Economy worsens

Economic woes set to worsen in 2015

The Zimbabwe Independent - 6 February 2015

… Local economist John Robertson said the slowdown in collections reflect a shrinkage in economy activity across all sectors such as agriculture, mining and manufacturing and lack of investment….

“The decrease can actually be dated back to 2000 at the time of the fast-track land reform where thousands of people lost their jobs and land lost its value. Productive capacity has to increase and it can be improved by investors who are saying they are not ready to part with 51% equity as dictated by the Indigenisation Act,” Robertson said. “There are so many countries with better civil rights, property rights and policies, but Zimbabwe spends much of its time discouraging much-needed investment.”

http://www.theindependent.co.zw/2015/02/06/economic-woes-set-worsen-2015/

Zimbabwe Economic Outlook for 2015

John Robertson, Robertson Economic Information Services -

6 February 2015

Extract – pages 6-9:

The Budget revenue, Balance of Trade figures and fuel consumption in 2014 again call into question the frequently repeated claims that Zimbabwe’s Gross Domestic Product increased by more than three percent during the year. The increased volume of tobacco sold was one of the few statistics that countered the mounting evidence of shrinkage, but even these tobacco figures are likely to be revised downwards to adjust for double-counting that occurred when contract buyers re-sold unwanted leaf on the auctions.

Indications suggest that GDP in 2014 experienced negative growth of perhaps five percent. This figure is reflected in the 2014 column in the table on Page 8. If this situation is to be reversed in 2015, or come anywhere close to the Finance Minister’s forecast growth rate of 3,2%, almost all the money needed  to support even that modest growth rate would have to come from somewhere else.

Whether Zimbabwe can offer sufficient encouragement to either investors or lenders within the next few months will depend upon, not only the dramatic improvements that need to take effect in investment policies, but on the developers, contractors, NGOs, traders and even the speculators being able to assemble enough local skills or find enough foreign personnel to make the needed impact.

Given the time Zimbabwe has taken to make progress on projects started many years ago, such as the Tokwe-Mukorsi Dam or the Gwayi-Shangani Dam, Zisco or even the road to Harare Airport, it is hard to believe that new ventures started this year will make much difference to GDP this year.

However, a start could be made to restoring growth prospects for 2016 by placing the emphasis on food self-sufficiency and by overcoming the need to spend hundreds of millions a year importing foods and other goods that can be made locally. It is already too late for this year’s output, but agricultural production next year could again become the foundation for many forms of investment needed to add value to basic crops. However, dependable structures would have to be in place to ensure the crop deliveries before anyone will commit investment funds into the needed value-adding capacity.

Unfortunately, political policy statements affecting the prospects that large-scale farmers might one day restore a degree of certainty to agricultural have recently contradicted each other. Provincial Affairs Minister Matiza, who is a Minister in the President’s Office, said a few weeks ago that all remaining white commercial farmers are to be dispossessed and government had ruled out agricultural joint ventures involving whites. However, at the end of January, the Minister of Lands and Rural Resettlement, Minister Douglas Mombeshora, said that Zimbabwe's white farmers can avoid eviction by formally registering their farms and reducing plot sizes.

In reality, Zimbabwe’s best hopes lie in the adoption of policies that not only permit, but also encourage the engagement of competent people in every field of endeavour, and competence rather than race should be the criterion.

The continuing defence of policies that can be shown to have damaged the interests of millions, and have destroyed hopes of formal employment for millions more, is preventing the recovery that is desired by all, even those whose misdirected energies are keeping the country’s handicaps in place.

Until the costs of doing business are reduced by improved bank liquidity, lower interest rates, efficient utility service deliveries, improved rail, air and municipal services and reduced bureaucracy, Zimbabwe will have to continue trying to function under the very severe constraints that are still in place.

At the end of 2014, these constraints made up a formidable list:

  • Insufficient revenues from taxes, which caused the inadequate funding of ministries, the deterioration of State-run infrastructure and services, unpaid debts to private sector suppliers, delayed salary payments to government employees, unpaid debts to foreign creditors & suppliers and a Budget deficit that cannot be financed.
  • A trade deficit in excess of $3 billion, which appears to be funded mostly from remittances to local dependants of the Zimbabweans working abroad. The funds are used to pay mainly for imported goods because the local production of such goods has become too uncompetitive and too difficult to finance.
  • A shrinking formal sector labour force, as more manufacturers are forced to close because high costs and low efficiency levels make their products uncompetitive with lower-cost imports.
  • Job protection and labour laws, new fees, levies, duties, tolls and other charges, plus government policies that set crop prices at figures up to double those in neighbouring countries.
  • Wage levels that are out of line with productivity and the cost-effects of low efficiency. These are caused by, among other issues, frequent power cuts, erratic water supplies and the inability to raise longer-term finance to replace obsolete or worn-out machinery.
  • Those who cannot borrow also find they are unable to raise equity capital because of perceived uncertainties and risks, low levels of domestic liquidity and because potential foreign investors will remain discouraged by indigenisation demands while the legislation remains in the Statute Books.

Government makes frequent references to Zimbabwe Agenda for Sustainable Socio-Economic Transformation, or ZIMASSET, claiming it to be the blueprint for overcoming all such problems. Regrettably, it appears that the business sectors’ inability to discover substantive guidance from it has led to their dismissing it without comment, and diplomatic commentators have been too diplomatic to comment critically on the document.

However, an understanding of its underlying purpose is needed by diplomats as well as business people because the document reflects more than the unrealistic hope that, having clearly identified the country’s needs, the government will quickly persuade international development agencies and

foreign investors to eagerly finance the projects.

Less obviously, the document also reveals, in the ZIMASSET “matrix” statement, that government intends to regulate, manage and control the activities of every investor by imposing what will amount to Central Planning.

With the backing of the indigenisation policy, the underlying message to investors could be expressed: “You have to put up the money, establish the business, install the plant, take all the risks and generate the desired output, but as you progress through the stages, you must seek and obtain approvals, licences, permits and clearances for every stage. Then, when the business is

running profitably, the investors must relinquish 51% of the shares.

Throughout the process, you must remain keenly aware that government intends to remain directly in charge of your project and your activities”. It is this message that has been picked up by investors. With too few exceptions, they have rejected ZIMASSET and Zimbabwe as an option.

In the table, the forecasts of GDP growth by sector carried in the Budget Speech have been copied into the 2015 forecast column. In describing these forecasts in his Budget Speech, the Minister accepted that foreign capital inflows remained subdued due to the “perceived country risk”. However, he projected the FDI to increase by 69 percent in 2015 on the back of continued implementation of reforms and the re-engagement process.

The Minister’s modest growth rates forecasts together with his strong FDI growth expectations might suggest his appreciation that time will be needed for investments to become productive. However, official GDP growth predictions still claim that the economy will expand by more than 3% in 2015. Regrettably, it has to be stated that the investment needed to generate this growth is not yet in place.

To speed up the arrival of the needed investment, the private sector should be making the most of every opportunity to argue for much more penetrating changes to laws and regulations that have permitted, even “legalised” contraventions of security of ownership rights over land, assets and company shareholdings.

Without adopting international standards on these issues, Zimbabwe will be unable to reclaim its right to be taken seriously in the international market place and will continue to struggle for investors.

JOHN ROBERTSON

ROBERTSON ECONOMIC INFORMATION SERVICES

Tel:  +263 4 740 205

Cell: +263 772 224 755

E-mail:  jmrobertson@umaxlife.co.zw

Website:  www.robertsoneconomics.com