Reforms, capital urgently needed

via Reforms, capital urgently needed October 2, 2015

THE latest Global Competitiveness Index (GCI) report compiled by the World Economic Forum shows Zimbabwe declined one place to 125th out of 140 countries. In the 2015/16 report published on Wednesday, Zimbabwe is ranked 15 from the bottom — the lowest since 2012/13 when it was 12 places from the base.

The Zimbabwe Independent Comment

The country’s overall score of 3,45 (out of 7) is marginally lower than 3,54 in 2014. Because both the number and the selection of countries ranked varies yearly, a more meaningful comparison is one with the country’s overall score out of a possible seven on the index.

The GCI score is the second highest Zimbabwe recorded since the revised index was first published in 2005, an improvement of 28% on its record low of 2,77.

According to the report, the most problematic factors in doing business in Zimbabwe include access to finance which remains far and away the main challenge, followed by policy instability and restrictive labour regulations. The report was done before the July 17 Supreme Court ruling on labour retrenchments described by the International Monetary Fund (IMF) as labour market liberalisation.

While government has come up with a raft of reform measures to address the ease of doing, the reality is that the changes are demonstrably inadequate to incentivise investors to bring in new capital to spur economic recovery, as we stated here last week.

It’s a case of too little too late; the measures do not go deep and wide enough to deal with embedded structural issues and bottlenecks gripping the economy.

In other words, the reforms are not in time to be effective and thus inadequate as a remedy, especially if the toxic indigenisation policy remains.

As the report says, with a 45% overvalued exchange rate and without monetary sovereignty, Zimbabwe is going to find it very difficult to ensure economic recovery and growth, especially given the make-up of its export portfolio at a time of depressed commodity prices in the global markets.

As if to emphasise our editorial last week, the GCI report says: “The belief that growth will be re-ignited by foreign direct investment, diaspora inflows and offshore credit lines alone is naïve. It is clear from the report that the country needs far-reaching structural and institutional reforms, allied with much higher levels of investment, especially in infrastructure, than in the last 25 years. This is not quick-fix territory, but structural reform and transformation.”

We have been saying this week in week out. The GCI report actually says as much. As noted last week, Zimbabwe’s weak long-running economic performance and the current implosion will not be reversed by tinkering or minor policy changes.

Piecemeal reforms like the ones government has come up with will not change much. Necessary reforms are much more profound and structural than currently contemplated by the government or even the IMF, both of whom are focusing on narrowly technical, short-run changes that fall far short of what is needed, as the report further observes.

The current policy focus on foreign capital only to “rescue” the economy is misdirected. Zimbabwe needs sweeping fundamental reforms, not just capital inflows and fiddling in a desultory way.