Economy: We’re in real trouble | The Herald

via Economy: We’re in real trouble | The Herald November 19, 2013 by Happiness Zengeni & Golden Sibanda

WHILE some sections in this country might hail the country’s low inflation as a good thing, since they have obviously seen it in the high millions, the reality is the downward spiral in the rate is a sign of a weak economy.

According to figures from ZimStats, the annual inflation for October shed 0,28 percentage points to 0,59 percent from 0,86 percent  in September as prices have not increased at the same pace as last year owing largely to weak aggregate demand and the continuous slide of the South African rand against the United States dollar.

Prices of basic goods and services have generally remained stable owing to lack of room for retailers to raise prices because disposable incomes are not growing due to the economy’s illiquidity. The economy is now characterised by stagnant salaries and wages with minimal adjustments being made as this will leave less money for working capital for companies.

Annual inflation stood at 2,51 percent in January this year. At the rate at which annual inflation is dropping economic analysts fear the country could be heading into deflation, which is a sign of stunted economic growth and falling prices.

There will be massive price cuts to reach sales targets by major retailers and this will result in a technical fall in inflation and there are fears we may hit negative territory by end of January.

Deflation is undesirable since it may further sterilise already fragile productive capacity. Investment may also fall, leading to further reductions in aggregate demand.

For Zimbabwe this is least desirable due to ever falling consumer spending power, which means less incentive for industrial production due to weak demand for its output.

Generally, textbook answers to falling aggregate demand would be a stimulus either from the central bank, by expanding money supply or by the fiscal authority to increase demand, and for industry to borrow at interest rates below those available to private sector.

But Zimbabwe finds itself in a Catch-22 situation with Treasury and the Reserve Bank of Zimbabwe currently incapacitated to influence money supply and banks’ lending rates.

In response to lack of funding, firms have tried to suppress costs by reducing the head count while others have completely closed shop due to the economic challenges.

This has resulted in the number of people with disposable incomes dropping. For those that still spend, low wages have suppressed the latitude of their potential to buy. This is, however, not to imply galloping inflation would be a desirable situation. Under normal economic conditions annual inflation below 5 percent is considered tolerable. This assumes conditions where there is production and adequate money supply.

Harare-based economic analyst Dr John Robertson said the annual inflation has continued trending downward since January this year on weak consumer spending. The weak demand is due to constrained consumer spending capacity in an illiquid economy where retailers have been forced to hold down prices and in the process forfeit profits.

He said Zimbabwe was in a period of disinflation, which in itself was not an encouraging development because by holding down prices amid increasing costs due to rising wage costs retailers were sacrificing profitability.

“It is not a good sign. Demand is shrinking because the buying power of Zimbabweans is shrinking because of lack of jobs due to company closures. This has forced supermarkets and retailers into holding down prices … forfeiting profits even though costs have been going up, which means there will be less money for investment. There will be no new jobs; investment is where new jobs come from,” Dr Robertson said

Government needed to craft policies that boost investor confidence to allow fresh inflows of capital that will boost economic activity and job creation. He also called on Government to invest in and address factors constraining agricultural productivity, which supplies most raw materials to the manufacturing sector, he added.

Shortage of raw materials due to constrained industrial and agricultural production and productivity has conspired to inflate Zimbabwe’s import bill. This has worsened domestic liquidity as the little available funds are siphoned out of the economy.

University of Zimbabwe economics lecturer Professor Tony Hawkins said the country risked falling into deflation, which is an undesirable element of an economic cycle. “I do not think it is a good thing. Countries such as the US get worried when the rate of (annual) inflation gets closer to 1 percent. It is a sign of a weak economy,” he said.

Professor Hawkins said the trend regarding the decline in the annual rate of inflation was a result of tight liquidity and a high unemployment rate, hence poor demand. He also said the tight liquidity in the economy has been reflected in marginal growth in bank deposits and worsening balance of payments, resulting in tight liquidity.

A weakening South African rand has meant imports from Zimbabwe’s southern neighbour have become even cheaper with less of the greenback required to buy import. Zimbabwe imports 60 percent of the basic commodities it consumes from South Africa.

 

COMMENTS

WORDPRESS: 24
  • comment-avatar
    Boss MyAss 8 years ago

    THE TRUTH MUST BE SAID

  • comment-avatar
    Washumba 8 years ago

    Well

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    Mr Mixed Race 8 years ago

    We are in a CATCH- 22 SITUATION.

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    The country is f*cked! Thanks Mugabe! This is the attainment of your vision that society exists solely to ensure that ZANU-PF stays in power, and for no other purpose.

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    Nyoni 8 years ago

    My concern still is why is Zanu not utilising the economic experts in our country and outside to resolve our crisis. WHAT IS THE PROBLEM. Like others do they truly want to see Zimbabwe move forward? Namibia is moving forward. It is now obvious that the mentality of people is different than others. If Zanu was so committed to Pan-Africanism they have failed miserably.

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      Mabasa 8 years ago

      Nyoni you not serious about that Are yOu? what economic expert from abroad can solve a political problem like investor confidence? Can a consultant tell Mugabe to step down or stop cursing the West at UN. Zimbabwe must remove the uninvestor friendly Zanu from power NOne but ourselves can free save our country. VOTE Weshman Ncube for president!!!

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    Diego Zhaba 8 years ago

    We have experts across the globe who for long have been willing to give a hand to extricate their country from this economic mess. Dealing with a ZANU PF government is like dealing “nemapere.” They remain clueless and now there is clear evidence of confusion and panic. “Takavhota, tikaisa bhora mugedhi,” and we are repaying for that.

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    Tony Pajamas 8 years ago

    Too bad Mugarbage will long gone dead and buried when Zimbabwe finally falls into the abys……..leaving the people to pick up the pieces.

  • comment-avatar
    die groot wit aap 8 years ago

    If you’re starving and don’t have a job, you can thank a wovit, and Comrade Bob

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    Sekuru Mapenga 8 years ago

    That we should read such an accurate assessment of the economy in the Herald is a surprise. The Herald has long been devoted to saying that everything is wonderful, thanks to the wise leadership on Mr Mugabe.
    But this is the truth. The economy is very sick. There is no demand. People have no money. Lowering prices will damage the little productive sector we have left.
    We have lived through hyper-inflation. Now it looks like we will have hyper-deflation.
    Why did Zanu PF trash the unity government at every single step of the way, as if only they can rule. Now look where we are.

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    Well done sekuru mapenga. Deflation is less common in economics but actually more devastating than hyperinflation. 1930 style depression. Wow. Here ride the twelve horseman of zanupf criminality

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    Our economy has been reduced to a wreck,thanks to zpf. For how long shall the whole nation be held hostage by this oldman and his cronies? Zpf has destroyed every little hope we had of living at least a nomal life. No drugs and water in hospitals,no teaching and learning materials in schools,delapidated roads,which we inherited in perfect condtn at independence,lack of investment in infrastructure devpt,90% unemployment rate,dry taps in majority of cities and towns,companies closing down enmass,chinese looting diamonds and ivory,re-surfacing of the dreaded 5km long and winding bank queues(for your own $),this sums up the reality of life in my beloved motherland)
    Im bored for years…

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    Dzenyika 8 years ago

    STRIVE MASIYIWA should be the next president of Zimbabwe. He fits the calibre of politician we (and other African nations) need – someone who wouldn’t be poor if he no longer received a politically backed salary and political favours, isn’t a war veteran (so doesn’t feel the country owes him for risking his life to free it) and has something to offer from building his own successful enterprise.

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    Mr Mixed Race 8 years ago

    I know Strive,he is not a fool to risk having his property destroyed by your brainwashed children.Things do not happen in a vacuum,its us parents who have allowed these school dropouts to cause terrible suffering within our societies.Thanks I come from a region with proper discipline ie Mat. Region of Zimbabwe.

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      Mwanawevhu 8 years ago

      No.We need a woman this time around. Any woman please because we have had enough of these good for nothing Billy goats.

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    Dayford 8 years ago

    There will no solution to the economic problems we face until Zanu leaves office. They have systematically destroyed our country bringing it down to its knees over the last 33 years. We thank them for the political liberation but unfortunately they do not know how to run the country. It would have been wise for them to contineu with GNU on revised terms and evidenced by the brief existence of GNU, the economy was beginning to recover and with it …Confidence which is key to any economy in trouble. How unfortunate..the discovery of diamonds at Chiyadzwa were a blessing for Zim but equally a curse which has enabled Zanu to prevail and abuse the resourse for their personal gains. They have made themselves filthy rich today at the expense of the masses.

  • comment-avatar
    Dayford 8 years ago

    Yes we are not just in trouble…we are in Deep Trouble. God help us!!

  • comment-avatar
    chilimanzi 8 years ago

    elections free and fair so why cant they help their friend i….s

  • comment-avatar
    William Zambezi 8 years ago

    The solution is there to every problem or challenge, go to http://www.zunde.org and together we transform our nice country than being cry babies day in, day out.

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    masvukupete 8 years ago

    I have commented so many times that the GNU was the best thing that happened to our country and so many people shot me straight into the heart calling me a confused idiot. A system of power needs checks and balances in order to function properly. Our judiciary is but a puppet of politics rather than law. The law should be interpreted as it is written even if wrongfully written. Our police force is a gang of bandits who only see evil when against Zanu. Our army…. well Nyikayaramba is a a lot of proof. We need political opposition in order to give this ZPF lot a scrutinizing eye and voice. The GNU brought 7% growth to our economy for 4 year until election time came. The GNU gave finality to land. The GNU gave us a new constitution. To me those are the bases for any country. All other subsequent governments can work from there to higher grounds. As it stands ZPF does not have a clue, “we need wider consultation before announcing the budget”. What if the consultations tell them to give land back to the whites? They came up with a blueprint and manifesto and told us that it will be the Moses to our problems, so why consult if it was such foolproof. This shows a lot of disrespect of your own citizens. Why not implement as you said and move the country forward. Confused bunch of people I tell u. Now they are “consulting” so that they can come up with a new position. Flip floppers of the worst kind. They do not know which way to go, their own manifesto or some other (MDC’s maybe LOL.) There is no need for consultation use both MDC and ZPF manifestos and come up with a single strategy, that is how good managers operate. But then again ZPF does not have any good managers. Most of them a failed businessman, Kasukuwere (remember UTC is now nonexistent, COMOIL). They are totally clueless when it comes to management these people. They had to hire the Chinese kuzungura madiamonds instead of managing it themselves. Now that the diamonds are getting deeper even the Chinese are becoming clueless.

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    moyokumusha 8 years ago

    Pre 2000 – 70% of zim industry relied on the agricultural sector. 25% of South Africa’s economy relied in Zim. Look at the Zim economy now and the falling rand. Solution is BRING BACK THE COMMERCIAL FARMERS as simple as that. 2 years and we will be the bread basket ( and envy ) of Africa.

  • comment-avatar
    Zombi 8 years ago

    The time to take to the streets is nigh! Alas, Zimbabweans are so patient

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    Hisexcellency 8 years ago

    The main problem is that no one trusts them and they have to move more openly and make firm commitments in public on many issues that they have previously vigorously denied or declared that they would never countenance. How does Zanu PF do a U turn on indigenisation or the role of white farmers in our crippled agricultural system; can they put the economy back on its feet if they do not do so – no one thinks that they can. So Ministers are stuck between a proverbial hard rock and the deep blue sea and most of them cannot swim.

    Nothing reveals the hard realities that the new regime faces than the question of corruption. In his opening speech to the 8th Parliament the President had attacked corruption and promised that it would be dealt with. The harsh reality is that no single Zanu PF leader of any stature could stand up to an audit of their assets and sources of the income that supports their lavish lifestyles. This exercise would have to be extended to senior Civil Servants and many senior Army Officers and other members of the security services.

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    Can noone say it. The people in power are frigging useless period. Got it now or do we need to spell it out frigggging useless.