Economic uncertainties persist

Political, policy uncertainties major setbacks for new govt

Zimbabwe Independent by Hazel Ndebele

January 19, 2018

POLITICAL and policy uncertainty stand out as the elephants in the room for the new government as it targets an ambitious economic growth rate of 4,5%, a figure far much higher than the 0,9% projected by the World Bank.

Zimbabwe’s economy has been in the doldrums for nearly two decades largely because of poor policies and policy inconsistency among other reasons during former president Robert Mugabe’s tenure. The country’s economy faces a number of challenges which include a debilitating liquidity and cash crunch, crumbling infrastructure, job losses, company closures and rising inflation.

Despite the challenges, which require far-reaching reforms and a stimulus package, the government still contends that it will surpass a revised growth rate of 0,9% announced by the WB recently.

While the euphoria of a new government has ushered in hope, many rivers still need to be crossed before Zimbabwe registers sustainable strong growth.

Mugabe, who was succeeded by President Emmerson Mnangagwa, led the country for 37 years and was toppled last year following a soft coup, after years of succession battles in Zanu PF.

The succession issue was one of the major factors which militated against economic growth.

Despite solving the Zanu PF succession issue, political uncertainty still remains a major factor in terms of taking the country forward. Zimbabwe is expected to hold general election this year and the outcome of the election will play a huge role on the economy.

A disputed election would perpetuate political bickering and uncertainty thus affecting the economy.

The Mnangagwa administration therefore has a huge task to ensure free, fair and credible elections. The country has previously had its elections questioned by the international community amid fears of electoral manipulation.

If government wants to grow the economy by the projected 4,5%, it cannot afford to have a disputed 2018 election as it will result in an economic downturn.

Analysts say investors have a tendency of adopting a wait and see approach towards elections. It is therefore crucial for the Mnangagwa administration to deliver credible polls and usher a new path for the country.

Zimbabwe is desperate for foreign direct investment (FDI) which has been declining sharply over the years. In 2016, Zimbabwe attracted US$319 million in FDI inflows, a plunge from US$421 million in 2015. Zimbabwe still lags behind its regional peers such as Mozambique, South Africa and Zambia which registered US$3 billion, US$2,3 billion and US$469 million respectively in FDI inflows in 2016.

In 2014, the country attracted FDI amounting to US$545 million, showing that investment has plummeted drastically because of low investor confidence due to toxic and inconsistent policies.

Chinamasa last year forecasted Zimbabwe’s economy will register a firm 4,5% growth margin in 2018, underpinned by strong performances in the agriculture and mining sectors.

Although the mining sector seems to be performing fairly, the agricultural sector, which forms the backbone of the country’s economy and is a vital cog in the growth of the economy, is shrouded in uncertainty with the threat of drought looming this year. Continued land grabs have seen the collapse of commercial farming in the country. The few farmers left are struggling with stringent requirements to access farming loans as there are concerns over the unbankable 99-year leases.

Mnangagwa in his inaugural speech promised to tackle the issue of the leases in order to make them bankable.

However, analysts say the proof of the pudding is in the eating and therefore Mnangagwa has to act fast if the projected economic growth is to be achieved. The World Bank, however, mentions drought as a possible deterrent to economic growth.

“Droughts, conflicts, and worsening security conditions would weigh heavily on economic activity in the region, especially in fragile countries,” the Bretton Woods institution said.

The World Bank also argues that economic growth will not be as fast as pronounced by government, as Zimbabwe gradually manoeuvres through an uncertain political and security transition cycle.

“Other downside risks include a protracted period of heightened political and policy uncertainty, which could further hurt confidence and deter investment, risk is elevated in South Africa, where the ruling African National Congress’s leadership election could lead to deep divisions within the party, and in Zimbabwe, where a political transition is unfolding,” the bank said.

Economic growth between 2019 and 2020, the World Bank said, would remain flat and expand by less than 2%. However, Chinamasa projected that economic growth will reach an ambitious 5,6% in 2019 before further increasing to 6% in 2020.

During the Mugabe era, the economy deteriorated on the back of ruinous policies such as indigenisation, which has since been scrapped and now only applies to platinum and diamonds. The abandoning of the contentious policy has been largely welcomed.

Economic analyst Godfrey Kanyenze says more changes are needed.

“The template and narrative is not changing,” Kanyenze said. “The focus is on entitlement and there is a lack of prioritising real issues.”

He pointed out the example of government prioritising the purchase of vehicles for chiefs at the expense of addressing the urgent need to ensure that the banking public access their money from financial institutions.

“The headwinds suggest the narrative and template of the past is not changing steeped in populism and consumption. The predatory nature of the state is not changing and it looks like the leopard will not change its spots after all,” Kanyenze said.

He said the 4,5% growth rate by Chinamasa is inadequate and failure to attain it “would be a disaster”.

Economic analyst John Robertson commended the new administration for scrapping the indiginisation policy saying it will accelerate economic growth although other uncertainties also needed to be dealt with.

“The projected growth is premised on agriculture and yet tobacco is the crop which seems to be doing well. None of the other crops are performing well due to erratic rains. We will probably start seeing real growth in 2019, 2020 or perhaps 2021,” Robertson said.