25 June 2019

Zimbabwe: Economic Recovery - Govt Makes Commendable Strides

Since October last year, Zimbabwe's economic landscape has been characterised by steep price increases and rising inflation. These have been born of unscrupulous traders who are charging for their goods and services in either the United States dollars (USD) or pegging their prices against the greenback using black market exchange rates.

The adjustments to the price of fuel which Government has made this year through the Zimbabwe Energy Regulatory Authority (ZERA) have also contributed in a small part to the basic commodity price increases. These are part of the bitter pills which Zimbabweans have to swallow in the short term in order to turn the economy around. It is saddening, however, that some retailers and service providers have taken to exploiting the crucial nature of fuel to increase their prices for purposes of profiteering and laying the blame for the resultant consumer outcry on Government's doorstep.

Some consumers have gullibly taken the traders' fishy story hook, line and sinker and are blaming President Mnangagwa. Some are even unfairly comparing him to his predecessor, Robert Mugabe as though the 2007/8 hyperinflationary period was presided over by some Martian visiting president while Mugabe watched from the sidelines. It is as if Mugabe had taken a sabbatical when those trillion dollar notes could neither buy a loaf of bread nor cover an urban commuter's one way trip. Mugabe was in charge when signs of economic challenges began to show during the 1990s and reached breaking point after the 2000 land reform programme. He gladly presided over the deteriorating economy from 2000 to November 2017.

If anything, President Mnangagwa is cleaning after Mugabe's poor stewardship of the economy, which has gotten the country to where it is today. Those painful steps which Mugabe refused to take because of his populist penchant are what the President is taking in order to put the economy back on track and it will not be an overnight process. It will not take an abracadabra chant, but serious and painful work and he has no illusions about the work that is cut out for him.

Despite the economic challenges, President Mnangagwa and his team are working tirelessly to create the necessary framework upon which a sound and successful economy can be-rebuilt. Zimbabwe cannot prosper by living off imports of basic commodities from the region, especially South Africa. It needs to produce and export in order to secure foreign currency to cover imports of spares, drugs and fuel among other key areas and to move from a consumer nation to a production-based economy.

To this end, the President borrowed a leaf from his Rwandan counterpart, President Paul Kagame's Rwanda Development Board (RDB) which is driving economic revival and growth, following that country's 1994 genocide. Government has already gazetted the Zimbabwe Investment Development Agency (ZIDA) Bill which will bring the functions of bodies such as the Zimbabwe Investment Authority (ZIA) and the Special Economic Zones Authority under a single one-stop shop investment promotion body to ensure the speedy processing of investment applications and catalyse economic turnaround through foreign direct investments (FDIs).

Another key area which contributes to the ease of doing business is the country's commercial justice system. No investor would withstand being pushed from pillar to post in the legal system while seeking justice in dispute resolution or some other business issue. To obviate this, Government has already put in place Claims Courts in each of the country's 10 administrative provinces to handle civil disputes. It has also set Commercial Courts at magistrates' level to deal with commercial disputes.

One area which has presented economic challenges for decades is state-owned enterprises (SOEs). These have drained the fiscus due to management teams which took advantage of the fact some SOEs such as the Grain Marketing Board (GMB) played both a commercial and social role in the economy to fleece the parastatals. Not anymore, as Government is spiritedly pursuing SOE and corporate governance reforms to improve their efficiency and effectiveness and contribution to economic growth.

To this end, some SOE's such as the GMB have been split into commercial and statutory divisions to enhance optimum performance. The Industrial Development Corporation (IDC), which over the years had been reduced into a caretaker for disinvestment victim companies such as the former Cone Textiles, instead of driving industrial development, has already begun the process of unlocking value in some of its units such as Willowvale Motor Industries and Deven Engineering through privatisation. Last month, the two automotive industry players invited investment partners to take up as much as 74 percent stake in each of the companies in a move to revive their operations.

Government intends to liquidate perennial loss-making and now-defunct SOEs such as the Gweru-based Zimglass, National Glass, Kingstons Limited and the tractor firm, Motira. As part of the programme, some entities in the same industry are set to be merged. This includes Africom, Zarnet and Powertel.

Even regulatory bodies will not be spared by the restructuring. This will see the Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ) and the Broadcasting Authority of Zimbabwe (BAZ) being bundled into one entity.

In a bid to drive rapid economic growth, last week Cabinet approved the National Industrialisation Development Policy and the Zimbabwe Local Content Strategy which are set to run from 2019 to 2023. The Industrial Policy is calculated to push value addition, beneficiation, export-led industrialisation and sustainable industrialisation. The Local Content Strategy, on the other hand, aims to promote local value addition and linkages though the utilisation of domestic resources.

One of the key aspects of Zimbabwe's economy which the Mugabe administration had tossed into the dustbin is the social contract which brought together business, workers and Government together to discuss issues of common interests such as prices and the remuneration of workers. Cognisant of the need to have everyone on board if the country's economy is to turn around, President Mnangagwa recently launched the Tripartite Negotiating Forum (TNF). There is a lot that the three parties need to urgently discuss such as the galloping inflation, which currently stands at 97.85 percent, and how each can play their part in stemming it.

The new dispensation has been known for its economic recovery blueprint, the Transitional Stabilisation Programme (TSP) which, among other things, seeks to correct the skewed economic fundamentals of the past administration which was characterised by overspending non-existent funds chalking up a huge internal debt. Despite the squirming by some people over the temporary hardships which have accompanied the implementation of the TSP, the country is in the right direction with the Minister of Finance and Economic Development, Professor Mthuli Ncube already announcing that the economy is registering budget surpluses. The economically uninitiated have questioned this in view of the fact that ordinary people are still facing economic challenges. The journey to economic prosperity was announced as a short stroll. It is a long trip. The surpluses are still just signs that we are in the right direction and not indications of our arrival.

Nothing indicates this than the recent agreement by the International Monetary Fund (IMF)'s agreement to undertake a Staff Monitored Programme (SMP) to chaperone Zimbabwe in the process of paying her internal and external debt totalling US$18,6 billion and access new lines of credit from international financial institutions. The IMF agreed to the SMP despite Zimbabwe's past chequered loan repayment record.

This is because of the commitment show so far and progress registered thus far. Yes, some people have condemned the move as worthless it will not yield a financial bailout as soon as tomorrow because they want the economy miraculously turned around yesterday and understandably given that they have endured economic difficulties for nearly two decades.

While the gains will not be in the basket tomorrow, nothing is as good as having the IMF on one's side. It gives other would be lenders and investors the confidence to deal with Zimbabwe. It mitigates the high country risk tag which has been around the country's neck since 2000.

Going forward, the initiative needs everyone's support. One expects that as the TNF sits business will tell everyone how it expects it workers to live in a country in which it charges for goods and services in foreign currency but does not pay its workers in the same currency or increase their local currency salaries and wages.

The other two parties also expect Government to explain how it is going about turning around the economy including the benefits of the SMP.

Government is expected to explain in common man's terms crucial issues of the TSP such as the budget surpluses to the satisfaction of the ordinary man in the street so that no one is left out in the journey to economic recovery and prosperity.

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