It has been my view for some time that the average Zimbabwean has not yet grasped the extent to which the ground under our feet has changed. Two years ago we had a grossly over-valued currency, we were running a massive budget deficit even though we were already in default as a country on our debts.
We were importing over 70 per cent of our food and 95 per cent of what you saw in a supermarket was imported. Even before the onset of the Covid crisis, our GDP was declining.
Correcting those problems required painful and extensive surgery – not palliatives. We have not yet arrived at the point where we can say we are back to normal, but just look around you today. There is no doubt, that unlike our neighbours to the south and the western world, the Zimbabwe economy is now recovering fast. By the end of December, I have no doubt in my own mind that our GDP will have largely recovered to earlier levels of activity. Our inflation rate has been below 4 per cent, month on month, for the past 4 months and I see little chance that it will again spiral out of control in 2021.
We have no shortages of any kind in the market, our exchange rate has corrected the imbalances that existed in 2018 and is now stable. Our balance of payments is in surplus and we have foreign exchange savings in our bank accounts. Whenever can any of us remember a time like this? We have had a rough ride in the past 100 years – let alone the past two decades. In my view, for the first time, we have the internal capacity to settle our outstanding debts and once again resume a more normal relationship with the rest of the world.
What are going to be the major challenges in 2021? There are many but in my mind the major ones are relatively few. On the political front we have to make progress on re-engagement with the global community – not as supplicants but as an independent sovereign state that is trying very hard to find its way in the world. No easy, but I think this is possible.
Then we have to get our growing gold industry under control and management. We are potentially one of the largest gold producers in the world. Our industry is unlike many others in that our gold reserves are located over large areas in small or low-value deposits. Our people have discovered this and we have probably 2 to 3 million people actively mining gold, in addition to about 600 formal mines.
Only a small proportion of this output is marketed here – in 2020, probably less than 20 tonnes worth US$1,4 billion. The rest is smuggled abroad and the proceeds either banked abroad or spent elsewhere. The local industry is plagued by criminal elements and armed gangs. This cannot go on. If we did we would enter a new era where we would have the resources to deal with our international debts, and resume normal relations with the global financial community. My own estimate is that we are losing US$2 billion a year.
The third challenge is to fix agriculture. I think we all know the industry is broken but what we fail to appreciate is what it is going to cost us to get our farmers back to work. Although the record is muddled, progress has been made on the ground. In the past winter season, we could have produced close to 300 000 tonnes of wheat and barley had we had the money to finance our farmers. We grew over 200 000 tonnes and this is double what we did in 2019, but we are struggling to pay for it. Still it shows progress.
In fact, my feeling is that the biggest impediment to the recovery and growth of our economy in 2021 is going to be financial. We have to recognize that in 2001/8 and in 2018/9 very high levels of inflation have substantially wiped out the accumulated financial savings of many generations of Zimbabweans. We are now largely debt free, but have no cash. It costs us Z$6 billion a month to import all our basic foodstuffs, it would cost us ten times that to grow the crop and then double that again to buy the crop and store it for eventual sale and consumption.
We have to recognize that the task of our financial industry is very different in a rapidly growing economy than a contracting economy. All the countries that are experiencing rapid growth today, have been able to do so because they could borrow abroad to finance the expansion. We cannot do so on our own and therefore re-engagement is not just an option, it is essential.
I was reminded this past week by the Minister of Foreign Affairs that on the 1st of January Britain leaves the European Union and Africa goes into a new continental free trade zone. I am afraid I think that Britain is in for a hard Brexit and will suffer the consequences for some years to come. The question is what about Zimbabwe in a continental market of over 1,2 billion people and a GDP approaching US$2 trillion and growing rapidly.
We must recognize the main lessons from the past 50 years in global business. This is a period of historically unparalleled expansion and in the reduction in the global incidence of absolute poverty. 50 years ago China, South Korea and many others were poorer than Zimbabwe. Today they are all middle to upper-income countries and the main driver has been access to global markets for goods and services. The combined borrowings of the Asian Tiger economies including the two biggest economies in the world – Japan and China is equal to two and half times their GDP. By contrast African States, including Zimbabwe are significantly under borrowed.
World markets have grown consistently over the same period by 15 per cent per annum and this has created billions of jobs and raised living standards across the globe. Today global financial markets are awash with liquidity and the main problem confronting the banking industry is what to do with that liquidity – how to find profitable and safe outlets for surplus money. Our problem is the opposite. We are swamped by new opportunities, but cannot fund them.
The Continental Free Trade Zone is going to exacerbate this problem because it opens up access to markets on the Continent for countries like Zimbabwe who are competitive and have the skills and the resources to exploit regional opportunities. When I visited Ireland in the late 70’s just after the UK and Ireland went into the European Union, I found a country plagued by rural poverty and conflict. Most farms did not have clean water or modern facilities; they were almost peasants. Today Ireland has one of the fastest-growing economies in the world with a first world economic infrastructure and industries.
Zimbabwe stands on the threshold of new opportunities today – we are slowly getting our act together, our economy is expanding, our local currency stable and undervalued and our productive sector starting to appreciate that we can sell into regional markets. In fact, even now, our industrial exports have doubled in the past year and our farm exports are growing strongly. Global commodity prices are recovering and if we can get our mining industry growing, the opportunities are enormous. The challenge is how to fix our infrastructure so that we can supply a growing economy with clean water, electricity at a reasonable price and transport goods to and from our main markets at a competitive cost. All challenges but also opportunities.