I will tackle each question in turn.
In preparing this submission for the Sub-committee on Africa and Global Health Policy I am guided by a number of considerations that the private sector in Zimbabwe embrace. These are: –
- The over-riding desire for stability in terms of both the economic and political environments. A stable operating environment is conducive to business growth. The converse is true.
- A desire for economic reforms that recognize the role of the private sector as the engine for economic growth.
- The need for an investor friendly environment that encourages and makes it easy for both foreign and domestic investors to conduct business.
- Macroeconomic policy consistency and predictability.
- A stable currency and affordable cost of money.
- Access to affordable international lines of credit to enable the recapitalization and modernisation of plant and equipment for productivity and competitiveness.
- A regulatory framework that is facilitative of business and that improves the ease of doing business and makes Zimbabwe a desirable investment destination.
In concluding this preamble, I wish to state that the private sector in Zimbabwe endeavours to be apolitical. We work with any government in office regardless of its political leanings.
We offer support to ensure success of desirable policies and programs but we also offer constructive criticism to Government where we believe that policies or measures are not in the best interests of the economy.
This submission is guided by the above considerations.
QUESTION # 1
What is the state of Zimbabwe`s economy and what is the impact it is having on citizens?
- Current state of the economy from a business perspective
1.1. The Challenges
Zimbabwe’s economy is currently in distress exhibiting stress in the following areas;
- Fiscal distress with the budget deficit projected at 11.6% of GDP in fiscal year 2018. The consensus target within the SADC region is for a fiscal deficit around 3% of GDP.
- Current account imbalance with imports projected to exceed exports in fiscal year 2018.
- 80-90% of the economy is informal – reflecting high levels of unemployment in the formal sector.
- Large public debt burden standing at US$18bn and split 54% to 46% between domestic and international debt respectively.
- Currency volatility reflected in multi-tier pricing distortions in the market with significant loss of value of the local currency over the last two months.
- Rising annual inflation climbing to 20.9% as at October 2018 – the highest in the SADC region.
- Infrastructure constraints affecting road, rail, power, water and sanitation among other needs.
- Very high country risk discouraging Foreign Direct Investment. The country risk premium currently stands at over 20-25%. Only US$470m FDI inflows in 2018.
- Deteriorating standards of living for ordinary citizens as savings and earnings have lost value while costs are escalating.
1.2 The Positive Developments in the economy
- i) Rise in Manufacturing Sector capacity utilization
Expansionary fiscal measures by government have stimulated recovery in capacity utilization in the manufacturing sector from a low of around 34% three years ago to around 60% before the October 1, 2018 policy pronouncements caused a major foreign currency crisis.
The adverse impact of this rise in capacity utilization has been the “overheating” of the economy as demand for production inputs and consumer products has outstripped the economy’s capacity to generate foreign currency earnings to service the increasing appetite for foreign currency.
The above situation reflects the fact that Zimbabwe’s productive sector is highly import dependant – thus contributing to the Current Account Deficit.
- ii) Recovery in Agriculture Production
- There has been significant recovery in Agricultural production as evidenced by the following:
- A 34% increase in tobacco production from 188.6 million kilograms in 2017 to 252.5 million kilograms in 2018 (the highest output in the history of the tobacco industry in Zimbabwe-exceeding the previous peak of 238 million kilograms reached in 2000).
- A 95% increase in cotton output from 73 086 tonnes in 2017 to 142 761 tonnes in 2018.
- Zimbabwe has achieved food security through the government`s intervention in agriculture during the 2017/18 agricultural season. 1.2 million tonnes of maize are now in the country`s strategic grain reserve putting Zimbabwe in a secure position even if the current rainy season is adversely by El Nino.
iii) Mining Sector Output Growth
- Gold output has increased substantially and could end the year at 34 tonnes or 42% up on the 24 tones achieved in 2017.
- Platinum output is set to expand on the back of a new mine commissioned by Zimplats – the country’s largest platinum producer.
- Diamond output is set to reach three million carats in 2018 up 67% from the 1.8 million carats achieved in 2017.
- iv) Reform of Indigenization Laws
A major step forward implemented by the new government has been the repeal of the indigenization laws which required all businesses to have a 51% equity interest in the hands of indigenous Zimbabweans. This made Zimbabwe unattractive to foreign investors. This requirement has now been removed save for the platinum and diamond mining sectors.
- V) Closure to Land Tenure
Significant progress has been made on the contentious issue of land tenure with bankable and transferrable 99 year leases close to finalization.
Another major change has been the decision by the government discontinue the Mugabe era prohibition of leasing arrangements between white farmers who desire to lease and farm productively on farms allocated to black farmers. Joint ventures and leasing arrangements are now in place allowing a significant number of white farmers to return to farm in Zimbabwe.
1.3 Impact of Macroeconomic Developments on the Populace
- Since 2016 there has been a significant erosion in the welfare of citizens. This erosion has been transmitted through higher cost of living, erosion of value of savings and deterioration in service provision. There has been a real fear that the country was heading towards the volatility experienced in the hyperinflation period of 2007 – 2008. Foreign currency shortages have had a severe adverse impact on the availability of essential goods and services in particular, essential medical drugs, fuel and machinery spares and raw materials.
- The cumulative impact of all these developments has been to erode the quality of life of most, it not all Zimbabweans.
- Since October 2018, there has been a deterioration in macro-economic stability as parallel market rates of exchange skyrocketed leading to speculative price increases that saw prices of basic food items as well as the cost of transport and rentals soaring out of the reach of ordinary citizens whose disposable incomes have been severely reduced by inflation and increased taxation.
- The current level of trust by most citizens in public institutions is still very low given past experiences with hyperinflation ( 2007-2008) when savings were wiped out. As a consequence of this experience confidence is very fragile in Zimbabwe leading to panic and over-reactions when there is any hint of possible loss of currency value.
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