11 January 2013

Zimbabwe: Economic Challenges to Persist

Zimbabwe's government is likely to face the daunting challenge of maintaining economic stability and growth that the country has achieved since the economy was dollarised in 2009, analysts have warned.

Before dollarisation the economy had been "cruising in reverse gear", they said, due largely to skewed economic policies and a political crisis triggered by the fight for political space between ZANU-PF and the two Movement for Democratic Change formations.

Analysts said the immediate economic challenges facing government would be to ensure that companies increase capacity utilisation, tackle corruption, payment of external and local debts, increasing exports, obtaining lines of credit and overcoming foreign currency shortages.

Social challenges include inconsistent power and water supplies, poor infrastructure, and a deteriorating education and health system. Uncertainty of the actual date of the elections this year has also resulted to business adopting a wait and see attitude not making long term plans.

Analysts also said obtaining loans to revive businesses would still be a major challenge this year due to the high risk of default. Write-offs constituted a huge chunk of the losses reported by banks last year.

Economist Farayi Dyira-kumunda told the Financial Gazette's Companies & Markets (CM) this week that the operating environment for business would remain tough in 2013.

"Capacity utilisation in the local industries will be constrained by the limited and high cost of capital, erratic power and water supplies, the high cost of utilities, dilapidated infrastructure and obsolete technologies in some cases," he said.

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

Dyirakumunda said substantial capital injection into the economy coupled with investor friendly policies would be the necessary starting point for sustainable growth.

According to the Confede-ration of Zimbabwe Industries, the manufacturing sector is operating at 44,2 percent.

Finance Minister Tendai Biti presented a US$3,8 billion national budget for the current year, which he said was demand driven and projected the economy to grow by five percent next year, assuming a normal rainy season, firming of international commodity prices and implementation of reforms.

Of the US$3,8 billion, about US$2,6 billion would go towards the employment bill and the government would be "left with nothing" for capital expenditure and other costs. Biti had revised the 2012 revenues downwards to US$3,5 billion from US$3,6 billion.

The usual challenges of poor infrastructure, unreliable economic enablers and political perceptions with the related impact on local and international business confidence have all crossed over into 2013 and are likely to be with Zimbabwe for the greater part of the year, analysts said.

Economic recovery would therefore likely to remain below the economy's potential, they said.

Economist Brains Muche-mwa said the high cost of funding and short-term nature of debt existing in the market, coupled with anti-business labour laws, would continue to pose serious challenges to industry in 2013 and undermine competitiveness.

"The government and Parliament need to urgently recognise the need for flexible, progressive legislation that creates a suitable environment for business so as to ensure that the private sectors' contributions towards employment creation and government taxes are not hampered by, among other things, very rigid labor laws that have contributed to the demise of most big corporates in 2012," he told C&M.

He said there was need for sufficien capital to fund all sectors involved in the reconstruction and expansion programmes, from the private sector, quasi-government and government.

Economist David Mupamhadzi said availability of capital would be key to a speedy economic turnaround.

"Policies that enable more credit to flow freely in the economy, at the same time focusing on labour-intensive projects to create more employment, are needed," he said

Another problem was that Zimbabwe is still regarded as a very high-risk investment destination.

According to the 2012 World Bank Doing Business Report, Zimbabwe still remains one of the most difficult places to do business.

According to the report, a standard container of goods from Zimbabwe requires eight documents, takes 53 days and costs US$3,280 to export. Importing the same container of goods requires nine documents, take 73 days and costs US$5 101.

The World Bank said while it takes the same number of documents, it only takes 31 days and costs US$1,960 to export in the rest of sub-Saharan Africa.

"It also takes half the days (37) and costs 50 percent less (US$2 502) to import in the sub-Saharan Africa region compared to Zimbabwe," the World Bank said.

Zimbabwe was ranked 171 out of 183 countries, three places down from the 2011 ranking at 168, on thee doing business index.

Analysts said there was need to ensure that the business environment was not overly influenced by perceptions on political developments.

Government and quasi-government institutions on their part should ensure there is an enabling environment for businesses to prosper.

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