Zim-Asset flounders as private sector disappoints

Source: Zim-Asset flounders as private sector disappoints | The Financial Gazette November 3, 2016

THREE years after government tantalised the nation with an incredible economic plan that was meant to revive the country’s ailing economy, things have turned from bad to worse.
Government is now getting increasingly desperate to realise the objectives of the Zim-Asset blueprint, an acronym derived from the Zimbabwe Agenda for Sustainable Socio-Economic Transformation.
Zimbabwe will be going to the polls in the next 18 months amid indications that the election outcome could be influenced by how each of the contesting parties would articulate their economic agenda.
At the 2013 polls, ZANU-PF impressed voters with its election manifesto, which was then tweaked by government bureaucrats to give us the Zim-Asset economic plan.
Running between 2013 and 2018, Zim-Asset has fantastic objectives.
In the main, it seeks to create 2,265 million formal jobs by 2018, which is the election year.
In order to create fresh employment, ZANU-PF had envisaged a situation whereby the productive sector was going to fire from all cylinders, especially in the following sectors: Agriculture; manufacturing; tourism and mining.
Sadly, this has not happened.
If anything, there has been carnage on the job market, with manufacturing being the worst hit.
Even in the resource sector, where government has been putting pressure on mining houses to embark on value addition or beneficiation, companies have been driven to the edge by poor international prices and concerns around the indigenisation programme.
In order for the country’s economy to return to its pre-recession levels, Zim-Asset  estimates that about US$27 billion is required to retool industries, infrastructure, and some such projects.
No big funders have been found to bankroll Zim-Asset.
The private sector, which is supposed to be the driver behind the plan, has been so unlucky in the capital markets.
Locally, the financial services sector is haemorrhaging, and has been unable to attract reasonably priced lines of credit facilities because of the high country risk profile.
Deep-pocketed investors, with the exception of the likes of Aliko Dangote of Nigeria, have been giving Zimbabwe a wide berth because of the harsh empowerment laws that stipulate that indigenous blacks should have majority control in any local business.
In fact, no foreign investor is allowed in what are called reserve sectors, which include retail.
Last week, Industry and Commerce Minister Mike Bimha, made a passionate appeal to the private sector to save Zim-Asset from floundering.
“The private sector should be the driver (of Zim-Asset).We now say come and walk with us. The private sector must carry government. That’s what we want from you. This is a challenge to you. Let’s find ways of working together. We want you to help us. You have no choice but to participate. Capitalise on this opportunity emanating from the policy environment,” he said while addressing participants at a Retailers and Suppliers Conference organised by Buy Zimbabwe in the capital.
The desperation in government is understandable.
Government’s revenue base has seriously shrunk considerably, thus giving the Zimbabwe Revenue Authority severe headaches in trying to fund government operations.
The manufacturing sector, which contributed about 26,9 percent to the economy annually at its peak in 1992, is now a shadow of its former self, with contributions averaging 11,7 percent between 2009 and 2014.
Industrial capacity utilisation shrunk from 35,8 percent in 2005 to only 18,9 percent in 2007 and below 10 percent in 2008 before improving to 33 percent in 2009; 43,7 percent in 2010; 57,2 percent in 2011; and climbing down to 44,2 percent in 2012 and 39,6 percent in 2013, 36,3 percent in 2014: and 34,3 percent last year.
The country has also been running structural current account deficits.
These, along with weak capital inflows, have led to a steady drain of the greenback out of the country.
The country last year recorded US$3,4 billion in exports against imports of US$6,3 billion, resulting in a trade deficit of US$2,9 billion compared to US$2,7 billion in 2014.
This reflects the country’s over-dependence on imports.
The huge import bill is also fuelled by the continued depreciation of regional currencies against the firming United States dollar, undermining the competitiveness of Zimbabwe’s exports.
Zimbabwe has been using the greenback as its achor currency since 2009.
The country has also been struggling to generate half of the national electricity demand, which is estimated at 1 600 megawatts (MW).
To bridge the deficit, the southern African nation has been importing from Eskom of South Africa and Hydro Cahora Bassa of Mozambique.
It has also been procuring 100MW from the controversial diesel generators at Dema Power Plant.
With elections about 18 months away, ZANU-PF knows that it would be difficult to find voters who can accept its perpetual excuses.
In 2008, the party had to hide behind sanctions imposed by the European Union and the West for the poor economic performance.
Going in the 2013 polls, the party couldn’t continue to hide behind sanctions, lest voters could have cast their ballots in favour of the opposition, which was claiming to have the keys to unlock the sanctions.
Zim-Asset did the trick for ZANU-PF in that poll, but it has now turned out to be a major headache since none of its objectives have been met.
This week, analysts said the private sector, which is a vital cog in the Zim-Asset equation, clearly has no capacity to pull it off.
Instead of Bimha and his colleagues in government blaming it on the private sector, analysts said they should work towards creating a conducive environment for business to thrive.
“I think the private sector cannot assist government. They don’t have capacity to partner government. Remember Zim-Asset has a funding requirement of US$27 billion. I don’t think the private sector can contribute towards that. I don’t think government has done enough to create a conducive environment for business to grow. Obviously government is trying, but not doing enough. You find that many companies are closing shop because the environment remains problematic. That also explains why foreign direct investment is going down,” said Prosper Chitambara, an economist with the Labour and Economic Development Research Institute of Zimbabwe.
Economist, John Robertson, said Zim-Asset has failed.
“If only Zim-Asset were a blueprint! It is a wish-list and the wishes expressed in the list have not come true. The fact that the wishes are mostly for things that the country needs is not enough to make the wishes come true. Even wishes have to be built on a good foundation,” he said.
Robertson added that development, as a process, is best achieved by establishing a firm foundation upon which any business venture can be built on.
While Zimbabwe once had perhaps the best development foundation when it attained independence in 1980, this was no longer the case.
“Private investors injected all the capital needed, regulations were reasonable and all these contributed to confidence,” said Robertson, reflecting on the years gone by.
“The strong confidence generated such powerful commitment that all the profits were reinvested here, not sent to the colonial powers, as had happened almost everywhere else in the world,” Roberson noted.
“….. Government started adding to controls, regulations and demands, which displaced or replaced all the foundations. Today, whatever anyone wants to do, they first need government’s permission. But even when permission is granted, the business prospects remain very unattractive to all investors because the whole foundation has been broken into rubble. Because the foundations have all come under government attack, the very large economy that used to sit comfortably on that foundation has collapsed,” said Robertson.
All Zim-Asset assumptions are currently upside down.
The blueprint had assumed that there would be increased investment in infrastructure such as energy and power development, roads, rail, aviation, telecommunication, water and sanitation, through acceleration in the implementation of Public Private Partnerships and other private sector driven initiatives.
Zimbabwe’s infrastructure is crumbling following decades of under investment. Government, which has been the principal funder of infrastructure projects in the country, is struggling to raise finance for new developments, with some failing to take off completely while work in progress has taken longer to complete.
While the importance of the infrastructure in achieving economic growth and poverty reduction is well-established, raising debt and equity capital for infrastructure development and service provision has been a challenge for Zimbabwe.
Vice president of the Confederation of Zimbabwe Industries, Sifelani Jabangwe, indicated that government has not done enough to promote Zim-Asset.
“It’s (environment) not perfect. That’s work in progress. We continue to lobby government after we successfully lobbied for the Statutory Instrument 64. But there are a lot of anomalies in terms of ease of doing business such as the cost of finance, non availability of funding, cost of labour and regulations. Remember we are competing with the region. Our product will remain uncompetitive if these anomalies are not addressed,” said Jabangwe.