Zimbabwe’s economy: Sliding backwards again

via Zimbabwe’s economy: Sliding backwards again | The Economist Feb 15th 2014

THE potholes on Melbourne Road in Southerton, an industrial district of Harare, Zimbabwe’s capital, are bone-jarring. A van outside the J. Lyons factory, a surviving outpost of a once-grand British company, is being loaded with jars of processed food. Otherwise the street is quiet. The offices next door have whitewashed windows; the gates of the factory opposite are firmly shut. The empty buildings belong to Reckitt Benckiser, an Anglo-Dutch company whose brands, including Dettol disinfectant and Nugget shoe polish, span 60 countries—but no longer Zimbabwe. The Reckitt factory there closed before Christmas and has not reopened. Many other local firms have done the same.

The closures are just one sign that the economic recovery is stalling. This began in 2009 when the worthless Zimbabwe dollar was replaced by a multi-currency system based largely on the American dollar. But in the run-up to Christmas some banks were forced to put limits on cash withdrawals. SABMiller says lager sales tumbled by 25% in the year to the fourth quarter, as beer-drinkers switched to cheaper brews based on sorghum. Consumers started to feel the pinch in the second half of last year, says Albert Katsande of OK Zimbabwe, a big retailer. Prices are being cut to encourage shoppers to spend more. A country ravaged by hyperinflation, which officially reached 500 trillion per cent in 2008, may soon have deflation.

The rot set in around the time of elections, in July, which gave a thumping victory to Robert Mugabe’s Zanu-PF party and brought an end to its four-year coalition with the Movement for Democratic Change (MDC). Observers reckon that the result was largely achieved by a massive but cleverly contrived fraud, in particular through the manipulation of the voters’ roll to exclude people likely to back the MDC. But factory closures, angry queues at banks and wilting sales offer a harder-to-rig verdict on the new government.

Most harmful is its pledge, under the rubric of “indigenisation”, to force all foreign- and white-owned businesses to cede a 51% stake to black Zimbabweans. This is chasing away foreign capital. A 26% pay rise for civil servants will further strain public finances already stretched by dwindling tax revenue. And the government’s growing list of unpaid bills is restricting the precious cash-flow of private businesses.

Nor is there much faith in policymakers. Mr Mugabe appointed a cabinet in September after a delay of six weeks. Its make-up was shaped more by a need to balance factions within Zanu-PF than by the needs of the country. The new finance minister, Patrick Chinamasa, delayed his annual budget until December, then jauntily forecast growth at 6.1% of GDP in 2014 after a 3.4% increase last year. Yet in reality the economy was probably flat in 2013 and is unlikely to do much better, says John Robertson, an independent local economist. Moreover, it seemed clear from the budget statement that, despite the pleas of local businessmen, there would be little flexibility in the application of the indigenisation laws.

In any case, the legacy of hyperinflation limits Zimbabwe’s choices. The factories in Southerton have out-of-date machinery because industry could scarcely invest for the long term when its costs were spiralling upwards. The switch to the American dollar brought stability, but at a cost. As the dollar rises in value against other currencies in the region, such as South Africa’s rand, it makes Zimbabwean business less competitive. Banks have no reliable backstop because Zimbabwe no longer prints the money it uses. Savers will commit their money to deposits of 90 days at most. Banks can safely lend for long enough to finance a grocer’s turnover, but not to retool a factory or build a hotel.

The supermarket shelves are still full, but two-thirds of goods are imported. Export revenue does not come close to covering the import bill. The current-account deficit last year was around 23% of GDP, according to the budget statement, and was funded by a mix of remittances, foreign aid and hot money lured by the high interest rates offered by some banks. Dollars have become scarcer, in part, because those sources are less forthcoming. Remittances from the millions of Zimbabweans who work in South Africa are likely to shrink because of the stagnating economy down there. Western governments are charier about dishing out aid that goes through a government they cannot trust. And the flow of hot money has slowed because of bad debts in locally owned banks.

Zimbabwe needs long-term capital to upgrade its factories, roads and power stations. Meagre local savings means this must come from abroad. A group of businessmen recently toured Europe to woo investors. “In all locations, indigenisation is the number one issue,” says Charles Msipa, head of the Confederation of Zimbabwe Industries, who led the delegation. Companies, he says, are loth to invest in ventures they cannot control. Foreign businessmen fear they will not be able to claim an adequate share of the profit.

A stamp of approval from the IMF would make foreigners more comfortable, says Mr Msipa. But a staff-monitored programme has already had to be extended by six months because of missed deadlines by the government, including a promise to account more clearly for revenue from state-owned diamond mines. A deal to clear Zimbabwe’s huge foreign debts, including money owed to the World Bank and IMF, seems impossibly distant.

But without it there can be no large-scale official borrowing by the government. Mr Chinamasa recently went to China to drum up cash, but returned empty-handed. China, on the business front, is proving no softer a touch than the West. Fears are growing of a new fiscal crisis and even of a return of the Zimbabwe dollar, if the government can find no other way to keep itself going than printing money.

So Mr Mugabe and his government are stuck. Tendai Biti, who was the MDC’s austere and widely respected finance minister in the coalition government, says there are easy fixes for the economy’s troubles: “Talk to the West; balance the books; and manage expectations to instil confidence.”

But such strictures are unlikely to be accepted by Mr Mugabe, who turns 90 this month and whose health is again a source of frenzied speculation. He has been little seen in public at home in the past few months, but is often in Singapore, where he is thought to receive medical treatment.

Waiting for the old man to go

His death may open a path to reform. But the infighting that is likely to ensue could be bitter and disruptive. Joice Mujuru, the vice-president, and Emmerson Mnangagwa, the justice minister who served for many years as head of security, are the leading contenders for the crown, but others may join the fray. Mrs Mujuru is considered more amenable to an opening to the West and to reconciliation with the MDC, which is why it is widely assumed that the death of her husband, Solomon Mujuru, a former head of the army, two-and-a-half years ago in a fire was at the hands of a hardline Zanu-PF faction.

Diplomats and businessmen now tend to rule out any real political or economic progress until Mr Mugabe dies. “We are just waiting for him to go,” says one of them. “Until then, everything is on hold.” Meanwhile, the country is in danger of sliding even further into penury.

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11 comments on “Zimbabwe’s economy: Sliding backwards again
  1. Johann says:

    Could it be that this rut is similar to the one in Haiti. The Haitians(who believe in Voodoo) have it that they made a deal with the devil to be rid of the French colonizers and that this is why they are so poor to this day. Could it be that this deal that the nation made with Zanu in order to be rid of the British will secure themselves perpetual trouble.

  2. Wilbert Mukori says:

    Those who are waiting for Mugabe to die are making a big mistake in that they are letting themselves to be led by events instead of defining what happens. Mugabe’s death is only relevant because they have given up on making the tyrant irrelevant here and now.

    Mugabe has dictates our lives for 34 years with disastrous consequences so why should anyone allow this tyrant dictate to him or her for even one day longer much less dictate until the day the tyrant dies, whenever that might be!

  3. John Thomas says:

    We are in a mess that is for sure. Our governments solution, supported by a substantial portion of the population, is to make the mess worse.

  4. Rukweza says:

    So called country which has highest literacy in africa,education thought it opens brains but not to zimbos

    • Saddened says:

      Rukweza while I fully understand your frustrations I feel we have enough problems without running ourselves down in the process. Can we really expect a population who have never experienced any form of democracy ever, to put their lives at risk? However I do believe they can brainstorm in various groupings to come up with non-violent strategies to demonstrate their unhappiness with the current situation. We need the all opposition formations to assist the people with this.

  5. Soon the desparate folk in Central African Republic will be mocking us just like we did to Zambia when that birdbrain kaunda was crying into his handkerchief!!!!!!!!!!!

  6. Jake says:

    How does this sound to you….”Mr Investor, you put $100 into the hat and you have all the problems and I will put nothing, but I will take $51 of it’? We could be ‘on hold’ for a long time.

  7. Mukanya says:

    The economic rot/slide is as result of corruption/mismanagement/no ethics/lawlessness not sanctions lets get this clear.

  8. William Doctor says:

    Yes – we are all waiting for the old goat to die.

  9. Phys says:

    We are in a hand cart on a fast and slippery slope to hell. Will we ever see an uprising from the masses?? No they are too broken and beaten by this evil regime.

  10. skru mapete says:

    its not mugabe,bt its the system that have to go

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