Economic Review – June 2009
Posted by ZDN on June 21, 2009
At the beginning of the year, Zimbabwe’s inflation was 500 billion per cent, a world record. The inclusive government deregulated prices of goods and services and liberal- ised exchange controls, resulting in rapid deflation – in April annualised inflation was –25 per cent.
The economy is forecast to grow by 2.8 per cent according to Samuel Undenge, deputy minister for economic planning who spoke to reporters on the sidelines of a conference in Cairo last week- end.
The transitional government inherited a bankrupt treasury but revenue collection, largely from VAT and import duties, has risen significantly since February, says Tendai Biti, minister of finance. PAYE contributions remain low, government can only pay civil servants $100 a month and the private sector is not yet able to re-employ people.
The minister says that after years of neglect the Public Finance Management System is almost up and running, improving accountability by line ministries and easing pressure on the budget. The inclusive government is starting to provide basic services in health, education, road infrastructure, water and sewerage. Talks have started with the World Bank, IMF, both of whom produced prom- ising reports, the African Development Bank, EU and other cooperating partners.
It launched the Short-Term Emergency Recovery Programme in March, which seeks to promote production in agriculture, mining, manufacturing and tourism. Biti says negotiations for lines Economic review of credit to help businesses re-develop and finance other aspects of STERP are under way.
The transitional government is doing as well as could be expected under extremely difficult circumstances, according to Tony Hawkins, economics professor at the University of Zimbabwe. “Governments of national unity are fractious, fragile institutions not fit for the purpose of rebuilding a seriously damaged economy,” he says. The crucial issue, he argues, is that the change is irreversible –“there can be no going back”.
“When a group of us wrote the UNDP report on economic recovery for Zimbabwe a year ago we called for major changes in the way the government and the private sector do business,” he said. “We need a clean break with the past, rather than the incrementalism that we now have.”
If the recent private poll showing that Mugabe’s Zanu PF’s support has collapsed to 6 per cent of the national vote is at all accurate, then, he says, let’s have fresh elections and start with a clean sheet.
With respect to the economy, Hawkins said that it was difficult to judge success or failure, as there are no real benchmarks. “A billion dollars in credit lines is a definite plus because it will provide business with money for inputs – but these are loans which will have to be paid back by a country facing balance of payments deficits of 20 per cent and more of GDP for the next five years
There are, however, signs of recovery. A recent report by the Confederation of Zimbabwe Industries says that things are getting better and one manufacturer of a widely- used product – again wishing to remain anonymous – said that output is up 7 per cent this year, having been 60 percent down since 2000. ZIMASCO, a ferrochrome giant, is back in production – on the back of demand from its Chinese owner.
One of the largest suppliers to supermarkets and the hospitality industry says business has improved dramatically since February, when the inclusive government was sworn in, a leading hotel has seen a significant increase in room bookings, mainly by potential investors, and functions: mostly non-governmental organisations organising workshops. A regional importer of South African groceries says: “Business has exploded in Zimbabwe since dollarisation. If there are no detrimental changes to our operating climate we believe we will recoup the losses of the past two years by December.”
On the subject of Gideon Gono, his former student, Hawkins believes he should simply be ignored. “Some of the good people on his team have already left him and he is becoming increasingly isolated.”
Business confidence is not helped by contradictory statements on privatization and currencies – should we revert to the Zimbabwe dollar, use the Rand, continue with multi-currencies? “The inclusive government does not need to say anything on these two issues. After all it has been in office for only four months and it needs time to develop its policies.”
To him, two issues stand out: “The transitional ministers need to lower – not raise – expectations. In a dollarized economy, wages costs and prices are too high. The way forward is about increasing competitiveness and productivity, not about matching wage levels with South Africa where per capita incomes are 20 times higher than here”.
Secondly, he says, the government needs to put a well thought-out medium-term development programme on the table. “Then the donors – and investors – will take notice and come to the party.”
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