Zim Asset to suffer stillbirth

via Zim Asset to suffer stillbirth: Analysts | The Financial Gazette by Shame Makoshori 12 Dec 2013

ANCHORING the country’s economic blueprint, the Zimbabwe Agenda for Sustainable Social-  Economic Transformation (Zim Asset) on borrowings from Brazil, Russia, India, China and South Africa, could  be the biggest mistake that authors of the  plan have made, economic analysts warned this week.Collectively, these economies form what is called the “BRICS”, a group of the world’s fastest growing emerging nations.

They said these economies faced enormous challenges domestically and could have not much to spare to finance the growth of a country requiring massive injections.

Economists also said the second mistake was to place a sovereign wealth fund at the heart of recovery, given that Foreign Direct Investment (FDI) inflows into Zimbabwe had slowed down, the  economy was illiquid and major firms were loss-making.

Zim Asset, which is expected to guide efforts to rebuild the economy until 2018, is also expected to raise funding through the floating bonds, securitisation of remittances, creation of special economic zones and the re-engagement with international community.

The sovereign wealth fund is expected to get as much as a quarter of mining royalties to bankroll its activities, and   largest deposits of platinum and chrome and reserves of minerals ranging from coal and iron ore to gold and diamonds, where global resources giants, Aquarius, Anglo American Platinum, Impala Platinum Holdings and Rio Tinto still play a major role despite a law compelling foreign controlled firms to sell or cede 51 percent of their local assets to locals.

The policy has held back FDI inflows.

Independent economist, John Robertson said BRICS were themselves fighting poverty and were still focusing developing their own resources to deal with social inequalities.

They were unlikely to roll out the massive funding required to rebuild Zimbabwe.

Although Zim Asset is not clear about how much is required to fund a raft of social and economic programme that is it expected to roll out, in 2008, government estimated that US$8,3 billion was required following a  decade in which inflation reached 500 billion percent.

The African Development Bank estimates that to rebuild its infrastructure alone, Zimbabwe requires US$14 billion.

Yet its credit ratings have been affected by a US$10 billion debt.

“BRICS are still not rich countries,” Robertson argued.

“They have their own resources to develop,” he added.

“There will be no response excerpt from the Chinese. But you will see that there will be conditions attached to their loans. This means we may be giving away a very important asset (minerals) to the Chinese.”

Robertson said the document starts with a misplaced view that sanctions slapped on Zimbabwe over a decade ago were behind the problems facing the country.

He said the real problems were mismanagement, corruption, policy inconsistencies and the hostile climate created by the empowerment law.

“The first page starts with lies,” he said.

“If you start a policy with lies it does not work. Zim Asset is worse than STERP. The previous blueprints were bad, but this one is worse. They cannot work out how much is needed to rebuild the economy because what was damaged in 15 years took 100 years to build. There is no country in the world that can raise money on the belief that there are minerals down there without exploration,” Robertson argued.

STERP is an economic blueprint put together by the previous administration in 2009.

At stake is an economic crisis of enormous proportions.

About 700 firms have shut down in less than 12 months, 300 hundred jobs are being lost per week, banks are failing, blackouts have affected industrial production and the country has been hit by a liquidity crisis.

Government has said it plans to seek investment to restore the power crisis, where 50 percent of the required 2 200MW is being generated.

A manufacturing sector crisis which started with World Bank-led structural adjustment programmes in the early 1990s has been worsening.

Capacity utilisation has declined from an average of 57 percent in 2011, 44 percent in 2012 to 39 percent this year.

Several intervention made through STERP resulted in a modicum of economic stabilisation.

Gross Domestic Product rates moved from negatives in 2008 to 5,4 percent in 2009, 11,4 percent in 2010, and 11,9 percent in 2011.

But this growth has slowed.

Government is expecting a growth rate of 3,4 percent this year.

“Fiscal space remains severely constrained due to poor performance of revenue inflows against the background of rising recurrent expenditures and a shrinking tax base,” Zim Asset says.

Takunda Mugaga, head of research at advisory firm, Econometer Global Capital, said a lot of belt tightening measures were imperative if the blueprint was to achieve its targets.

“You can only link funding to BRICS for food, not for economic growth,” said Mugaga.

“It is going to be difficult,” he told the Financial Gazette.

“Nothing will come. To come up with a sovereign fund in this market is difficult. A sovereign fund is a toll order, it is only achievable in a liquid, stable and deep market,” said , Mugaga.