The Sunday Mail
Persistence Gwanyanya
For Zimbabwe, 2017 was an eventful year both politically and economically. Factional fights in the ruling Zanu-PF ended up with the resignation of the former President Robert Mugabe and his replacement by former deputy, Emmerson Mnangagwa.
It was disheartening that as factional wrangles unravelled, the economy and, therefore, the ordinary citizens suffered the most.
It’s therefore unsurprising that the Zimbabwe Defence Forces (ZDF) had to intervene to resolve this deteriorating political situation. A number of top ZDF officials including General Constantino Chiwenga (Retired), traded their military fatigues for politics, in a move expected by many to bring order and economic prosperity due to their strict adherence to the orders.
After announcing his resolve to ensure credible, free and fair elections, President Mnangagwa has no option but to ensure that the new Government delivers in the eight or so months before the next election.
Probably this is why he has introduced performance targets to his new Cabinet under the 100-days programme. Whilst there is not much that can be done in 100 days, it is important to instil a culture of service in our leaders, which is necessary to sustain the confidence already built around the new Government.
Unlike what many think, no economic turnaround can be achieved overnight especially for a country that underwent economic challenges for the last two decades or so.
As such, citizens are better advised not to expect miracles from the new administration in the short term. The cash crisis cannot be solved overnight, in the next 100 days or even the next eight months. Similarly, the employment problems will also take a couple of years to address.
The cash shortages, itself a reflection of serious underlying economic challenges, was at the epicentre of difficulties faced in the country this year.
Cash shortages can be traced to the unbalanced state of our economy typified by high levels of consumption which is not supported by production. This has resulted in unsustainable import levels as exports have continued to under perform. With this state of the economy, cash challenges will be difficult to address under dollarisation.
This brings us to a serious debate on the currency solution in Zimbabwe. Clearly, whilst the multiple currency system was an effective stabilisation tool, mainly to deal with hyperinflation, it may not be the best to support an economic growth phase.
But we hear a lot of analysts, including policy makers, argue that abandoning the multiple currency system is not feasible now as certain conditions have to be met first. This is a totally wrong approach as these conditions, especially those prescribed by RBZ, would be difficult to meet in our lifetime.
The best approach would be to take a forward view of the country by banking on its potential to generate the much needed foreign currency reserves to support the reintroduction of a local currency. This could be achieved through forward selling of our commodities mainly tobacco, gold, diamonds and chrome for substantial amounts of foreign currency to rebuild our productive capacity as well as forex reserves.
But its high debt level, it would be difficult for Zimbabwe to find an immediate solution to the currency puzzle because with a debt of US$13,5 billion or 75 percent, of GDP as at September 30, 2017, its going to be very difficult for Zimbabwe to borrow itself out of its challenges.
As it stands, Zimbabwe has already breached the statutory borrowing limit of 70 percent of GDP and should reduce, rather than increase borrowings. This underscores the need for private sector driven growth. Key infrastructure and social goods that are normally provided by Government should increasingly be considered under Public Private Partnerships (PPPs) and Build Operate and Transfer (BOT) structures.
However, given the challenges faced in the past where such deals — the Ziscosteel and Harare-Beitbridge road dualisation as an example — have either failed to materials or took long to be sealed, it is unfathomable that any significant benefits would accrue from these in the future.
As such there is need for oversight of public transactions by top Government officials. The notion of increased private sector participation makes sense in light of the disproportionate levels of Government expenditures.
However, reducing Government expenditure is very difficult to achieve in the absence of political will. Thus, the commitment by the new administration to implement an array of fiscal austerity measures announced by the Minister of Finance in his 2018 Budget Statement would be important. This is important at a time when Government revenues are under performing due to production and productivity challenges.
Fiscal consolidation would be anchored on parastatal reforms particularly when State entities made a combined loss of $270 million in 2016. Seventy percent of the parastatals are said to be technically insolvent.
Sadly, a number of these enterprises have been in line for privatisation since 1991, with between little and no action taken to effect this. Hopefully, the new administration would prioritise this imperative as well as other mooted reforms otherwise the target to reduce the budget deficit from the current estimate of 10, to 3 percent of GDP as well as to live within the statutory debt levels, will remain unachievable.
If left unchecked, excessive Government expenditure is a major threat to price stability. The September 22 prices debacle, which saw prices of some products increase by up to 100 percent, reminds us of the potential danger of hyperinflation.
Now, the underlying risk of inflation has remained high due to forex challenges at a time when the country imports more than 65 percent of its goods and services.
In the absence of access to USD capital markets, it will remain very difficult to make foreign payments. At the same time, over reliance on Afreximbank for forex support would be unsustainable due to the bank’s high level of exposure to Zimbabwe.
Clearly Zimbabwe needs increased capital flows to rebuild its productive capacity. But the high political risk tag has been the major drawback in attracting foreign capital and portfolio investments. It will take a lot of image cleansing to convince the international world that Zimbabwe is a safe investment destination. That is why the amendment to the Indigenisation and Economic Empowerment Act, in a manner that will see the 51/49 percent threshold only applying to the diamond and platinum sub sectors, a great move.
This, coupled with the resolve to compensate victims of breached commercial agreements including the BIPPAS, is testimony for readiness of the country to engage the international community. Admittedly, addressing Zimbabwe’s economic challenges will take time due to deep-seated structural challenges. There is need to ride on the confidence that has developed since the new administration got into office.
It will be difficult to increase Government revenues in the short term due to productivity challenges. Long-term recovery should be evolutionary, and the country should evolve from political dominance to more emphasis on economics, from agriculture to agri businesses, from primary commodities to manufactured goods, from State invention to increased private sector participation and from protectionism to free enterprise.
Without doubt, this calls on every one to summon a new spirit of sacrifice and hard work, noting that we control our destiny.
Have a prosperous New Year.
Persistence Gwanyanya is the founder and futurist of Percycon Global Fund Managers (SA). The company specialises in arranging sovereign finance facilities mainly for governments and central banks in Africa. Feedback: [email protected] <mailto:[email protected]> or WhatsApp +263773030691
