|January 31, 2014
Funding doors slam on Zim
After securing a fresh mandate in last year’s July 31 general elections, President Robert Mugabe and his Zanu PF government, which now enjoys a two-thirds majority, face headaches over reviving the country’s ailing economy which is in desperate need of foreign direct investment and international lines of credit.
Since the appointment of a new cabinet last September, Finance minister Patrick Chinamasa has been running around looking for funding to breathe life into the distressed economy that is suffering from acute liquidity challenges and lack of investment. Company closures and retrenchments continue, forcing more people join the teeming ranks of the unemployed and self-employed.
The announcement of the 2014 national budget was postponed from the traditional November to mid-December after Chinamasa indicated he needed more time to widely consult relevant stakeholders. However, economists believe the delay was in fact due to problems in financing government’s economic programme.
When the budget was announced on December 19 it was clear from Chinamasa’s statement, which analysts described as “long on policy and short on money”, that the country did not have the resources to back the modest US$4,1 billion budget.
However, Chinamasa’s efforts to secure funding from the international community have hit a brick wall.
Just three weeks ago, as reported by the Zimbabwe Independent last Friday, he returned home from China empty-handed after the Chinese sought “bankable projects instead of policy pronouncements”.
Highly-placed government sources said Chinamasa, accompanied by Deputy Foreign Affairs minister Christopher Mutsvangwa, failed to convince the Chinese business community in Beijing and Shanghai to loan Zimbabwe funds using the country’s minerals as security.
Chinamasa was hoping to secure US$10 billion to finance the ambitious Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZimAsset) — the country’s latest economic blueprint. More doors seem to be closing in Zimbabwe’s face. Chinamasa’s efforts to get lines of credit from the International Monetary Fund and World Bank have also been fruitless.
In October last year, Chinamasa returned from the IMF and World Bank meetings in Washington with nothing to show, saying the IMF would not be loosening its purse-strings for Zimbabwe any time soon.
In December, government also pleaded with the United Nations to bail out the country by scaling down its humanitarian programmes and instead channel the funds to development work that would support ZimAsset.
As the country fast runs out of options to raise desperately-required funds, there is need to improve efficiency in the extraction of mineral resources while coming up with policies specifically meant to attract foreign investment and turn around the nation’s economic fortunes which have been on the wane for over a decade, analysts say.
Economist Takunda Mugaga said investors followed proposals that make business sense, hence the need for a purely business approach to attracting foreign funds.
“Indeed there is nothing called a free lunch in economic management and I suppose the government of Zimbabwe at times forgets to come up with an investment attraction document as it falls into the trap of permanent electioneering,” said Mugaga, who is head of research at Econometer Global Capital.
He said investors were more concerned about the return on investment and property security, not populist tones in economic policies.
Turning to Zimbabwe’s futile attempts to raise funding from China, Mugaga said the Chinese were so calculative and thorough to such an extent that Zimbabwe’s chances of getting anything were next to zero unless government creates room to attract foreign money.
“It’s only peripheral investors from Asia who will bring their low-value business to the country until the premier of China at one point makes it a part of his itinerary to pay an official visit to Zimbabwe,” he said.
“It seems the Chinese government is supping with the West and dropping crumbs for Zimbabwe. The earlier the Harare administration realises that this nation is not benefiting, the better.
Mugaga said efficient and maximum utilisation of the vast natural resource wealth alone would not change the face of the economy as was the case in the Ian Smith government after the Unilateral Declaration of Independence in 1965.
“It is very difficult to solve liquidity challenges using natural resources because there is need for liquidity just to be able to exploit those resources,” he said.
Economist Eddie Cross said Chinamasa had no option but to adopt former finance minister Tendai Biti’s “eat what you kill” policy due to the shortage of resources.
“We have to depend on what we have to sustain our budget,” said Cross, who is MDC-T legislator for Bulawayo South. Cross said Chinamasa would not be able to secure any funds until key political issues which are outside his jurisdiction were addressed.
There is need for finality on indigenisation as well as land tenure which are major stumbling blocks to attracting foreign capital, he said.
“Chinamasa is in a tight situation and he needs help. He also needs to close the Essar (Holdings) deal because the world is watching and its collapse will have grave consequences on the economy.”
The country’s external debt, estimated at about US$6 billion, has also dampened prospects of any immediate balance of payments support from the World Bank.