Unpacking Zim Asset

Economic Focus Butler Tambo
SINCE 1980, Zimbabwe, for all its educated populace and work force has been good at producing economic blueprints but it has been a failure when it comes to the implementation of such.
This can be seen by the litany of economic policies crafted since independence that have taken on different shades and acronyms, most of them launched with much pomp and fanfare, but dying a natural death a few months or years before they have attained the goals to which they were postulated to achieve. These include the following:

• Transitional National Development Plan (TNDP) Volumes 1 and 2 (1982-1990)
• The Economic Structural Adjustment Programme (Esap) (1990-1995);
• The 1998 Zimbabwe Programme for Economic and Social Transformation (Zimprest)
• Vision 2020;
• The Millennium Economic Reform Plan (MERP)
• The 6 point plan;
• The 2003 National Economic Revival Plan (NERP)
• The Government of National Unity’s Short-Term Emergency Recovery Programme (STERP) 1 and 2;
• The Medium Term Plan (MTP) (January 2010-December 2015)

The latest economic blueprint termed Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset) in which the Government maps out its strategy for the five years (2013-2018) has been hailed by many as the panacea to the nation’s economic predicament.

The blueprint’s noble objectives are to achieve sustainable development and social equity anchored on indigenisation, empowerment and employment creation which will be largely driven by the prudent exploitation of the country’s abundant natural and human resources.

The economic strategy is built on four clusters namely; Food Security and Nutrition, Social Services and Poverty Eradication, Infrastructure and Utilities, and Value Addition and Beneficiation.

This analysis will take a macro-economic view to analysing a policy that is; it will look at Zim Asset in light of such objectives as employment creation, poverty reduction/eradication, inflation targeting, economic growth and the narrowing of the gap between the rich and the poor that is ending inequality in society.

Key Assumptions of Zim Asset
The document starts off with giving the following broad assumptions which will anchor the growth of the economy during the period 2013-2018:
i. Improved liquidity and access to credit by key sectors of the economy such as agriculture;
ii. Establishment of a Sovereign Wealth Fund;
iii. Improved revenue collection from key sectors of the economy such as mining;
iv. Increased investment in infrastructure such as energy and power development, roads, rail, aviation, telecommunication, water and sanitation, through acceleration in the implementation of Public Private Partnerships (PPPs) and other private sector driven initiatives;
v. Increased Foreign Direct Investment (FDI);
vi. Establishment of Special Economic Zones;
vii. Continued use of the multi-currency system;
viii. Effective implementation of Value Addition policies and strategies;
ix. Improved electricity and water supply.

Having made these assumptions, it becomes imperative to weigh them against the reality on the ground and the economic performance of most sectors in Zimbabwe at present and see whether Zim Asset stands a chance to rebuild Zimbabwe’s economy that promised much at independence in 1980.

Economic Growth
In order to be able to assess Zimbabwe’s growth path, a careful analysis of global trends needs to be looked at especially in light of Zim Asset success being pinned to developments in such economies as Brazil, Russia, India, China and South Africa, the grouping known as the BRICS.

Global Economic Growth Forecasts
In 2013, the global economy grew by 2,9 percent, from 3,2 percent recorded in 2012. The decline reflected economic slowdown spreading to major emerging economies, in particular China, Russia, India and Mexico, which were previously resilient to the global economic crisis.
The weakening growth in emerging economies, which had become Sub-Saharan Africa’s new major economic partners such as India, China and Brazil, had a profound negative impact on the region’s growth prospects in 2013 and beyond.

Zimbabwe’s growth prospects in 2013 were undermined mostly by subdued commodity prices, particularly for minerals.
In addition, Zimbabwe’s external position suffered through reduced capital inflows such as Foreign Direct Investment, diaspora remittances, export proceeds and official development assistance from both developed and fast emerging economies.

In the outlook, global economic growth was projected to strengthen moderately to record 3,6 percent in 2014, from an initial projection of 3,8 percent.

Zimbabwe’s Economic Performance
The country remains saddled with the following attendant challenges among others:

• A severe and persistent liquidity crunch which has made it very difficult for local productive sectors to access sufficient credit to oil the wheels of our economy
• Lack of competitiveness of locally produced goods due to high costs of production resulting in the huge importation of finished goods, hence the widening current account deficit;
• Infrastructure bottlenecks especially around key economic enablers such as energy, transport, communication. These bottlenecks have eroded viability and competitiveness of local producers in key economic sectors; and
• Inadequate and often erratic service delivery from parastatals and local authorities.

These challenges have resulted in low industrial capacity utilisation, accentuated by widespread company closures, deterioration in the external sector position, and rising formal unemployment. Importantly, the deterioration in both domestic and external macro-economic conditions and the resultant deepening of liquidity shortages have resulted in a vicious liquidity cycle. As such, the country’s high commodity dependence has conspired with huge import absorption to drain the banking sector of the liquidity largely realised from the following key sources:

• Export earnings;
• Diaspora remittances;
• Offshore credit facilities;
• Foreign Direct Investment (FDI); and
• Portfolio investment inflows.

These negative developments have magnified liquidity shortages in the economy with increased banking sector vulnerabilities.
Because the central bank was incapacitated by the demonetisation of the local currency in 2009, it meant the bank could not perform such functions as quantitative easing (printing of money) at this juncture when the country is facing a liquidity crunch. The country therefore has to rely on fiscal policy alone for macro-economic stabilisation since the RBZ cannot produce an effective monetary policy.

Zimbabwe’s Economic Growth Projections
Zimbabwe’s Gross Domestic Product rates moved from negatives in 2008 to 5,4 percent in 2009, 11,4 percent in 2010, 11,9 percent in 2011 and 10,6 percent in 2012. But this growth has slowed. Government recorded a growth rate of 3,4 percent in 2013 down from the five postulated at the beginning of that year.

Zim Asset projected the economy to grow by 3,4 percent in 2013 and 6,1 percent in 2014 and continue on an upward growth trajectory to 9,9 percent by 2018, which translates to an aggressive average annual growth rate of 7,3 percent.

Between 2009 and 2013 the Zimbabwean economy grew by an average of seven percent per annum which was good but not surprising as the country was growing from a very low base. Now that the growth has started to wither as reflected by the continuous downward revision of the GDP growth figures by Government from 5 percent to 3,4 percent in 2013 it is clear that the country’s growth is normalising and now requires a significant amount of capital expenditure both private and State to keep the economy growing at a sustainable rate.

Against this background looking at the challenges on the ground, it is highly unlikely that we are going to see a GDP growth rate of above five annually.
For instance, the World Bank revised downwards the 2014 growth rate of 6,1 percent to 4,2 percent and it went on to downgrade the growth rate to two percent for 2014 by April of the same year and has even postulated that by 2016, the Zimbabwean economy would ground to a halt.

A GDP growth of 3,2 percent for 2015 as enunciated in the 2015 National Budget is near impossible and I believe the country can only record between 1,5 percent to 2,5 percent especially considering that industrial capacity utilisation has fallen from 57 percent in 2011 to 36 percent this year with forecast to end the year at 30 percent.

We have already failed as a country to reach our own targets of GDP growth that we enunciated under Zim Asset because the blueprint had said the economy will grow by 6,1 percent in 2013 but we only managed 3,1 percent and the blueprint had stated from 2015 onwards the economy will be growing by an average of 7,3 percent.

Because industry is not performing well as seen by these figures it then boggles the mind how the economy will grow by 3,2 percent in 2015 as I forecast that the GDP will not be anything more than 2,5 percent.

Industry is poorly performing because of such things as a tight liquidity crunch which has made borrowing near impossible as interest rates for those who can access loans are prohibitive and short term therefore rendering Zimbabwean made products uncompetitive in regional markets therefore also affecting the levels of exports that the country can do as our products become too expensive. Antiquated equipment in industry has also made our goods of an inferior quality as compared to the regional products because for a large variety of reasons, Zimbabwean companies have never been able to retool since the Unilateral Declaration of Independence (UDI) days. As a result, industry in Zimbabwe operates perpetually on a survival mode making do with obsolete technology and sometimes trying very hard to innovate around that obsolete technology.

• To be continued

Butler Tambo is a Policy Analyst and can be contacted on [email protected]