8 January 2016

Zimbabwe: Zim Braces for Bleak 2016

DESPITE the promise by the Zanu PF government to intensify the implementation of the country's ambitious economic blueprint ZimAsset and the projected 2,7% economic growth made by Finance minister Patrick Chinamasa, Zimbabweans should instead brace themselves for a tough and gloomy 2016 on the back of a disastrous agricultural season, supply side constraints and continued disharmony within government on critical national policy issues among a plethora of economic difficulties.

Chinamasa's projected 2,7% growth announced during his 2016 national budget presentation looks far-fetched as the country's citizens toil over joblessness estimated to be more than 90% while industry continues to struggle.

Unemployment, which increased significantly last year due to the July 17 Supreme Court ruling allowing employers to dismiss workers on three months' notice without packages, affected an estimated 30 000 employees. Sadly, the state of the economy is pointing to more job loses despite the bravado and changes to the law by government.

The job losses are in stark contrast to the unrealistic ZimAsset which promises the creation of 2,2 million jobs between 2013 and 2018. The economic policy, which President Robert Mugabe and Zanu PF officials preach at every public event, requires US$27 billion in funding -- money which the broke government does not have.

Reality on the ground shows that the rate of unemployment will continue to increase in 2016 with reports that power utility Zesa Holdings plans to lay off 1 000 employees which include 700 workers and 300 permanent employees.

The much-celebrated Chinese mega deals, which the government says will improve the economy, are yet to make any meaningful impact on the country's economy with projects to rehabilitate power plants such as that of Hwange Power Station still in their infancy and only expected to materialise in 2018. Developments on the ground are far divorced from the rose tinted view of economic prosperity being painted by government.

That government entered the New Year without paying the majority of civil servants, who include health workers, does not bode well for the country's prospects for 2016.

The failure to pay civil servants on time, which has resulted in a strike by health workers and a demonstration by rural teachers, points to a worrying trend which could result in government failing to pay salaries altogether as revenues continue to shrink compounded by debilitating liquidity crunch, low capacity utilisation, persistent power shortages, company closures and massive job losses.

There has been no word from government as to when bonuses, which were promised by Mugabe during his address at Independence Day celebrations, would be paid out.

The current drought has also had a devastating impact on the farming season for a country whose economic growth is largely dependent on agriculture.

The poor agricultural season's impact is already being felt with the cash-strapped government needing to import 700 000 tonnes of maize for this year, depleting the country's coffers as well as increasing the country's balance of trade deficit. This figure represents nearly two-thirds of the country's annual grain requirement.

This is worsened by the inability of farmers to access funding from banks owing to failure to meet stringent loan requirements and tenure security concerns on the unbankable 99-year leases as well as continued farm invasions.

Liquidity constraints continue to dog the mining sector, which is critical to economic recovery. Weakening commodity prices on the global market have seen local mining firms scaling down operations to remain viable.

Imviga Gold Mine Group reportedly ceased operations in Matabeleland North sending its entire 500-strong workforce on unpaid leave, citing tough operational challenges as the year 2015 came to an end. Chrome miner and smelter, Zimasco recently closed its Kwekwe ferrochrome refinery, spelling doom for a sector crippled by low commodity prices for minerals such as gold and platinum and power shortages in the New Year.

Power shortages have been worsened by declining water levels at Kariba Dam, threatening operations of industry in 2016. Industry is operating at a low 34,3% capacity utilisation tumbling from 57,2% in 2011.

Economist and former Zimbabwe National Chamber of Commerce president Oswell Binha predicts that liquidity constraints and challenges that come with it will persist in 2016.

"Liquidity is going to remain a challenge," Binha said. "We will not be able to produce enough to satisfy consumption and our current account deficit will continue to increase. It will be remarkable if we record 1,5% growth this year."

Binha said issues of food security could be a potential security threat as they will "not be enough in the field and not enough income" which could create an intricate balance between "a chaotic 2016 and a peaceful 2016".

He also noted that the government is yet to show investors that it is ready to do business given the alarming discord within its ranks.

"Our body language and communication model indicates we are turning right while turning left," Binha noted.

The withdrawal of the gazetted indigenisation amendments in less than a week and the ugly spat between Chinamasa and Indigenisation minister Patrick Zhuwao could not have illustrated Binha's misgivings better.

The indigenisation policy has been a major concern to would be investors as pointed out by various business delegations from Britain, Russia, United States and France who visited the country last year.

Chinamasa through a government gazette on Christmas Eve announced changes to the indigenisation laws. Zhuwao however on Christmas Day hastily convened a press conference to slam Chinamasa accusing him of "treachery" and declaring that there are no changes to the law.

The two ministers with Reserve Bank governor John Mangudya then announced on Monday this week that the government would withdraw the gazetted amendments showing total confusion within government as ministers who traditionally sit in the same cabinet every Tuesday failed to speak with one voice on clarifying a policy signed into law by President Robert Mugabe way back in 2008.

Bulawayo South MP Eddie Cross (MDC-T) said until the political uncertainty was resolved government would not solve the economic problems the country is facing.

Cross forecasts a dismal economic performance in 2016 with declining economic activity aggravated by "one of the worst agricultural seasons"

"I think that we are heading for a very difficult year where government will struggle to finance the budget," Cross said.

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