'Bring back social contract'

HARARE - Compliments of the New Year and it’s good to be back after a good rest.

In my first instalment of the year, leading economist and director of Labour and Economic Development Research Institute of Zimbabwe (LEDRIZ), Godfrey Kanyenze, reviews the budget, appeals for the negotiation of a social contract and team work to put the economy back on track.

Below are the excerpts;

Q: What are the shortcomings of the 2014 National Budget?

A: The major shortcoming of the 2014 budget is that its revenue projection of $4,12 billion is highly uncertain, and unlikely in the context of weakening commodity prices, against a huge expenditure outlay, including domestic arrears, and a rising import bill.

The macroeconomic and budget framework is anchored on an active policy scenario, which even if implemented successfully, cannot be realised in the same period given the lagged response which the budget ignores.

The litany of challenges posed in the 2014 budget statement, namely; high consumption, leading to negative domestic savings and, hence, exposing the country to rely on external savings; liquidity constraint reflected in declining money supply growth, low financial intermediation and resulting in weak aggregate demand; high debt overhang resulting in limited and highly-priced lines of credit; limited external inflows in the form of foreign direct investment, lines of credit and grants linked to high country risk premium resulting in low confidence by investors; food insecurity owing to low productivity, low investment, as well as climate change induced droughts and erratic rainfall distribution pattern; lack of industry competitiveness due to obsolete equipment and out-dated technology as well as dumping and smuggling imposing unfair playing field with external competitors; infrastructure deficits, in particular transport, energy and water, resulting in high cost of doing business and, hence, lack of competitiveness; financial sector vulnerabilities stemming from weak governance, low interbank market activity, high non-performing loans, 15,9 percent on average, low capitalisation and poor asset quality in several banks; lack of transparency and accountability in the exploitation of our mineral resources; and widening current account deficit due to faster growth of imports than exports leading to haemorrhaging of the economy; cannot be addressed in one calendar year, even in the presence of political will.

The 2014 budget statement therefore correctly identifies the following major risks over the realisation of the macro-economic and budget framework: poor rainfall season; budget pressures, particularly from employment costs; low Foreign Direct Investment, due to slow investor response; little progress on the debt resolution and the re-engagement process;  lack of clarity on key policies, particularly the Indigenisation and Economic Empowerment programme; slow progress on implementation of key policies; and slow recovery in the global economy.

The structural reforms needed with respect to the "doing business reforms," parastatal and public enterprise reforms, rehabilitation and investment in infrastructure, arrears clearance and debt resolution may not be realised in 2014 even if government is serious about implementing them.

Furthermore, the expenditure mix is unsustainable with employment costs taking up 75 percent of the budget, with precious little remaining for social service delivery and capital expenditure.

Its growth projection of 6,1 percent does not logically derive from the current downturn and weakening commodity prices for both minerals and agricultural commodities, which is only expected to recover in 2015.

Q: Why is it that minister of Finance is forecasting economic growth in 2014 on the back of commodity prices when their prices are expected to fall in 2014 and recover in 2015?

A: This clearly does not add up; the projections do not logically derive from the macroeconomic context analysis of the budget statement.

It seems the minister is working from an answer provided in Zim-Asset.

Q: In the absence of money for capital projects, is there any other way of moving our economy from the tail spin which is fast emerging?

A: The alternatives such as recourse to public-private partnerships have been on the cards for quite some time, with limited uptake due to absence of a legal framework, hostile doing business environment, ambivalence towards Foreign Direct Investment, given the contradictory manner in which the indigenisation programme is being implemented; issues of confidence etc.

Similar problems arise with respect to recourse to Diaspora funding through bonds.

Q: What would you have wanted to see in this budget?

A: In view of the scale of the challenges facing the economy, and in the context of polarisation, more emphasis should have been placed on the negotiation of a social contract that brings all key stakeholders together.

Useful instruments to deal with polarisation such as the principles of the Tripartite Negotiating Forum (TNF) and the Kadoma Declaration to deal with the country risk factor have already been adopted by government, without any implementation.

There is need to work on the Team Zimbabwe concept as opposed to the current thrust to project Team Zanu PF.

The reality is that the enormity of the problems the economy is facing requires stakeholders to work together.

The minister (Chinamasa) or government alone cannot make sustainable inroads into resolving the deep-seated challenges.

Q: You have done work with the World Bank and travelled a lot in Africa.

What would you say is  Zimbabwe’s biggest undoing in attracting investment and building confidence?

A: The major challenges relate to double talk, policy incoherence and inconsistencies and unilateralism. Capital is a coward.

It is now widely accepted that for policies to succeed, they should have broad-based ownership, yet ZimAsset is admittedly a party programme with no buy-in from other stakeholders.

Q: How crucial is the IMF Staff Monitoring Programme to unlocking outside development assistance?

A: When a government has lost international credibility, and has defaulted on its debt repayments, the Staff Monitoring Programme with the IMF is the current instrument to win back that trust and to show seriousness by consistently implementing a set of agreed sound policies as the basis for debt relief.

All international cooperating partners therefore take a cue from this framework.

Q: Domestic arrears are likely to widen in 2014, how does this impact on the economy and service providers?

A: In a cash budgeting framework, the accumulation of domestic arrears is a serious indictment on the government of the day as it reflects a lack of fiscal discipline.

Service providers may be reluctant to provide additional services before payment.

This impacts the economy in that it shrinks fiscal space for current service delivery and investment in infrastructure.

It worsens the consumption orientation of the budget as it implies dissaving which impacts adversely on investment.

Q: In the current environment, do you see Zimbabwe getting debt relief from the IMF?

A: Debt relief is only considered after consistent implementation of ‘sound policies’ as agreed with the IMF.

Even in its best scenario in its 2012 Article IV Consultation Report on Zimbabwe, the IMF did not envisage any debt relief before 2018.

Q: How can industry be revived given the current financial squeeze in the government?

A: Past attempts at reviving faltering industries focused on provision of financial instruments such as the Distressed and Marginalized Areas Fund (Dimaf) which did not work because of the high debts these firms had accumulated, and the failure to address other environmental issues that made the businesses to fold.

Zimbabwe needs a comprehensive policy response and hence the importance of addressing these issues in a holistic manner through a Social Contract which harnesses creativity and innovation of all key national stakeholders.

Specific protocols can be negotiated dealing with specific issues as agreed in the Tripartite Negotiating Forum (TNF) in the past.

Q: Is indigenisation of local business still the best way given Zimbabwe’s lack of ability to attract Foreign Direct Investment?

A: There is need for balancing the imperatives of indigenisation with the need to attract Foreign Direct Investment, which can enhance the productivity of indigenous firms through linkages.

Foreign Direct Investments are expected to bring in new technologies, which is critical given the out-dated plant and machinery in use in Zimbabwe; promote transfer of skills, knowledge of global markets and innovations to the local economy which domestic firms cannot do.

Q: What is the best option for Zimbabwe in as far as indigenisation is concerned?

A: There is need for a broad-based indigenisation framework as opposed to the current focus on share-ownership which is elitist.

Furthermore, indigenisation can be promoted through linking domestic indigenous firms with foreign-owned firms, a strategy that simultaneously meets both objectives of indigenising and promoting FDIs.
The best way forward is through social dialogue involving all affected stakeholders.

Comments (2)

what was the major thrust of any five macroeconomic policies embedded in the 2014 Budget statement

Nkosinomusa Nyoni - 15 March 2014

What was the major thrust of any five macroeconomic policies embedded in the 2014 Budget statement?

Nkosinomusa Nyoni - 15 March 2014

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