17 December 2012

Zimbabwe: GDP to Slow Down

ZIMBABWE'S economy has experienced significant vulnerabilities this year with the real gross domestic product expected to decelerate from a 6,8 percent growth registered last year to 4,4 percent.

The economy was characterised by an excessively high current account deficit, increasing trends of corporate bankruptcy, weakening Government revenue and tightening liquidity conditions that are stifling efficient credit and jobs creation.

Analysts say the outlook for 2013 could be worse considering the anxiety associated with general elections and the high possibility of a drought.

Most economic sectors, particularly agriculture and manufacturing, underperformed and, as a result, Finance Minister Tendai Biti was forced to cut growth forecasts from the initial 9,4 percent to 4,4 percent this year, the slowest rate since dollarisation.

The projected growth in agricultural production of 11,6 percent this year had taken into account a number of financing facilities and favourable weather conditions.

However, unfavourable rainfall patterns and lack of funding led to a significant decline in production across the sector. Maize production was 50 percent lower than anticipated at 968 000 tonnes while tobacco declined to 130 million kg.

Crop yields were significantly lower than the global and regional average. The fragility of the financial sector was exposed following the collapse of three local banks -- Interfin Bank, Genesis and Royal Bank.

The manufacturing sector remained depressed with capacity utilisation utilisation reported at 44 percent, according to the Confederation of Zimbabwe Industries.

The local manufacturers continue to suffer from increased foreign competition especially from China.

In addition, the industry faces significant challenges including the use of obsolete equipment, high labour costs, erratic utility supplies, high finance cost, skills drain and limited import protection.

Investor confidence continued to be stifled by increased uncertainty in policy implementation, mainly the Indigenisation Act.

The availability of power remained the biggest challenge facing the economy, with negative effects on production and productivity across all sectors, including households.

This is also confirmed by the 2011 Enterprise Survey, which shows 47 percent of firms ranking erratic electricity supply as a severe constraint to business.

Growth in electricity is estimated at 0,3 percent this year compared with 8 percent in 2011.

The generation capacity averaged 1 010 megawatts against a target of 1 085 megawatts this year.

Trade deficit widened as imports remained significantly above export revenues.

The country's exports continue to be predominantly unprocessed raw products, indicating that the thrust on value addition is being inadequately mainstreamed by both the Government and the private sector.

However, prices have generally remained stable, with annual inflation for the greater part of 2012 remaining in the range 3-4,5 percent.

The mining sector remained on a growth trajectory. The contribution of mining to GDP has increased almost three-fold from 4 percent in 1999 to over 11 percent this year. The mining sector contributes over 50 percent of export earnings and employs over 45 000 people.

On the sovereign debt, Government has engaged multilateral financial institutions, the International Monetary Fund, World Bank and African Development Bank, for debt resolution, including some debt relief under a recovery programme that would support sustainable stabilisation and boost the credibility of the country's reforms, that way catalysing co-operating partners' and creditors' support.

The external debt overhang is now estimated at US$10,8 billion or 105 percent of GDP.

A report by Africa Economic Outlook said the subdued growth reflected challenges facing the economy, including limited capital sources and its high cost, uncertainties arising from policy inconsistencies, especially with respect to economic empowerment and indigenisation regulations, dilapidated infrastructure, obsolete technologies and machinery, frequent breakdown of the existing machinery and power and water shortages.

"These challenges are further compounded by contestations among the inclusive Government of Zimbabwe partners around issues of the new constitution, the national referendum to adopt it, as well as pending national elections," said the report.

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