via Tough decisions needed to avert economic collapse | The Zimbabwean 13 August 2014
The 2014 economic growth projections have almost all failed to materialise. If what we are doing is not working, we need to sit down and ask ourselves what we are doing wrong and then put that right without delay writes EDDIE CROSS.
At the opening of the year, the Ministry of Finance forecast growth of 6 per cent with 4 per cent inflation. Since then we have seen the country slip into deflation with prices declining by about 1 per cent. More ominously, the VAT collections by the ministry have declined by about 7 per cent below budget. This reflects lower consumer spending, which normally signals a down turn in the wider economy.
There are a number of indications of economic stress – bank failures, declines in sales of primary consumer goods and reports of company failures. Employment levels continue to decline and formal sector employment may have now fallen to 500,000, half of which is in the Civil Service.
In his outlook for 2014, the Finance Minister Patrick Chinamasa highlighted growth in agriculture and mining and some recovery in industry and commerce as well as tourism. The reality is that these growth projections have almost all failed to materialise and I think that there is almost no doubt in my mind that the GDP will decline in 2014 after growth from 2009 to 2013.
The combination of deflation (prices declining) and negative growth in the GDP is creating serious problems for all sectors of the productive sector. The impact is especially severe in industry and commerce and if nothing happens to halt the decline in the near future we can expect bank and company closures to continue. These closures are mostly irreversible and the long-term impact on the wider economy will be severe.
In agriculture the government points to the rapid rise in tobacco production with sales in 2014 reaching the 200,000 tonne barrier. However 70 per cent of growers failed to pay back their loans and financing in the coming season will decline by about 30 per cent as companies seek to limit their exposure to unsecured debt. Coupled with further attacks on commercial farmers this will further influence the forthcoming crop and it is likely that tobacco output will decline in 2015.
Cotton production fell dramatically in 2014 but might rise in 2015 if farmers respond to higher prices in 2014 and financing is available for crop plantings. All other crops are unlikely to see any changes and Zimbabwe will remain an importer of basic grains – maize, wheat, rice. Imports of soybeans and other agricultural products including milk and milk based products will continue at present levels.
ESSAR deal off
Growth in 2015 relies almost completely on halting the decline in industry and commerce and expanding investment and output in mining and tourism. It seems clear to me now that the major investment by ESSAR in Zisco and associated mining and industrial activities is now unlikely to take place.
The main reason for this is the time taken between the signing of the deal in 2010 and the clearance of all the obstacles in 2014 and the associated down turn in global market prices for steel and iron ore. It may well be related to the financial problems of ESSAR itself in many other countries where they operate.
Many new investments in the mining industry are on the books – platinum, gold, nickel and chrome, but the problem of securing the funding for these major investments is proving to be almost insurmountable. Major companies that are already invested and could expand their operations significantly, if conditions were right, point to continuing threats to the security of their rights and problems with power supplies as being the primary constraints.
In the tourism sector the reality is that we remain a minnow in the region. Botswana receives aver 1,2 million foreign tourists a year – six times the number visiting Zimbabwe. The duration of stay remains very low with the principle destination being the Victoria Falls. It is difficult to see any real prospects for significant growth in this sector even though the potential is significant.
So where does that leave us, I have not done any sort of analysis using the weighting of each sector in the GDP but I simply cannot see any reasons as to why we should expect 2015 to be any better or worse than 2014. If what we are doing is not working, we need to sit down and ask ourselves what we are doing wrong and then put that right without delay.
I would list the following issues as the main issues needing our attention:
Indigenisation: We need to ask ourselves – has this policy stimulated or suppressed investment? I think the answer is self-evident; no other factor has done more damage to our performance as a destination for new investment than this policy. It’s time to scrap the policy and look at other ways to empower our people.
Insecure Tenure over Assets: The wholesale eviction of white, indigenous Zimbabwean farmers from their farms and homes without compensation, often by force and in defiance of Court orders represents one of the most serious violations of tenure rights over property in the history of Africa.
No matter how we dress it up, when coupled to similar violations of rights over mineral claims and even operational mining property, it is taken as representing the state’s disregard for property rights. These are fundamental to investment and until they are restored and protected, we cannot expect significant investment, especially by our own citizens.
Citizenship and Residential Rights: Despite the fact that our new Constitution gives automatic rights to all who were born here, we continue to deny them their fundamental rights – the right to an ID and a birth certificate, the right to vote and the right to a valid passport. Discrimination is now banned by law yet we continue to discriminate on the basis of colour and tribe.
The rule of Law and equality before the law: Our Judiciary is compromised, makes judgments on a political basis and is open to influence. Business and private citizens no longer have any confidence in their ability to secure justice from our court system when their rights are violated or contracts voided.
International Recognition: We operate in a globalised world where even the biggest operators, China and the USA, must abide by the rules or suffer. As a small marginalized country, Zimbabwe has to have normal diplomatic and economic relations with the rest of the world.
All of these matters need a coordinated response and attention. The guide that we should follow is the adage by the Chinese leader Deng; “Does it catch mice?” Time is not on our side and as a nation we simply cannot delay these decisions any longer.