adminPersistence Gwanyanya —
LIKE the global economy, Zimbabwe has been grappling with slow economic growth for too long. After a strong rebound in 2009, the economy has been retreating, especially since the last quarter of 2011, reflecting both global and local influences.
Growth is expected to pick up in 2017, albeit at a slow pace of 1,7 percent. The forecasted growth reflects a positive economic outlook from 2016 when the economy grew by an estimated 0,6 percent.
However, maintaining this growth momentum requires sound fiscal and trade policies alongside structural reforms. In a dollarised environment, monetary policy is less potent to generate sustainable growth.
There are concerns that growth will continue to be externally driven through exports and foreign capital flows. Increased reliance on external capital is both unreliable and unsustainable.
Over time, the country should build up savings to support increased investment. This makes economic rebalancing — reducing consumption and imports whilst increasing production and exports — imperative.
Needless to mention that all efforts to rebuild the economy would be weighed down by corruption if it continues unchecked.
The global economy
IMF estimates a recovery of the global economy to 3,4 percent in 2017 after a slower growth of 3,1 percent in 2016. However, this forecast would be weighed down by uncertainty created by Brexit and weaker-than-expected growth in the United States.
Emerging economies are expected to continue dominating in terms of both the share of global GDP and the pace of its growth.
These economies are expected to grow at 4,6 percent supported by improved financial market sentiments and reduced concern about China’s near-term growth prospects as a result of policy support for growth as well as some firming global commodity prices.
Advanced economies growth will remain subdued at 1,8 percent on account of uncertainty created by Brexit and on the future of America following Trump’s rise to the Presidency.
Worryingly, Sub-Saharan Africa’s growth is expected to remain depressed at 2,9 percent as its large economies continue to struggle with lower commodity revenues.
Growth drivers
The projected growth of 1,7 percent will be driven by improved performances of the agriculture, mining and tourism. After registering a decline of 3,7 percent in 2016, the agriculture sector is expected to grow by 12 percent this year on account of an anticipated good rainfall season.
However, the final growth out-turn will depend on the effects of La-Nina. Effective implementation and monitoring of the command agriculture scheme would support the projected growth.
It seems command agriculture is now part of Government’s thrust in transforming the economy. And the likelihood for the scheme to be extended to other crops is high.
Achieving food self-sufficiency will save the country a significant amount of foreign currency through a reduced import bill. It is anticipated that the country will achieve a surplus of 500 000 tonnes of maize this year through effective implementation of command agriculture.
A vibrant agriculture sector will support the manufacturing sector through provision of raw materials. Historically, agriculture and the manufacturing sector were the major drivers of this economy.
Through its inter-linkage with the agriculture sector, the manufacturing sector was once the major driver of the economy, contributing an average rate of 20 percent to GDP between 1980 and 2000.
The demise of the manufacturing sector over the years can be directly traced to the fortunes of the agricultural sector. Today, the manufacturing sector’s contribution to GDP has declined to around 10 percent.
However, this sector is unlikely to respond quickly to the anticipated growth in agriculture due to a number of constraints that include high cost and scarcity of foreign currency, costly public utilities, frequent power outages, outdated machinery and technology and high logistical cost-transport.
As such, a modest growth of 0,9 percent is anticipated from this sector. Though the mining sector has remained one of the major drivers of the economy, it is susceptible to the vagaries of the global commodities price volatilities.
This year, the mining sector is projected to register a modest growth of 0,9 percent in line with the recovery of the global commodity prices.
Initiatives to support the small-scale gold miners will ensure that the maximum benefits are taped from the gold sub sector.
However, sustainable growth of the mining sector would hinge on value addition. Shortage of electricity would negate the value addition drive as mining is power intensive.
This underscores the need for Government to aggressively pursue the power investment deals with China, Russia and Dangote. It is worth noting that any meaningful economic recovery depends on infrastructure development. There is need for significant inflows of capital to close the infrastructure deficit of between $14 billion and $20 billion.
Given the current capital constrains, typified by a dissaving rate of 11 percent, FDI is one that can ably provide such amount of capital. This underscores the need for friendly policies to attract and retain this capital. As indicated earlier, there is need to expedite the conclusion of investment deals with China, Russia and Dangote.
Policy levers that would support growth
Economic under-performance has resulted in unsustainable budget and trade deficits, which have also conspired to suppress the economy. Closing these deficits requires economic rebalancing — increasing production and exports whilst reducing consumption and imports.
Arguably, this adjustment is painful as reducing consumption and imports would mean trimming the size of Government and privatising or closing some parastatals that continue to drain the fiscus.
With more than 90 percent of the Budget going towards payment of civil servants wages, there may be need to bite the bullet and slash recurrent expenditure.
The target to reduce expenditure to 60 percent of the budget may not be palatable with the high levels of informalisation and unemployment in the country.
There seems to be consensus among the policy makers that protectionism policies are only short term. When the idea of SI 64 of 2016 was mooted, it was hoped that the protected industry would quickly respond to the policy measure through increased production. It is comforting that notable success has been recorded in some industries and specific companies.
However, in some cases shortages of raw materials has been hampering progress with the cooking oil sub-sector capacity utilisation reported to have significantly declined to 35 percent after peaking at 90 percent. This is why reviving agriculture should be a top priority of the policy makers.
Whilst privatising the public entities is a top priority, it seems Government has no option but to nationalise the diamond industries in Marange as semi nationalisation of the same has not helped.
The $15 billion diamond revenue swindled could have done much for the country. This amount of looting has necessitated Government to revisit the model in diamond sub sector.
What happened in Marange could be a reflection of the rot in the economy as corruption continues to take its toll. Importantly, there may be need to reflect on how bond notes will sustain their value in the future.
So far, the bond notes have worked well and have been trading at par with the US dollar. This can only be sustained through increased forex earning, which largely depends on increased production and export earnings, complemented by reduced externalisation.
Lifting the economy out of the slowdown trap and generating durable growth should be policy priorities for the Government. The following policy advice is proffered:
Revive agriculture and manufacturing sectors
Expedite engagement with the International Financial Institutions (IFIs)
Expedite the ease of doing business reforms
Shrink the state to concentrate on core business — it is too large, too costly to manage and highly inefficient
Privatise or close parastatals that are draining the fiscus.
Improve the accountability of diamond revenues
Persistence Gwanyanya is an economist and banker. He is also a member of the Zimbabwe Economics Society. He writes in his personal capacity. For feedback you can email [email protected] or WhatsApp +263 773 030 691.
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