22. Dezember 2016

Uncertainty intensifies as 2017 beckons

Uncertainty deepened in the final weeks of 2016 due to a deteriorating economic crisis, blamed by critics on mismanagement and high levels of corruption in government. Cash shortages have intensified while signs of erratic fuel supplies, unforeseen until recently, are sending shockwaves in government and the petroleum industry.

In his budget statement, Finance and Economic Development Minister Patrick Chinamasa, projected the economy to grow by an ambitious 1,7 percent in 2017. But the largest industrial lobby group, the Confederation of Zimbabwe Industries (CZI), believes that it would take blood, sweat and tears for that growth to be achieved. CZI warned last week that there still remained much ground to cover if the country is to emerge out of economic turmoil.

Effects of the burgeoning crisis are evident.
In the social sector, there is serious under-funding, which is frustrating efforts to fund drug imports in the case of hospitals as well as construction of sanitation infrastructure. The education sector is also drifting into an abyss.
CZI president, Busisa Moyo, is of the view that there is still room to “do the right thing”, while warning that the effects of non-action would be too ghastly to contemplate. “If we do not do anything, the crisis that will emerge will force us to have the political will to do the right thing,” he told the Financial Gazette. “By the first quarter of 2017, the (bad) signs would already be visible. We need to fix the debt overhang, the trade deficit, increase exports and manage imports in order to reach a balance. We need liquidity; we need to end long queues in banks. People are cautious about spending and they are holding onto money, even bond notes. There is plastic money, but people in high density areas, who we serve, do not need plastic money. They need cash,” Moyo said.
To ease the liquidity crisis and external settlement bottlenecks that have recently troubled importers, Moyo implored the central bank to establish a rand-based Real Time Gross Settlement System to push trade between Zimbabwe and its largest trading partner, South African.

Over 70 percent of Zimbabwe’s exports end up in South Africa, while 70 percent of Diaspora remittances originate from that country. Investor sentiment has sunk as the country’s fiscal woes have worsened. The US$4,1 billion National Budget for 2017 allocated a staggering US$3,58 billion, or 87,3 percent, towards recurrent expenditure.
The budget still highlights government’s failure to tackle an age-long spending crisis, as the civil service will next year guzzle US$3 billion of the budget. Only US$520 million, or 12,7 percent of the allocations would be directed towards capital expenditure.
It therefore means that going into 2017, the economy would be without the capacity to invest in growth stimulating capital projects such as dams, roads, bridges, schools and hospitals, which create employment and grow the economy.
But even as the budget fell short of the requirements of Zimbabwe’s 14 million people, there would be a US$400 million deficit, representing three percent of the gross domestic product (GDP).

Yet vital exports are continuing to plummet, amid a sharp rise in foreign currency guzzling imports.
“(It) leaves Treasury with little room to manoeuvre in terms of providing the much-needed fiscal stimulus,” said MMC Capital. “The projected overall growth rate for 2017 of 1,7 percent is relatively bullish in our view and we project a range of -0,5 percent to 0,5 percent given the mounting economic headwinds,” added MMC.
Contrary to government’s growth projections, MMC Capital is seeing the country’s economy sliding by -0,5 percent, reinforcing the International Monetary Fund (IMF)’s predictions that the country could experience full blown recession next year.
The IMF has forecast the economy to contract by 2,5 percent in 2017.
The Chamber of Mines of Zimbabwe (CoMZ) is predicting hurdles going forward, warning that unless a crisis in the settlement of payments to foreign suppliers is addressed, the outlook would be difficult.
Gold and platinum prices have begun to crawl back in the past few months, putting pressure on the commodity-dependent economy.
But expansion programmes, requiring a combined US$777 million for the entire industry next year, would remain a pipedream unless the high country risk, hostile investment policies, high costs of doing business and insufficient power are addressed. A combined 36 percent of the mining industry’s installed capacity is idle, according to CoMZ statistics. It says overall mining business confidence for 2017 would remain negative. “The mining industry is less confident on the security of their concessions under the current mining title regime,” said CoMZ.

Capital constraints, high interest rates, ageing industrial plants and extensive power blackouts have slashed manufacturing sector output, one of the country’s biggest revenue earners.
And hopes for an economic recovery in 2017 are slowly fading across all economic sectors. The economy continues to be mired by subdued confidence, a result of structural issues such as low productivity and deflation. Systematic policy reversals since September 2013 have caused massive shrinkage of the economy, anchored on agriculture, mining, tourism and manufacturing.
“I think the structural problems in agriculture remain and we will have to continue importing the majority of our food needs. Output has declined on average by 70 per- cent in the past five years and I see no reason to think that 2017 will be any different. Insecurity and threats to assets remain the biggest problem,” legislator and agricultural expert, Eddie Cross, a member of the opposition Movement for Democratic Change, said. “By my estimate, 2016 saw Zimbabwe importing up to 80 percent of its food needs. It was a disastrous year,” he added.
In the past three years, there has been a consistent decline in revenue collected by government, slipping from 32 percent of GDP in 2011 to 23 percent in 2016.
De-industrialisation and increased informalisation of the economy are the major contributors to the slide in revenue.
Former finance minister, Tendai Biti, said government policies were to blame for the current economic situation. “The implementation of an expansionary, predatory fiscal policy that has created a huge budget deficit, weak export performance, corruption and leakages, lack of competitiveness, lack of meaningful foreign direct investment, shrinking Diaspora remittances and low levels of capital formation (and) persistent levels of dis-savings have contributed to the crisis,” said Biti. “The fact of the matter is that Zimbabwe is in the fourth year of a structural economic recession, which the authorities do not understand and are incapable of offering sustainable solutions to stem the same,” Biti said.

Some believe that the central bank’s management of the foreign exchange market, which is critical to local manufacturers who import materials not available locally, is partly to blame for the current situation.
Already, a payments gridlock within the banking sector has threatened to ground the economy.
The 5 000-strong Zimbabwe National Chamber of Commerce said a number of companies could fail to re-open next year after the annual shutdown due to the payments gridlock, which has hampered production following delayed payments for imported raw materials.
Other challenges facing the economy include a growing current account deficit that has averaged US$3 billion in the past few years, a growing infrastructure gap, limited fiscal space and a huge debt of US$10 billion.
Over 80 percent of the country’s population lives in abject poverty. UNDP has also documented worrying levels of migration, especially by men of productive age. (Financial Gazette, Harare)


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