ZIMBABWE’S economy closed the year 2020 on a promising note. Annual inflation, although extremely high had declined to about 360% by December last year after rising to 837% in July. Exchange rate volatilities that had affected the economy until June 2020 when the Reserve Bank of Zimbabwe (RBZ) introduced the foreign currency auction system had stabilised at the end of last year although pockets of volatilities could still be felt as Covid-19-induced lockdowns affected factories. These developments gave the central bank the confidence to predict this February that by the end of 2021, annual inflation would fall to less than 10%.
The bank said in its monetary policy statement that gross domestic product (GDP) would rise by 7,4% this year, from a 4,1% slide in 2020. This was in line with growth projections announced by the government in December. With the first quarter of 2021 coming to a close, our Senior Business Reporter Fidelity Mhlanga (FM) spoke to renowned economist John Robertson (JR) about economic developments in the first quarter and asked him how he sees the months ahead for Zimbabwe. Here is how their discussion turned up
FM: We saw some signs of stability from the second half of 2020 after the foreign currency auction system was introduced. What should be done to build up the momentum?
JR: With a good percentage of auctioned currency going towards raw materials and equipment, we should be encouraged by the determination of manufacturers to continue increasing production. Government should be trying to make the rebuilding exercise easier by removing licence and permit fees, streamlining import procedures and removing all complexities now involved in preparing export documentation. These all add to operating costs and, with rising fuel prices and many new levies and charges, they are making many Zimbabwean enterprises and products uncompetitive.
FM: Are we on course to achieve the 7,4% growth target projected by the government and the Reserve Bank of Zimbabwe?
JR: Investment inflows have not been large enough to support that growth target.
FM: The Reserve Bank of Zimbabwe has projected that year-on-year inflation will decline to about 10% in December. Do you think this target is achievable?
JR: On the current trends, Zimbabwe will not see annual inflation below 10% before 2023. The monthly inflation rates at present are extremely high. If we were recording 5% a year it would still be too high, but 5% a month is a very damaging rate. Government is permitting too many cost increases to worsen the prospects of beating inflation more quickly, among them being the higher fuel prices and the substantial rates of increases being imposed by municipalities.
These costs are so high that many imports are now cheaper than products from local factories.
FM: What should be done immediately to achieve this target?
JR: We need to get rid of hurdles and barriers by removing disincentives. Government is speaking about offering incentives to attract investors and to place production targets within reach. Nobody is showing any trust in these government statements. Government should, instead, announce the deliberate removal of dozens of disincentives. Every commission run by government has rights to demand permits and licenses from companies and many of these need to be renewed regularly. Mining claims have to be re-registered and applications for changes to operating permits usually involve getting approvals from commissions like the Radiation Authority of Zimbabwe and the Environmental Management Authority. Many new ideas are not even presented to government because of all these hurdles and barriers
FM: In terms of exchange rate, do you see the Zimbabwe dollar gaining ground after falling significantly during the first quarter?
JR: We should be aiming at a stable Zimbabwe dollar exchange rate, which might be achieved when we bring inflation below 3% a year and we start building foreign reserves after settling our international debts. We don’t need to have the Zimbabwe dollar gain ground, but we do need to make Zimbabweans confident that the currency will hold its value. Right now that confidence is missing so nobody wants the Zimbabwe dollar. Banks are being sidelined because the money that is useful, the United States dollar, does not get deposited in the normal way. Interest rates are also being interfered with so the banks would rather not lend.
Banks are far less supportive of the drive for manufacturing recovery because of broken relationships, poor collateral and the lack of a respectable local currency.
FM: Do you think the launch of the Africa trade bloc, AfCFTA will help Zimbabwe improve exports?
JR: AfCFTA is supposed to promote inter-Africa trade. But the Chinese have acquired rights to move large quantities of cheap goods, even secondhand clothing, into Africa. None of the AfCFTA members will enjoy much success in creating factories to make such things while that unfair competition is in place.
FM: Tell us about Covid-19 and its impact on Zimbabwe’s economy in the coming quarters.
JR: Covid-19 is impossible to quantify. Falling production has been accompanied by falling purchasing power. So we have lower expectations, lower employment, lower consumption, lower imports and falling confidence.
When restrictions are eased, some companies that have done careful preparations will be able to recover faster than those that have been taken by surprise.
People should start planning in advance of the removal of restrictions. Meanwhile, everyone should look after their business networks and client bases.