via Economy biggest loser at congress December 5, 2014
THE economy is set to emerge as the biggest casualty at the ongoing Zanu PF congress as ambitious hopefuls jostle to succeed ageing President Robert Mugabe and survive politically while neglecting the state of the country in terms of production and consumption, as well as its financial position.
After romping to a landslide victory in the controversial general elections last year, Mugabe has not taken time to properly manage available resources and address multifaceted economic problems buffeting the economy. This has left the country on the skids again.
In his budget presentation last week, Finance minister Patrick Chinamasa painted a gloomy picture of the economic situation, saying government was in a serious fiscal crisis as companies continue to close down and people lose jobs at an alarming rate. Resultantly, government revenues are further dwindling, pushing it towards bankruptcy.
In terms of company closures and job losses, statistics presented by Chinamasa last week show the tourism sector was the hardest hit, with 2 142 firms shutting down since 2011 with 18 413 jobs lost as a result. In the manufacturing sector, 458 companies closed with 9 978 jobs lost.
The construction sector was not spared with 317 companies closing shop resulting in the loss of 3 651 jobs, while 368 companies in the agricultural sector closed down affecting 5 465 jobs.
In total, more than 4 600 companies have shut down since 2011 resulting in the loss of more than 55 400 jobs. Latest figures — see businessdigest — show the situation is getting worse.
Chinamasa attributed the company closures to a number of economic bottlenecks such as the liquidity crunch and lack of credit, obsolete equipment, low aggregate demand, cheap imports and non-performing loans surging towards US$1 billion.
Of the total US$4,1 billion budget, he said US$3,7 billion will be spent on recurrent expenditures, meaning an insignificant amount would remain for crucial development projects and service delivery in a country reeling from collapsed infrastructure and poor service delivery. This effectively crowds out crucial capital projects, retarding critical development.
Official projections for 2015 point to a balance-of-payments deficit on current account of US$3,4 billion (23% of GDP) to be financed from capital inflows of US$2,9 billion, pushing the debt ratio to 106% of GDP. This is worsened by the US$10 billion debt overhang.
While the International Monetary Fund (IMF) in January approved a six-month extension of the now renewed Zimbabwe’s Staff Monitored Programme (SMP) to allow time for authorities to strengthen their policies and deliver on outstanding commitments under the programme, Mugabe and his ministers have not been focusing on the economy even though they met some of the benchmarks.
On the bigger picture, Mugabe has hardly been concerned with the economy. The IMF actually seems more concerned with the economy while Mugabe and his ministers have been focusing on the internal power struggle and succession battle.
Chinamasa’s trips to Zimbabwe’s all-weather friend, China has not yielded anything as Beijing demanded bankable projects and indicated that it was scared of Zimbabwe’s poor credit rating, political and country risk and succession problems.
Chinese leaders have reportedly demanded Mugabe must sort out his succession problems if he wants serious help and this seems to be part of the equation at the ongoing Zanu PF congress.
The Zimbabwe Independent has authoritatively reported since last year that Zanu PF party officials who went to China, including party provincial chairpersons last year before elections, and Mugabe himself in August this year, have been told to change or die.
The succession issue apparently bothers the Chinese — who have their own once-a-decade change of leadership process — a lot.
The whole of 2014 has been dominated by Zanu PF politics at the expense of the economy. Mugabe, who was on his annual leave the whole of January, barely spares a thought for the economy. Upon his return in February, he quickly began globe-trotting, abandoning the economy while spending the little the country was collecting from diminishing revenues on wasteful foreign trips.
In just a few months into the year he had crisscrossed the world from Singapore to South Africa, Dubai and Bolivia as he clocked up the miles with precious little to show for it on the economic front. All this is happening at a time when it is increasingly clear government is reeling from a fiscal crisis.
Between February and June, Vice-President Joice Mujuru and her allies like Zanu PF administration secretary Didymus Mutasa hit the early campaign trail, in a bid to consolidate was appeared like an unassailable lead ahead of the congress.
By June the succession battle was already intensifying as Mugabe attacked Information minister Jonathan Moyo, saying he is a weevil destroying the party from within. Mugabe’s wife Grace plunged headlong into the fray in August and all hell broke loose, as Zanu PF and government officials scrambled for survival in the succession battle for position and manoeuvre.
Despite an IMF warning in March the macro-economic environment would remain challenging in 2014, Mugabe and his ministers paid no attention.
“Downside risks to the outlook include the possibility of further weakening of export prices, a tightening of external financing conditions, as well as risks related to policy implementation delays,” the IMF said.
“To mitigate these risks, it is important to strengthen fiscal policy, identify potential sources of domestic and foreign financing, and address financial sector vulnerabilities.”
On top of this, instead of doing something to attract the much-needed Foreign Direct Investment through policies that improve the business environment, Mugabe’s government did not move an inch on the economy as it merely targeted investors comfortable on the extreme fringe of frontier markets.
Government has so far done nothing much to clarify and even change objectionable parts of its indigenisation laws which have led to capital flight and blocking of foreign investment. Chinamasa last week spoke indifferently about the issue although government has told the IMF it will resolve the issue decisively in March next year.
The economic rebound experienced since 2009 has ended, with economic growth decelerating during 2013 as an election year and this year in which the growth forecast was slashed from 6,1% to 3,1%.
With revenue declining and the economy expected to flatline to growth of 3,2% in 2015 after 3,1% this year, government has little room to manoeuvre.
Former finance minister Tendai Biti told the Independent this week the effects of Zanu PF infighting would felt across the economy well after congress.
“The sober and sombre reality of our situation is that one cannot rig the economy or pass a vote of no confidence in the market is now sinking in the minds of those who thought they can perform economic smoke and mirrors after manipulated elections,” Biti wrote in the Independent.
“The glaring reality too is that the political carnage of the past few months within the ruling Zanu PF will be captured in the dismal performance of the economy in 2015.
“The truth of the matter being that there is no economy which is immune to political turmoil, more appropriately in this case political cannibalism. Thus long after the tents hosting the Zanu PF congress have been dismantled the multiplier effect of the elite disjuncture of the past few months will be felt in the economy.”
When Mugabe and his allies might think all is now well after their political victory at congress, the biggest loser would be the economy as was the case after last year’s general elections.
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