Uncertainty haunts Zim economy

HARARE – As Zimbabwe continues to plunge further into uncertainty and self-created economic crisis, largely as a result of poor policies, one wonders if there is a solution in sight to all this madness.

With the country’s economic indicators painting a gloomy picture, government seems more determined to worsen an already messy situation as opposed to coming up with the correct economic remedies that could take us forward.

However, Desire Sibanda, Economic Planning ministry permanent secretary — citing the Medium Term Plan (MTP) — believes the economy is heading in the right direction.

“You have to look at where we are coming from just to appreciate how far we have come as a country and economy. We have managed to bring much-needed stability in the national economy, allowing us once again to be attractive to investors,” he said.

Sibanda says the economic blueprint, which has faced its fair share of hurdles such as funding and missed targets, provides answers to a sought-after economic boom.

“We have not missed the MTP targets as people have been saying,” Sibanda said. “If you look at the document, we had targeted an average growth rate of seven percent for 2011 to 15 and if you look at the country’s growth figures, we are within those targets. In 2009 the economy grew by seven percent, 9,4 percent in 2010 and 9,3 percent in 2011 while in 2012 we had targeted 9,4 percent, but it went down due to challenges faced in the agriculture sector such as funding and drought, but we were ahead of Africa which had an average rate of five percent.

“We are in the process of working on the second year evaluation of the MTP to see how far we have gone. Next week, we will be calling on all government ministries to evaluate the document since it’s a document that is evaluated every year.”

The MTP premised on foreign direct investment (FDI’s) being a critical enabler for economic growth, attainment of investment to gross domestic product ratio of 25 percent by 2015, creating jobs and raising industrial capacity, yet not much has come in the form of funding for the blue print.

“It true that MTP projects were to be funded from foreign direct investment of more than $9,5 billion and surely we have not done well at all in that area and the fiscus definitely cannot finance those projects, as you know, a higher percent of government funds are financing recurrent expenditure,” Sibanda said.

Despite a paltry $400 million in FDI’s coming through last year, compared to neighbouring countries, Mozambique and South Africa which got $5 billion and $4,6 billion respectively according to the United Nations Conference on Trade and Development (Unctad) report of 2013, Sibanda said his ministry has its hand on the ball and is working on attracting the much needed investment.

“We have not fared very well in the field of investment but economic growth, the economy has been growing. Off course we agree that we are coming from a low base. That’s why we are now carrying out investment shows to scout for foreign investors,” Sibanda said.

“We have also not performed well in infrastructure. The area needs to be worked on including the widening of the tax collections, particularly in the extractive sectors.”

On whether the promotion tours that have taken the ministry to South Africa, Hong Kong, Dubai, Australia and Brazil — among other countries — have worked as it intensifies efforts to attract FDI’s, the permanent secretary smiled before he responded.

“We now live in a competitive world and have to scout. Investors invest in countries that offer them the best conditions and you have to meet and explain yourself. So yes, the shows are working. We have done that in South Africa were we have explained ourselves and signed a Bippa and also had a South Africa/Zimbabwe trade summit, all this has seen increased interest and investment from that side of the border,” he said.

Sibanda however, bemoans the skewed trade relationship between the two countries in favour of South Africa. According to the Finance ministry, Zimbabwe remains a net importer of South African products with a trade deficit of $3,53 million after it imported goods worth $3,207 billion against exports of $2,674 billion in 2012.

The burgeoning trade gap has affected the recapitalisation of the manufacturing sector, whose capacity utilisation, according to the Confederation of Zimbabwe Industries has declined to 44 percent and requires an estimated $2 billion to operate at full capacity.

“There is need to attract investment into the manufacturing sector, we cannot remain a supermarket for South Africa. The country’s economy grows if we are able to export finished products, thus higher exports, higher growth,” said the permanent secretary.

On the country’s growth prospects of 5,2 percent for the year, Sibanda said challenges remained.

“Meeting the 2013 growth rates might be challenging considering challenges that sectors such as manufacturing are facing including lack of lines of credit, high interest rates from local banks sure double digit figures are not viable for a business, high electricity cost and increased competition from Asian countries,” he said.

“There has not been that type of growth that we would have wanted and still the agriculture sector, another growth driver is still recovering from the 2012 drought. If we improve on performances in the mining and agricultural sector, then yes we might achieve them.”

Whether a pending election and the controversial indigenisation policy were also weighing down the ambitious growth target, looking at the factors on the ground, Sibanda dismissed the assertions.

“On elections, it’s a wait-and-see attitude that we are seeing with investors, but a number of them were encouraged with the referendum, the situation before and after. So it is anticipated that the same scenario will persist with the election,” he said.

“People talk differently about indigenisation but as you know, the philosophy was to empower people, but policy inconsistencies have been the order of the day, affecting some of our efforts. It’s not only indigenisation that investors look at and might have questions about, but there are a lot of factors that might need to be addressed,” the ministry permanent secretary said.

He however, dispelled concerns over the continuance of the MTP in light of the government of national unity (GNU) coming to an end on the 30th of June.

“The GNU talked of economic restoration and the ministry adopted a blue print to drive that. There is nowhere in the GNU where it talks about the MTP, it’s a national document that will drive the growth of the economy until 2015, so the end of the GNU does not have any impact what so ever on the validity of the document,” Sibanda said.

With investor sentiments about the local economy’s attractiveness at their lowest because of increased political and economic discourse, the country’s poor showing on various global rankings has not helped its cause either.

According to the latest World Bank (WB) Doing Business Report, Zimbabwe continued with its poor showing, ranked 172 out of 185 economies, despite an improvement in the country’s economy post–dollarisation and reduction in the process of registering a company from 141 days to five days by the Zimbabwe Investment Centre.

“We will continue to work to improve our rankings as these have an impact on how investors perceive us. We have documents in place that would help the nation lure more foreign investors,” said Sibanda.

However, respite could be coming, after a recent finding by an independent panel set up by the World Bank president, Jim Yong Kim and led by South Africa’s Planning minister Trevor Manuel, that its highest profile annual country rankings “Doing Business”  could be misleading and should cease being produced , provide a much needed life line to Zimbabwe.

According to the findings, the rankings could too easily be affected by small factors and were sometimes not objective.

Instead of a ranking, the panel has recommended assigning scores for each of the indicators for each country.

Economist, John Robertson said the country’s policies such as the controversial indigenisation policy, will continue to be a hindrance to any would-be investor, possible favourable ranking and economic growth prospects.

“Any foreign investor should still be prepared to accept that he or she will have to part with a 51 percent stake to locals in line with the policy, making it difficult for one to put in their money,” he said.

“It doesn’t matter what new method they would use, but you will still find Zimbabwe remaining lowly ranked in terms of the ease of doing business as difficulties to do business in the country still remain,” Robertson said.

He said more reforms were required if Zimbabwe is to emerge as a viable and attractive investment destination.

“It is very likely we will still remain the least attractive third world country to do business in. I don’t expect to see much improvement on that front.”

Economist Christopher Mugaga expressed concern that policies such as the indigenisation policy will continue to weigh down the country’s attractiveness and economic growth, even if the current model of ranking is changed.

“Zimbabwe could also have been affected by the rankings but of course we remain our own enemies with regards to policies that are implemented.

Investors that come to Zimbabwe are not scared of what the World Bank would have said in such reports, but are concerned about the political risks and the rule of law when it comes to their investment,” the economist said.

“Whether policies such as the indigenisation policy are noble or not, they have had a negative effect on investors, worse still after it has now been turned into a political tool by the Zanu PF party.

Look at the ZSE the way it is performing of late, we have speculative investors, not long term investors mainly because of such policies and uncertainty over the election,” he said.

“The current situation with the pending election which is still highly contested will also provide further challenges for the investor.”

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Comments (1)

Good arguments presented ,but i think more needs to be done to improve the country's attractiveness.Otherwise good article

James - 8 July 2013

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