Zimbabwe Economic Prospects Depressed, Say Economists

Tony Hawkins

HARARE – Sustained increases in poverty rate, declining incomes and wage demands by labour will be among the factors expected to dampen growth prospects this year, according to Zimbabwean analysts.

They said Zimbabwe should brace for the sharpest downturn in two decades if government fails again to intervene and stabilise turmoil on the foreign exchange market, and other macroeconomic factors.

However, most economists said there were no signs yet that authorities were ready to tackle the multifaceted problems confronting the economy.

Foreign currency shortages, exchange rate volatilities, an extensive depreciation of the domestic currency and rolling power blackouts have returned to haunt the country, a decade after dollarisation briefly stopped a freefall.

Tony Hawkins, a former lecturer at the University of Zimbabwe’s graduate school of management, gave the most chilling prospects for 2020, saying the total consumption poverty line, estimated at $3 161 this October, will climb to a shocking $100 000 by December.

He said this will precipitate massive deadlocks between labour and industries as workers demand corresponding adjustments.

Hawkins hit at Finance Minister Mthuli Ncube for failing to grasp the depth of the crisis at hand.

He said the Treasury boss had “shredded” a colourful road map to recovery that he laid out in October 2018 under the Transitional Stabilisation Programme, which had dismally failed.

The economy is projected to shrink by about 10 percent this year, after falling by 6,5 percent in 2019.

“In their stubborn refusal to heed developments in the real economy, including socio political pressures, the authorities have retreated into default mode – denialism, misrepresentation, implausibility and wishful thinking, Hawkins said.

“Ncube’s reform programme is being shredded by himself and others. In a country with the world’s highest inflation rate and its third or fourth worst growth rate, the fixation with foreign currency usage, parallel market operations and, of course, speculation and sanctions reflects a deep malaise in the world of policymakers,” he said referring to the blame game that is ongoing in Zimbabwe’s under fire government.

Hawkins said inflation will remain in triple digit levels during 2020, and wages will be increased to catch up, but with dire consequences to the majority.

Vital services like school fees in public schools, which has rose by 45 percent last year, will have to rise again to track the consumer price index, up 440 percent since October 2018.

Victor Bhoroma, another economist, said after poverty levels reached a terrifying 90 percent last year after hovering between 70 and 80 percent for most of the past decade, it would be difficult to project a quick return to stability in 2020.

He argues that there is lack of willpower and capacity to implement promised reforms.

Bhoroma is worried that inflation, a key factor in the direction of the economy, largely been left to wonder into dangerous territory, with little or no action in cite a year into Ncube’s much hyped reforms.

Business confidence, he says, will remain weak.

This means new investment may be hard to generate, amplifying a crisis already forcing existing investors to rethink their Zimbabwe strategy.

Meikles Africa has put it century old five – star Meikles Hotel on sale.

And there has been stampede out of the stock market by key foreign investors.

This indicates how business views Zimbabwe in its current state.

“The prospects are bleak and the economy will shrink further,” says Bhoroma.

“Confidence will remain weak unless there is inclusive dialogue and implementation of governance reforms in government. I do not see a change in 2020 because there have not been enough genuine efforts to change the way our economy is managed. Zimbabwe’s macro-economic instability stems from consumption biased recurrent budget deficits that are funded through domestic debt, low confidence due to failed institutions, rampant corruption, high debt levels that hinder access to new credit lines and low production capacity as a result of energy shortages (electricity and fuel), foreign currency mismanagement and an unstable monetary environment,” he notes.

Bhoroma does no see stability coming back to the key manufacturing sector, unless

aggregate demand improvs and bottlenecks like electricity and fuel, foreign currency shortages, effectively dealt with.

He predicts the mining sector to rebound only after rolling power blackouts, which intensified in the past two weeks due to a slump in imports from South Africa and Mozambique, are stopped.

John Robertson, another economist, said next year promises to be difficult from day one.

“Most farmers will not be able to plant as seed and inputs prices have gone beyond what many can afford,” he says.

“The problem with government is that it has been dealing with symptoms of economic difficulties opposed to deal with real challenges. Farmers who were relocated under the land reform programme have not been able to secure funding from financial institutions to invest into agriculture while government has not done much to support them. This has resulted in the economy having been handicapped for over 20 years without a solution.”

These views were also shared by Christopher Mugaga, chief executive officer of the Zimbabwe National Chamber of Commerce, who said in trying to reverse the result of the rot that it brought in 2018, President Emmerson Mnangagwa’s government had pressed the wrong batons.

Christopher Mugaga

“Government has been focusing more on the currency reforms which is not the real cause of inflationary pressures. If they do not solve the underlying fundamentals, the currency stubbornness will continue, and inflation will rise. Spending on smart agriculture, formerly command agriculture is very significant and treasury is going to push for a supplementary budget which will be bad for the economy,” he says.

“The first half of the year will also be harsher. There is urgent need for discussion by authorities to find common understanding on resolving the economic challenges. The tension between government and workers is currently too high and there is huge risk of unrest.

“As private sector, we should also push for the activation of the TNF urgently, to ensure there is a balance between government and private sector in resolving economic matters,” says Mugaga.

It is so bad. No economists in this week’s poll gave this economy a chance, and they said government has a huge work cut out for it – much bigger than at any other time in the past decade because Zimbabwe cannot afford to relapse into another era of needless death due to lack of medicine, the decimation of savings and de-industrialisation.

“When you have depressed economic growth high, unemployment, high energy costs, high taxes and high inflation you effectively have what is called stagflation which is a difficult hole to come out of,” warns Vince Musewe, one of the leading critics of government policy.

“The root causes of this are both economic and political. Lack of huge investments in our productive sectors continued currency instability exacerbated by lack of confidence in its value and seemingly incoherent political leadership continue to create a negative country risk perception which becomes a self-fulfilling prophecy. Zimbabwe can have the best economic intentions but it is clear with continuing political dissonance and rampant speculation both in the economic and political sectors the economy cannot perform at its full potential. Only an inclusive political solution which creates unity of purpose amongst all political players and all economic sectors can be the silver bullet,” he says.

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