CiZC Policy Monographs: Zimbabwe Economy Post

July 31 Where is the economy Where is the economy

heading to?heading to?

Presented by Presented by

Moses Chundu (Msc Economics)Moses Chundu (Msc Economics)

CiZC Seminar on the Economy CiZC Seminar on the Economy

17 June 201417 June 2014

Introduction-Economic Introduction-Economic HighlightsHighlights

Zimbabwe economy stuck in a rut as national aggregate demand continue to fade and economic output trend downwards.…deflation

The current account deficit continues to widen

Attracting FDI still a challenge thus worsening the liquidity situation-confidence issues

Inflation continues to recede as aggregate demand tumble-its more than price correction don't be fooled.

Agriculture – Tobacco, a bright spot in a darkening economy, grains deficit anticipated though proving to be the best grain year courtesy of the fair rains-not ZIMASSET/Presidential input scheme as claimed

Introduction-Economic Introduction-Economic HighlightsHighlights

Mining and Quarrying: Pressure continues to mount as capital remains scarce and indigenisation confusion takes its toll.

Tourism: Arrivals are trending upwards as occupancies improve-best tourist destination by EU at the back of relative peace following the not so violent 2013 poll.

ICT: Competition is on the rise in telecoms, improved service delivery and connectivity

Manufacturing Sector in Limbo-no capital, no utilities, no demand, rising worker demands-hence more company closures with attendant rising unemployment.

Banking: Worsening NPLs, the albatross around the banking sector’s neck, reverse indigenisation.

Introduction-Economic Introduction-Economic HighlightsHighlights

Period Growth Rate Annual inflation

2009 5.4% -7%

2010 11.4% 3.1%

2011 11.9% 3.5%

2012 10.6% 3.7%

2013est 3.4% 1.6%

2014proj 6.1% 3%

2015proj 6.4% 3%

2016proj 6.5% 4%

2017proj 7.9% 4%

2018proj 9.9% 4%

Zim Asset-the PillarsZim Asset-the Pillars‘Zimbabwe experienced a deteriorating economic and social environment since 2000 caused by illegal economic sanctions imposed by the Western countries’. Pg 1The implementation of Zim Asset will be underpinned and guided by the Results Based Management (RBM) System through OPC, since the 1990sZim Asset is a cluster based Plan, not newNational Corporate Governance Framework will be launched and implemented-endemic corruptionValue addition will be key-not a novel policy stance, has remained statement of intent for decades now

Nothing new in the above pillars of the Plan.

Failure to establish causality will be its downfall

Zim Asset-The AssumptionsZim Asset-The Assumptions Improved liquidity and access to credit by

the key sectors of the economy such as agriculture;-a pipedream, though there is mystery surrounding the $2.4 billion agric facility for 2014.

Establishment of a Sovereign Wealth Fund;-impossible

Improved revenue collection from key sectors of the economy e.g mining;-the reverse is true the action on the ground not backing this assumption-policy conflict.

Increased investment in infrastructure, through acceleration in the implementation of PPPs and other private sector driven initiatives; -corruption main challenge

Zim Asset-The AssumptionsZim Asset-The Assumptions Increased FDI;-ground actions actually

achieving the opposite-capital flight Establishment of Special Economic

Zones;-not magic, the whole country actually needs to be turned into a SEZ.

Continued use of the multi-currency system;-still holding but on a narrow string

Effective implementation of value addition policies and strategies;-threat of policy contradictions

Improved electricity and water supply;-you just need to listen to Mavahaire and see a list of his board members to judge.

Zim Asset-Funding DilemmaZim Asset-Funding DilemmaThe Plan to be funded from, tax and non tax revenue, -firms closing, negative

variance for ZIMRA collections, Chiadzwa gone dry trying to do the right thing when its late-one firm to mine nothing.

leveraging resources, -lack of transparency Sovereign Wealth Fund, -not now cannot save-

St+1 cannot fund Et

issuance of bonds, -no takers-trust issues accelerated implementation of Public Private

Partnerships,-corruption main challenge securitization of remittances, -not easy re-engagement with the international and

multilateral finance institutions and-difficulty given gvt’s double standards and multiple messages

other financing options, focusing on the BRICS.-not interested in us but our resources; where is SA R700m 2009 pledge?

2014 Budget2014 Budget‘Business confidence remains low and Zimbabwe’s country risk premium is still high. The result is a lack of investment and financial inflows required to drive future growth’. Min ChinamasaThe 2014 National Budget, consequently seeks to facilitate the implementation of ZIM-ASSET programmes Central to this is recovery of both public and private investment in the economy.

Minister was spot on but his subsequent pronouncements are addressing other issues not the above issues, if anything making it worse e.g. stance on indigenisation.

2014 Budget2014 Budget Budget sought to effect the principle of value

addition by revamping the duty regime. The targeting of industries and products has

not been strategic at all, needed more consultation.

Value addition means investments and as long as confidence issue are not addressed, the support to Zim Asset will not materialise.

Funding gap will remain a challenge in the absence of deficit financing in a multicurrency regime.

The role of the sovereign wealth fund and timing of its launch demonstrates a deficit of knowledge of its make up and functions.

Budget strain will continue to manifest in delayed civil servants salary payments.

2014 Monetary Policy statement2014 Monetary Policy statement‘I remain optimistic that the economic prospects for Zimbabwe will not disappoint, provided we decisively and holistically implement all the ingredients as embodied in Zim-Asset’. Acting Governor Dhliwayo.MPS a failure from the onset given the impossibility of fulfilling the above assumptions.Proposed measure below not new and therefore will not work miracles on their own.Bound to fail for the same reasons previous interventions failed, need to deal with fundamentals of economic management.

2014 Monetary Policy statement2014 Monetary Policy statementProposed policy measures include;Enhancing role of the Reserve Bank -lender of last resort;Capitalization of banks-extension of compliance;Consolidations and Mergers-of small banksInsider Loans and Non-Performing Loans; No moreEnhancement of Supervision through Amendment to the Legal Framework;Gold Mobilization;-legalising makorokozaUse of electronic means of payments to enhance financial inclusion; means ok but object is fast dwindling; andEnhancing Export Receipts-reducing overdue CD1s-how do you control this, we need to export more period!

The Real ChallengeThe Real Challenge Zimbabwe facing a governance crisis, the

recent cashgate issues just tells of the extent of the rot in governance circles both in government and private sector.

Corruption tax is too high in both government and private sector.

Competitiveness is more affected by corruption ahead of the other causes that are fronted like infrastructure and liquidity, these are symptoms.

What is reported on the $144m HCC Chinese tender is happening at all levels, ending up producing goods that are 2-5 times our regional competitors. Ref ZBC OBV!

The porous ZIMRA system and duty regime not helping either-smuggling and dumping killing the remaining industries.

Archaic labour law regime adding salt to the injury.

The Outlook-The Sad RealityThe Outlook-The Sad Reality Economic activity to remain depressed with

more company closures expected. Liquidity and budget challenges to persist in

the outlook. Confidence in the banking system to remain

low thus locking the little liquidity away. If multicurrency regime is maintained the

economy will just go by registering negligible growth figure way below the projected numbers-around 2 percent.

Government revenues will remain squeezed against the backdrop of a blotted and populist government. Do we need 10 boards to deliver electricity?

Infrastructure deficit to persist dampening any prospects of a recovery.- no ZESA, no water, more potholes, yet, higher tariffs, more charges, double tollgate fees

The Outlook-Game ChangersThe Outlook-Game Changers The questioned legitimacy of the government

no longer an issue, the government is here to stay, the best that can happen is for the present government to respect basic principles and laws of economic management and avoid the populist trap as it has always backfired.

To avoid total collapse government will have to avoid the dual temptation of Z$ reintroduction and controls.

The real game changer will be the attitude of government towards addressing corruption that is now endemic at all levels of society.

Bringing perpetrators to account without fear or favor and upholding the doctrine of restitution ahead of retribution, recovery ahead of imprisonment.

The Outlook-Game ChangersThe Outlook-Game Changers Merit based appointments in all key

institution and injection of new blood to drive institutions into the future-no recycling of deadwood starting with cabinet all the way down. Balancing loyalty and performance/competence

Clear and better signals on key policy areas affecting key means of production eg. Land reform, and indigenisation laws. Beyond populist pronouncements to amendments of relevant statutory instruments to foster certainty.

Immediate review of labour laws away from the tired principle of collective bargaining which creates unemployment to competitive productivity linked industry/firm specific wages negotiations.

Implementing a duty regime that promotes winners and not losers or speculators. Protection not for its sake but to preserve jobs in competitive industries.

The Outlook-Role of Civil SocietyThe Outlook-Role of Civil Society Talk of regime change in the old tone a tired

script overtaken by time and events. Sad reality is you are stuck with a regime that is not patriotic.

Lobbying role need to leverage factional fights and buttress the facts coming out of the fights, i.e. lobby for reform of laws to back up good

policy pronouncements; lobby for amendments of the various laws

esp. on rule of law and civil rights in compliance with the new constitution;

lobby for accountability and prosecution of blatant corruption in public domain-pursue more private prosecutions;

lobby for reform of electoral law ahead of 2018.

Post December 2014 the landscape can significantly change so much of the lobbying must gain traction now when intra-party fights are still pronounced.

Thank youThank you