Uncertainities stifle economic growth

Government deterred foreign investors, threatening the fragile economic recovery.
Zimbabwe’s economy has been recovering since 2009 following recessions, which saw it contracting by 40 percent since the turn of the millennium.
“The nascent recovery in Zimbabwe’s fragile economy remains threatened by political and regulatory uncertainty as well as the continuing eurozone crisis,” Invictus said in its 21-page research report.
Invictus also expressed concern over the situation regarding the banking industry, manufacturing sector and the balance of payments support.
“The fragility of the financial sector following the collapse of three local banks (Interfin, Genesis and Royal) (also) remains a cause for concern.
“The current account deficit continues to expand and is expected to reach US$2,8 billion in 2012. Capital inflows that ordinarily finance the current account deficit continue to underperform, as reflected through limited inflows of foreign direct and portfolio investments. Significant downside risks to the economy remain.”
Government has since revised downwards this year’s growth forecast from 9,4 percent to 5,6 percent, citing poor performance of key sectors.
The International Monetary Fund has also revised its forecast for Zimbabwe’s GDP growth in 2012 to 4,7 percent from 5,5 percent, but remains optimistic that Zimbabwe will achieve 6,3 percent growth in 2013.
Last month, the Confederation of Zimbabwe Industries declared an “economic crisis” and called for immediate action to avert worsening of the situation.
Reserve Bank of Zimbabwe Governor Dr Gideon Gono also recently expressed concern at the economic situation, which has resulted in several companies closing down, tight liquidity conditions and the deteriorating infrastructure.
The RBZ chief blamed the economic crisis on policy inconsistencies and the effects of illegal sanctions imposed by Western countries.
Key sectors that were expected to drive the economy included agriculture, which was projected to grow by 11,6 percent on the back of financing facilities from Government and the banking sector, availability of seed and fertiliser and favourable weather conditions.
However, poor rains and lack of funding led to a significant decline in production across the sector. Maize output was 50 percent lower than anticipated at 968 000 tonnes, while tobacco production was little changed from the previous season output of 130 million kilogrammes.
Yields in Zimbabwe were significantly lower compared with the global and regional average.
Maize yields were 85 percent lower than the global average at 0,6 tonnes per hectares versus 4,2 tonnes internationally. Regional yields are almost three times higher at between 1,5 tonnes to 2 tonnes per hectare.
Agriculture is now expected to register a negative growth of minus 5 percent.
The mining sector continues to expand despite the indigenisation  legislation.
Its contribution to the GDP has increased almost three-fold from 4 percent in 1999 to over 11 percent in this year.
It is expected to expand by 16,7 percent this year driven by the key minerals  — gold, platinum, diamond and coal.
Invictus has, however, urged the Government “to adopt investor-friendly policies to encourage further development of the sector”.
According to the Chamber of Mines of Zimbabwe, the mining sector needs about US$5 billion in investment over the three to five years.
On indigenisation, the report said the policy continues threatening the recovery of the sector.
“We encourage the Government to strongly reconsider and redesign its policy to encourage investment while empowering its people.
“This can be achieved through a combination of lower equity thresholds.”
Zimbabwe’s manufacturing sector continues to suffer from increased foreign competition especially from China.
Challenges besetting the industry include obsolete equipment, high labour costs, erratic utility supplies, high cost of borrowing, skills drain and limited import protection.
“Like most sectors, the manufacturing sector is in desperate need of new capital and equipment, modern technology and skills, and access to cheaper longer-term finance.
“Historically, Zimbabwe had a thriving manufacturing sector with a significant number of products manufactured locally.”
Zimbabwe’s external debt overhang, at US$10,8 billion and or 105 percent of GDP, has become an impediment to external sustainability.
The report has, however, commended the Government for making progress in implementing the Zimbabwe Accelerated Arrears Clearance, Debt and Development Strategy, through accelerated re-engagement with creditors including multilateral financial institutions.