has been one of the reasons why the idea of command agriculture was mooted. Given Government’s financial constraints, the most likely source of the US$500 million required under command agriculture would be debt, which, unfortunately, has the concomitant crowding out effect to private sector investment.
What is even more worrying is that repayment of this debt would be an increased burden to future generations in the event that the beneficiaries of the scheme fail repay.
Whilst making the 99-year leases bankable would be a noble idea, it’s most likely that it would result in land reform self-reversing as some of our farmers would be tempted to sale their farms.
It is advisable that Government be given the right of first refusal in all sales of land to avoid land monopoly.
Reindustrialisation
Reindustrialising Zimbabwe could be the country’s biggest headache at the moment.
RBZ statistics indicating that 3000 people lost their jobs up to September 30, 2016, with 2000 more expected to be retrenched by year end as company closures continue, are worrying.
It is also hoped that reindustrialising Zimbabwe would be the panacea to the country’s precarious balance of payment (BOP) position. Since dollarisation in 2009, the country has been experiencing an average trade deficit of US$2,5 billion per year.
This, coupled with the decline in Diaspora remittances occasioned by tight global and financial conditions, have worsened the country’s liquidity situation.
Resultantly, foreign payment backlogs together with cash queues have been increasing. This has resulted in the RBZ intervening with a raft of monetary policy measures to ease the cash crisis.
Among them was the introduction of bond notes, mainly aimed to provide an incentive for producers whilst minimising externalisation.
Imbalances in the economy have resulted in high levels of debt, which stood at US$11,2 billion as at October 30, 2016 or 79 percent of GDP. Of this debt, US$7,5 billion or 70 percent of total debt was in arrears, which puts the country’s relations with its creditors in jeopardy.
It seems the country’s priority is clearance of arrears to International Financial Institutions so as to get access to new debt at favourable terms.
The payment of US$108 million to the International Monetary Fund (IMF) in September 2016 bears testimony to this thrust. However, there may be need to emphasise that debt is not a viable growth option for Zimbabwe today.
The country’s debt comes on the backdrop of an unsustainable fiscal position typified by more than 90 percent of budget going towards civil servants’ salaries.
No country in this position can hope to grow. There would be need to expedite the public sector rationalisation exercise including privatisation and commercialisation of parastatals and public enterprises.
However, rationalisation of civil service would be weighed down by the high levels unemployment and informalisation in the country. As such policy makers should be preoccupied with growing the economy, which requires unlocking capital.
Needless to mention that this will largely depend on the quality of policies and their implementation.
It is clear that the economy is not in good shape and would require everyone pitch up and play their role. Only commitment to bold action will take this economy somewhere.
Wish you are prosperous New Year!
Persistence Gwanyanya is an economist and banker. He is also a member of the Zimbabwe Economics Society who writes in his personal capacity. Feedback: [email protected] and WhatsApp +263 773 030 691.
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