Zimbabwe: Miracle Economic Growth Needed

It is always tempting at the beginning of each year to make an attempt to look into the proverbial crystal ball and try to anticipate what kind of a year it will be.

Last year's elections saw an end to the Government of National Unity (GNU) which was the result of a political compromise reached in 2008 after botched elections.

Despite the fact that the parties to the coalition had different economic ideologies, the strange bedfellows were lucky to preside over a period of growth and recovery. Now that a new political dispensation is in place, expectations are that the economic landscape will be different this year.

While many have expressed fears that the end of the unity government's tenure will coincide with the end of Zimbabwe's resurgent economic growth, some are hopeful that the good fortunes of the past five years will continue.

One of the optimists is Finance minister Patrick Chinamasa who, in the national budget for 2014 presented a forecast of 6,1% growth for the economy. Naysayers, on the other hand, are already pointing out to signs of weakness in the economy. Key emerging challenges include a liquidity crisis particulalry among smaller banks; many cases of local governments and small businesses paying workers late; and reports of pay cuts and industrialists cutting down production or even closing shop, etcetera.

So who will be proved right: the optimists saying "onward and upward" or the downbeat cynics who are expecting a reversal of the few gains made in the last few years? Save perhaps for the emergent crop of prophets who have taken religious circles by storm, few can be sure. However, there are key tell-tale signs that may be useful in pointing one towards the more probable outcome.

To paint a clearer picture of the road ahead, it is important to break down the economy into its key sectors and see what specific sources of growth exist there, if any. Those expecting growth usually cite the mining and agricultural sectors as the key drivers. Tourism has also been mentioned as a resurgent sector with high potential. Though now only a shadow of its former self, the industrial sector may also have a part to play.

Looking at mining first. Zimbabwe is fortunate to be endowed with mineral deposits ranging from gold, platinum and chrome to coal, natural gas and others. The latest craze, of course, is in alluvial diamonds from the Marange diamond fields.

Indeed, during the tenure of the GNU, mining was responsible for a lot of the growth seen in the economy. The introduction of foreign currencies as official tender under the multi-currency system coupled with the liberalisation of the exchange rate allowed miners to import machinery.

Under hyperinflation, foreign currency shortages largely due to unfavourable foreign exchange laws had been a major dampener on mining activity as miners could not import equipment. But it must be remembered that the past few years were the last in a decade of booming commodity prices.

Gold prices, for example, increased from just under US$300 per ounce in 2000 before peaking above US$1 800 in 2011. Together with most other mineral commodities, gold prices have been on a sustained decline since then, making the short to medium-term prospects of growth in mining less certain.

Additionally, the much-touted alluvial diamond deposits in Marange are reportedly fast-running out implying that more capital is required for underground mining to take place. Any growth from mining in 2014 would have to defy declining mineral prices and dwindling volumes from the diamond sector which was a major contributor to growth in the recent past.

Agriculture is the other major sector expected to spur growth in 2014. During the tenure of the GNU, tobacco was a star performer. Attractive prices at the auctions saw many small-scale farmers taking up tobacco farming and ditching less profitable crops such as maize and cotton. There are, however, still some fundamental weaknesses in farming that need to be addressed if growth is to be realised.

Farmers often decry how difficult it is for them to raise money as banks are unwilling to lend to them without getting title deeds as collateral. Tobacco is one of the few crops showing promise, but even after a good farming season, auction prices could still disappoint depending on world market conditions.

In addition, huge investments need to be channelled towards irrigation facilities if the country is to reach the peak levels of 236 million kilogrammes recorded in 2000. As such, further growth in agriculture will depend on auction prices together with improvements in both production levels and yields per hectare.

Tourism's future is more difficult to figure out than the other sectors. Bad press in international markets, particularly in the West, saw tourist arrivals take a dip after the land reform programme. A declining infrastructure also contributed to a decline in tourists. Some sources claim the sector is on the rise again while others say that although arrivals are slowly recovering, the quality of tourists has been compromised.

Reports suggest that the recent surge in arrivals relates to tourists from Asia and other non-traditional markets who typically spend very little. Should this trend continue, growth in numbers may come, but whether this will result in increased earnings for the sector remains to be seen.

Manufacturing was one of the hardest hit industries when economic decline set in. Capacity utilisation dropped to as low as 28% before recovering to just above 52% in 2012. It seems, however, that the recovery is already reversing as production is again on the decline.

Many manufacturing firms are finding it hard to compete with imports and some have had to scale down or even close shop. It is now commonplace for workers in the sector to go unpaid for months on end. Any growth from this sector would be nothing short of a miracle.

Although some show more promise than others, no single sector of the economy shows a compelling case for growth in 2014. It seems the prudent thing for those planning for the coming year would be to assume very modest growth, if any. For the Zimbabwean economy to achieve high growth in such circumstances would be nothing short of a miracle.

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