US$6 billion poverty reduction plan doomed

Source: US$6 billion poverty reduction plan doomed | The Financial Gazette September 1, 2016

THE Zimbabwe Interim Poverty Reduction Strategy Paper (I-PRSP) 2016-2018, unveiled by government two weeks ago, is doomed unless authorities take steps to drive foreign direct investment (FDI), arrest company closures and stimulate exports, analysts have warned.
In the absence of political will to transform the country into a destination of choice for FDI, economists are convinced that the ambitious economic blueprint could just be used as an election campaign gimmick by the ruling ZANU-PF party to pacify a restive electorate ahead of watershed polls in 2018.
I-PRSP sets the bar too high in terms of macro-economic targets, even as the economy continues to exhibit sluggish growth as a result of de-industrialisation, weakening commodity prices and turmoil in the banking sector.
Gross Domestic Product (GDP) growth rates are expected to reach nine percent by 2018, from about 1,5 percent this year, representing an increase of 7,5 percentage points in two years.
And yet capacity utilisation in the manufacturing sector has slumped by almost 23 percentage points from 57,2 percent in 2011 to 34, 3 percent last year.
A cumulative 400 000 people have lost jobs in the past decade, mainly due to economic mismanagement, corruption and policy inconsistencies.
And almost 500 000 people have been relegated to the extreme poverty bracket following many years of economic decay, which government is now trying to reserve through I-PRSP, one of at least 10 economic blueprints that have failed in the past 26 years.
I-PRSP targets an average annual growth rate of 6,6 percent during the period 2016-2018, with 2017 and 2018 projected to grow by 9,5 percent and 8,9 percent, respectively.
The 237-page I-PRSP document also targets low inflation, averaging 0,6 percent during the period 2016-2018, an interest rate regime that promotes savings and fosters investment, a current account deficit of not more than 10 percent of GDP, reserves of at least three months import cover by 2018 and a budget deficit of 1,2 percent of GDP in 2017 and 2018.
The import cover is currently estimated at about two weeks.
It says government, which has been lining up new laws and policies that repel FDI, has budgeted US$3 billion in 2017 and another US$3 billion in 2018 to implement I-PRSP.
Many of the I-PRSP targets have previously been set through other blueprints, but failed due to, among other things, the fact that the country is in debt distress and cannot access cheaper funding to kick start industries.
Last year, Zimbabwe made a debt repayment proposal to the International Monetary Fund, the World Bank and the African Development Bank.
In order to access fresh funding from these institutions, it must repay an initial US$1,8 billion.
In the meantime, a high country risk premium has caused fatigue among lenders for private sector growth.
Analysts said it would be difficult to finance I-PRSP more so as political temperatures are expected to heat up as the country enters the election period from next year until 2018.
“Zimbabwe is achieving about one percent growth per annum,” said Kipson Gundani, chief economist at Buy Zimbabwe Trust. “What will change between now and 2018? This country is not saving. The last time the Reserve Bank of Zimbabwe talked about import cover it said it was at two weeks. Jumping to three months it will mean a lot of work. Where will the money come from? I think this is motivated by elections. It is purely politicking. They will never achieve something like that,” he said.
Last week, Agribank chief executive officer, Sam Malaba told the Financial Gazette that improving FDI and exports remained the biggest challenges confronting Zimbabwe.
“Foreign currency is earned from exports, foreign direct investment, diaspora inflows and portfolio inflows,” said Malaba.
“Our exports are not performing, we don’t have enough products, our pricing structure has made us uncompetitive and we cannot use interest rates to stimulate growth, we can’t use the exchange rate. The end result is what we see in the banking sector (long queues). We must focus on production and exports,” Malaba added.
After adopting a multi-currency system in 2009, the country has been unable to use monetary policy tools to stimulate economic growth.
It cannot set interest rates or print money because the currencies are controlled by foreign countries.
“It is very difficult to start a business in Zimbabwe,” said economist, John Robertson.
“In the past five years they have made it even more difficult. You can work for more than one year to get a licence. They must remove the barriers. The emphasis should be on removing disincentives, taking away the barriers.
“They can have these wishes, but we have to deserve investment. We are actually driving away Zimbabweans to start businesses in other countries. There is no production taking place. Confidence is extremely low; we are at the bottom of the list,” he said.
The task ahead will be difficult.
Zimbabwe, which had a gross national income per capita of US$840 in 2014, falls in the low income category compared to its neighbours in the Southern African Development Community.
Seychelles, for instance has the highest level of US$14 120.