15 February 2013

Zimbabwe: 'Economy Growth Path Unsustainable'

ZIMBABWE is on an unsustainable growth path and the country's business model must change if it is to avoid a muddle, a leading economic expert has said.

Presenting an economic outlook paper at an Alpha Media Holdings strategy planning conference in Harare this week, University of Zimbabwe Graduate School of Business head Professor Tony Hawkins said pushing the country's growth trajectory onto a new, higher plane was contingent on tackling a range of long-running structural problems besetting the economy.

"Meaningful socio-political change in the sense of a more committed, more competent and more economically-oriented administration with a focus on the population as a whole -- not a narrow elite of rent-seekers -- is the key to better future performance," said Hawkins. He stressed that this was not a matter of economic expertise or even of resources, but of political will.

Hawkins pointed out five key constraints, which he said were the "big five economic unsustainables" that needed to be addressed before the economy could be steered onto a sustainable recovery and growth trajectory. These were the unsustainable national budget, the hugely adverse balance of payments position, the country's external debt, the imbalance between consumption and savings, and the country's infrastructure deficit.

Hawkins singled out excessive consumption as a major economic challenge; consumption had to fall while savings had to rise, he said. Zimbabwe was consuming more than 90% of GDP, with half of that reflected as net exports -- meaning foreigners were financing the difference. As the country was not productive enough, the high demand for consumption was spilling into the external sector as import demand, fuelling the external deficit.

"Excessive consumption which is currently financed by offshore borrowing, aid and diaspora inflows must soon be replaced by increased savings in the form of reduced consumption at home and increased domestic investment," Hawkins pointed out. He lamented that many Zimbabweans -- in both the private and public sectors -- saw foreign capital inflows as a soft option; a way in which to continue to over-consume while foreigners, including the diaspora, picked up the tab.

Outlining major risks in 2013/14, Hawkins said export growth would be constrained by weak global demand and soggy prices as well as the binding supply-side constraints such as the country's poor electricity supply. He said import growth would slow down further but the signs were that the trade gap would remain unsustainably high -- at more than US$3 billion. Hawkins said Zimbabwe was not creating productive jobs while wages were rising faster than productivity.

"As a result, the country is becoming increasingly uncompetitive. Wages must be tied to productivity because, with a fixed exchange rate, Zimbabwe cannot devalue its way to competitiveness as it did before 2009," he said.

Zimbabwe, despite being a tiny player with a US$10,7 billion gross domestic product in a US$72 trillion world economy, has also suffered global turbulence which had a major impact on domestic economic performance.

"Sovereignty space" in Zimbabwe's open and foreign-dependent economy was very limited, both by the structure of the economy and the extent of manoeuvrability available in a dollarised environment.

"The IMF estimates the US dollar today is 15% too strong for Zimbabwe, making the economy highly uncompetitive. Zimbabwe, ranked 132nd on the Global Competitiveness Index, is using the same currency as the US, ranked seventh. How viable is that?" Hawkins asked.

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