26 June 2014

Zimbabwe: Economic Recovery Needs Team Effort


Government faces an unenviable task of putting together the elusive building blocks needed to restore the economy to its glory. This is no mean feat.

The inevitable task will take time, resources and effort, but what gives hope to tackle the seemingly insurmountable task is the fact that everyone is agreeable on the possibility of turning things around. From the outset, it must be pointed out that the International Monetary Fund's staff monitored programme provides the framework and specific guidelines on factors that need attention if the country is to attain sustainable growth in the short to medium term.

As such, strict adherence to the SMP is highly likely to be the basis upon which the country could rebuild its economic foundation until it has generated sufficient internal capacity for accelerated growth. It is encouraging that while Government might be lagging in terms of implementation of the SMP with the framework of its Zimbabwe Agenda for Sustainable Socio-Economic Transformation, progress has been made in attending to priority areas.

The economy's post dollarisation era provides ample evidence that "where there is a will there is a way". Following Acting Finance Minister Patrick Chinamasa's decision to dollarise, the period saw economic growth averaging 10 percent per annum, industrial production rose rapidly, inflation fell instantaneously and the economy was, literally, on the mend.

It must be stressed that in a capitalist global society it takes a set of the right policies, appropriate conditions for investment and the commitment to do what is necessary to attain the set objectives. There are no short cuts to a desired destination; where a sovereign nation achieves its goal to be a prosperous, stable and self-governing democracy.

It is paramount to take heed of the fact that while, dutifully, preserving ideals that define a nation and its people, a capitalist global society has its rules to be respected by all and sundry to avoid upsetting an ecosystem that breeds progress and development. Zimbabwe is a microcosm of that global economic system and must play its cards in a manner that will not retard its progress towards its rightful place among glorious and prosperous economies in the world at the same time preserving its values, beliefs, norms and history. Zimbabwe faces a myriad of challenges in its quest to rebuild the economy.

Economic experts have already unequivocally pointed to the endless list of issues that Zimbabwe needs to address to turnaround.

In short, this will entail structural economic reforms to enhance competitiveness, improve liquidity and raise production. According to the International Monetary Fund, after averaging 10 percent from 2009-2012, Zimbabwe's growth fell to an estimated 3,3 percent in 2013, reflecting tight liquidity conditions, election-year uncertainty, weak demand for key exports, competitiveness pressures and the impact of adverse weather.

The IMF forecast Zimbabwe's growth at 4 percent this year.

However, Finance Minister Chinamasa forecast 6,1 percent growth for 2014, but many observers believe this to be a bit too ambitious in light of lower commodity prices this year. However, many agree that the economy will register positive growth this year, only that bold decisions must be taken to prevent further deceleration to negative growth by 2015.

Annual inflation continued its downward trend from 2,9 percent (year-on-year) at end-2012 to minus 0,3 percent in April 2014, mainly reflecting appreciation of the US dollar against the South African rand and weak domestic demand due to little disposable incomes.

Tight liquidity amid low export volumes, low foreign and domestic investment, high cost of funding, dipping industrial production and lack of access to external credit means Zimbabwe may continue to struggle with external sector sustainability. Limited fiscal space due to falling revenue inflows as industry shrinks and struggles to attain viability means liquidity and resources to attend to all forms of vulnerabilities is getting worse. Infrastructure (roads, rail, air and power) remains a major issue.

Zimbabwe may need to act quickly in addressing its woes. Possible solutions for the domestic economy lie internally specifically on how domestic policies and foreign policies are drafted and interpreted to both current and potential investors.

With all sectors currently reeling from the liquidity crunch one would be forgiven to forecast another downgrade from the 2 percent if policymakers fail to act in the short-to-medium term.

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