Zim economy shows resilience

Kudzanai Gerede
The local economy has been hailed for its continued resilience despite the fact that all key macro-economic indicators are reflecting signs of what should have been an economy on its knees.

This came out at the launch of the Zimbabwe Economic Policy Analysis and Research Unit (ZEPARU) Economic Barometer held in Harare recently.

The economy had been poised for a growth rate of around 3,5 percent early last year but the projections were revised downwards following numerous negative developments that had occurred during the course of the year that were to curtail the initial growth projection.

The landmark High Court ruling which resulted in companies retrenching employees on three-month notice left a huge void on the country’s labour force and productiveness, which had a huge bearing on the economic development, prompting a downward record of 1,5 percent growth in 2015.

The liquidity challenge continued to depress the business environment and growth was further curtailed by low investment and the country’s uninspiring balance of payment.

The report showed that Zimbabwe has a much bigger current account deficit as it is consuming more than it is producing.

However, the services sector has seen commendable growth despite the unforgiving business environment, contributing over 50 percent to fiscus, buoyed by tourism and insurance sub-sectors.

“There is a massive resilience in the economy,” Confederation of Zimbabwe Industry chairman on economics and banking committee development Mr Jimmy Psillos noted.

“The 1,5 percent growth recorded last year was phenomenal in light of the challenges caused by the hard currency against declining regional currencies,” he added.

He said the strengthening of the US dollar made it difficult for local manufacturing industries to compete with external products both locally and externally and this resulted in depressed export earnings for the country, a situation he termed “restrictive” of any economic growth.

The report suggests that Government expenditure exceeded total Government revenue collection, resulting in a budgetary deficit of $361,73 million, which was mainly financed by domestic borrowing. In 2016, the Government will once again cover the $150 million budget deficit by borrowing from the domestic banks as stated by the Minister of Finance and Economic Development in his 2016 National Budget presentation.

Analysts have, however, castigated Government’s continued reliance on borrowing for consumption, warning of an increase in future debt burden on the fiscus and the expensive nature of domestic borrowing.

The propensity for borrowing has resulted in Government dominating the credit accounts in the country’s banking sector, a situation which was crowding out private sector capital injection. Relying more on domestic debt is often more expensive, compared to external debt which is usually on concessionary terms.

The report noted that the country’s exports lacked diversification since the export basket is heavily composed of primary agriculture and mining products, which put the country at risk of shocks on the international market.

Currently, the prices of minerals, wheat and maize have been on a downward spiral as supply has been higher than demand which resulted in poor export earnings for the country.

This has prompted critics to quiz the possibility of growth in 2016 since the country’s major economic pillars of agriculture, manufacturing and mining face challenges for growth in light of drought, low investment and low commodity prices respectively.

However, Finance and Economic Development Minister Patrick Chinamasa remains upbeat.

“We are (economy) growing by 2,7 percent this year. Yes, we have been told that by now we should have been on our knees with all the indicators showing that we are finished but what has made us where we are today is that this economy is resilient. I am glad that now both Government and private sector have reached consensus on issues of attracting investment for the development of this country and what is left is implementation of agreed issues.”

“We have revised our investment laws, set up the special economic zones and we have set a plan for debt clearance and when we clear our arrears, we expect a corresponding gesture of assistance from the three multi-finance institutions to foster our development strategies,” he said.

Minister Chinamasa reiterated the need to devote more resources to production, particularly financing the agriculture sector as it is a major source of quick financial returns alongside other critical sectors to reach the 2,7 percent growth for 2016.

He, however, noted that the country has to consolidate what it already has with reference to financial leakages.

The attractiveness of the US dollar was leading to many local and external traders coming into the country to take the dollar and spend it outside the country’s borders and this was bleeding the economy of the much-needed liquidity.

Last week, in his presentation of the 2016 Monetary Policy Statement, the Reserve Bank of Zimbabwe Governor Dr John Mangudya highlighted that the country had lost $1,8 billion in illicit financial flows in 2015 and the figures could be higher if informal cross border traders were to be considered.

There was need to restore confidence in the country’s banking sector by improving on discipline within the banking system.