Business

Zimbabwe feels the big squeeze

2020-01-12 12:16

Already bowed by hyperinflation, power and fuel shortages, and a stagnant economy, the largely indigent country needs urgent policy shifts.

Zimbabwe’s economy may recover next year, but only if its capital city Harare speeds up reforms to attract foreign investment, the African Development Bank told City Press this week. It predicted further contraction this year after sustained economic headwinds, but with a sense of optimism after moves for a political settlement brokered by former South African president Thabo Mbeki.

former South African President Thabo Mbeki

More Zimbabweans are food-insecure this year after the World Food Programme – which has made a further appeal for $200 million (R2.8 billion) – last month said that it intended to double the number of Zimbabweans it would assist to 4.1 million. This leaves at least 3 million Zimbabweans without aid, prompting Catholic and other faith-based agencies to partly step in.

Apart from food insecurity, Zimbabwean companies and citizens in urban areas are battling electricity outages and fuel shortages. Those in rural areas have been hit by shortages of water for domestic and farming purposes due to persistent drought conditions, painting a gloomy outlook for this year’s farming season and forcing many farmers to sell their animals.

It is against this backdrop that Walter Odero, Zimbabwe country economist at the African Development Bank, told City Press this week that Zimbabwe’s economy would further contract this year.

“We are expecting a contraction of between 5% and 7% for Zimbabwe for 2020 because of challenges such as drought, the fuel crisis and foreign exchange issues. Industries require investment and we did not have investment in 2017, 2018 and 2019. Because most of the industries in Zimbabwe are agro-based, if agriculture is affected, we can’t expect growth. So I wouldn’t be surprised to see no growth,” Odero said.

This week, the World Bank said in its Global Economic Prospects 2020 report that the Zimbabwean economy contracted by 7.5% last year. It said the country suffered a sharp rise in inflation, which continued to “squeeze real incomes, resulting in a large contraction” in economic activity.

“Activity has been further constrained by persistent shortages of food, fuel, electricity, and foreign exchange,” said the World Bank.

However, the Bretton Woods institution forecasts the recovery of Zimbabwe’s economic growth to 2.7% this year.

Other experts disagree, pointing to constrained investment inflows and continued headwinds for companies and the economy.

The reforms that Zimbabwe has undertaken include removing subsidies on petroleum and electricity, but this has meant that the country has tipped into hyperinflation, which is exacerbated by wage stagnation among the formally employed.

According to Odero, the African Development Bank expects some recovery next year, “depending on the impact of economic and investment [attraction] efforts by the government”.

Another financial and economic expert, Malcolm Hove, was also sceptical of a rebound this year.

“Unless something drastic happens, contraction will continue given the poor business environment, policy inconsistencies, lack of respect for property rights, corruption and devastating drought,” said Hove.

Tendai Biti, former Zimbabwe finance minister and member of the opposition Movement for Democratic Change (MDC), says incompetence by government will worsen the plight of Zimbabweans this year.

The MDC is contesting the election of President Emmerson Mnangagwa in 2018, arguing that he stole the vote and is thus an illegitimate leader.

“The economy will contract by 13% this year. This is not a mere decline in GDP. Unmitigated incompetence, illegitimacy, zero confidence, corruption and misgovernance are at the centre of this dramatic collapse. [This is] the worst government in the world,” Biti said.

Mbeki has stepped into the fray to nudge Mnangagwa and opposition leader Nelson Chamisa to join hands to find solutions for Zimbabwe. Mbeki is expected back in Zimbabwe to continue mediation, which started last month, to help end the political impasse.

President of the Movement for Democratic Change Nelson Chamisa

“We are hopeful that Mbeki’s mediation will bring some good news, especially as we start the new year. We are struggling and there is bad news all over, which makes us lose hope,” said Tecla Mushingano, a 48-year-old janitor at an office complex in Harare.

Another industrial worker in Harare said: “All we want is to be able to take care of our families, send our children to school and put food on the table without struggling. Right now, every day brings new challenges and there is so much expected of you as a parent, but we are hurting deep down.”

The government insists that the economy will take a turn for the better this year, with Finance Minister Mthuli Ncube banking on tax collection efficiencies, a strengthening of accountability and a new tax management system to drum up resources for treasury.

“The three things that keep me awake at night are food, power availability and currency stability. We have to do everything to stabilise the Zimbabwean dollar … And we have to keep government expenditure under control so that we don’t have excessive money supply,” said Ncube.

The Zimbabwean central bank has reintroduced capital markets through the issuance of bonds and treasury bills to fund infrastructure development and other government projects.

But, with international investors largely staying away from committing fresh funds to Zimbabwean projects, humanitarian, development, bilateral and multilateral partners have been left with the burden of averting hunger and funding capacity, as well as infrastructure development.

Melanie Robinson, the UK ambassador to Zimbabwe, said this week that the embassy would engage with Mnangagwa’s administration to discuss “its response to the humanitarian situation” in the country. The UK will target its support “at those who need it most”, and will press for economic and political reforms.

Damoni Kitabire, African Development Bank country representative in Zimbabwe, told City Press this week that the funder “would have expected more [in terms of economic reforms] because Zimbabwe finds itself in a difficult situation”.

This leaves at least 3 million Zimbabweans without aid, prompting Catholic and other faith-based agencies to partly step in.

Zimbabwe is undertaking an International Monetary Fund-monitored programme to reform its economy, starting with monetary reforms, which appear to be yielding little as the introduction of the Zimbabwean dollar has degenerated into value loss for the local unit, while banks are still battling to meet depositors’ demands for hard local cash, despite the introduction of new local notes.

“I think the government should do more, faster. Given where we are, we could do more and faster,” said Kitabire.

The reforms that Zimbabwe has undertaken include removing subsidies on petroleum and electricity, but this has meant that the country has tipped into hyperinflation, which is exacerbated by wage stagnation among the formally employed.

Rand Merchant Bank economist Neville Mandimika expects the US and Iran standoff to escalate the inflation situation in Zimbabwe due to the knock-on effects of an expected surge in the oil price.

“The recent surge in oil prices driven by US-Iran tensions will undoubtedly put pressure on Zimbabwe’s inflation, given that we are importers of fuel. With annual price growth already at about 400%, this will affect the consumer heavily,” said Mandimika.


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February 23 2020