(Last Updated on January 2, 2016 by Editor)
ZIMBABWE – As we welcome 2016 it is important to take stock of 2015 and reflect on what we must do right in 2016. No doubt 2015 has been the most difficult year since the adoption of multiple currencies in 2009.
While the intentions of this review is not narrate what happened as it is in the public domain but to dwell on the root causes of the economic challenges which ensued and pave way for debate aimed at avoiding the same in 2016.
There are also positive developments we witnessed in 2015 which we must consolidate in 2016.
In the course of the year we witnessed incessant company closures and severe job retrenchments.
The compounding effects of this development were continued liquidity crunch and subdued trade performance which has seen Zimbabwe trade deficits soaring real terms but interestingly both our imports and exports have declined by about 30 percent from 2011 due to constrained demand.
Still on the trade front, we continued to see South African products occupying more and more shelf space, that is, over 70 percent followed by Zambians.
This situation if it continued unchecked in 2016, we will face a total demise of our industry. We must admit we are already on our way out.
The summary of our problem is lack of competitiveness.
Uncompetitiveness is again a symptom of underlying economic problems. From Zimbabwean perspectives, our root causes of lack of competitiveness are centred on developments of external factors, low productivity and country perception.
Unlike in the Zimbabwe dollar era where most of our economic challenges we endogenous (internal) mainly from inflation dynamics, in the multiple currencies era the economy is now influenced by external forces (exogenous factors) such as the strengthening of the United State Dollar (USD) and fall in commodity prices.
With respect to strengthening of the USD, 2014 saw some improvement in the economies of developed countries. The US — the biggest economy in the world — had taken the stance to stimulate its economy through the Fed’s purchase of Government and other securities to pump money into the system.
This is known as quantitative easing. This has led to significant growth in the USA which has seen improvements in employment and exports thereby strengthening the dollar.
Chinese economy also changed its economic model from the one that is powered by exports and foreign direct investments to services supported by efforts to grow income particularly for the rural folk.
This, in itself, in a way resulted in reduced demand for some commodities, for example, from South Africa which are used to produce goods for export market like iron and steel.
With reductions in imports by China, this put pressure on South Africa foreign reserves as exports were subdued thereby resulting in depreciation of the currency.
This link between developments in USA, China and South Africa are very important for us since the Rand has become a de facto Zimbabwe dollar.
In the same vein, as China is rebalancing its economy, with the US’ economy booming, China in a way left a gap which was filled by the US thereby strengthening its currency.
In the same vein, geopolitical issues in the Eastern Europe, that Russia, Ukraine and Greece and now France has led capital flight to the USA and again strengthening the dollar.
Going forward, the USD is likely to remain strong especially after the Fed raised interest rates early December 2015.
The rise in interest rates is expected cause capital flight from emerging markets and other economies to the US thereby continuously strengthening the dollar against other currencies.
As long as the dollar is getting strong, the other currencies like the rand will be getting weaker! For Zimbabwe, basing on the rand factor only, our imports from South Africa have become cheaper by more than 100 percent from September 23 2011 to date.
At the same time, our exports to South Africa have become 100 percent expensive during the same time period.
This situation has seen our exports to South Africa falling by about 40 percent this year. This is quite significant for Zimbabwe since total trade between Zimbabwe and South Africa is about 60 percent.
The Chinese factor is also responsible for decline in commodity prices. China is certainly reducing its appetite for commodities since it has changed its growth model.
As the second biggest economy in the world after the US, the Chinese new growth model (which will be powered by services than exports and investments) has left a fundamental void in the global demand. If all things are equal, the commodity prices will remain subdued in the near to medium future.
With respect to low productivity, internal structural rigidities such as absence of capital for retooling and working capital, reliable and cost effect infrastructures such as electricity, water, transport and information communication technologies has negatively affected all efforts aimed at resuscitating the economy.
Absence of sound irrigation mechanisms, for example, has left us vulnerable to the vengeance of climate change. We have water in our water bodies but we have failed over the years to turn it into our fields and this haunted us this year. The same applies to electricity.
Country perception mainly from the debt problem has over the years affected the country’s ability to get fresh capital and attract foreign direct investments. The Lima outcome is quite significant in addressing this problem.
However, as a country we have a collective responsibility to address the other perception problem caused from the political front.
In some cases our own actions as a people across all political divide have also made us responsible for the dent country image which ensued.
Undoubtedly, there are some peddles of lies which are beyond our control as they are championed by the country’s detractors.
As we go into 2016 we must work very hard to brand Zimbabwe and take individual responsibility as a collective unit so that we can leave our detractors exposed. As we stand, we can’t separate the work of our detractors and ourselves!
Clearly the year was a difficult one but there were also exciting events and progress we made which is worth noting.
Significant progress was made in the areas of scouting for foreign direct investments which saw the President of China Xi Jinping visiting the country for the first time.
His visit was quite significant as it boost the country’s confidence in addition to the mainstreaming of the mega deals. The Dangote Group also expressed interest to invest in energy, mining and cement manufacturing.
We also received many investment enquiries from European countries which include Britain. Although nothing significant in most of these enquiries it is still positive for the country. The real money will come. Attracting FDIs is not a once off process — it is like quoting a wife!
There was also significant progress made towards creating an enabling environment for business. Although the processes such as the Rapid Results Approach (RRA) and development of the National Competitiveness Report (NCR) were led by Government, the commitment and support from private sector, academia and development partners was magnificent!
The Zimbabwe National Competitiveness Report (ZNCR) was commission by the National Competitiveness Commission under the Office of the President and Cabinet (OPC) through the National Economic Consultative Forum (NECF).
The objective of the Zimbabwe National Competitiveness Report (ZNCR) is to contribute to achieving the Government of Zimbabwe’s objective of high rates of economic growth.
It has involved contributions from leaders in the public and private sector. It is expected to serve as a guide for the newly created Zimbabwe National Competitiveness Commission, launching a process of public-private dialogue.
The report which was launched on October 29 2015 by Vice President Mnangagwa provided a factual summary of the country’s comparative advantages and challenges which will help in prioritising reforms in 2016.
Through RRA, Government gave itself a 100 day (September — December 2015) target to address the business environment in the areas of:
- Starting a business;
- Property registration and construction permits;
- Protecting Investors and enforcing contracts;
- Getting credit and restoring insolvency;
Paying taxes and trading across borders
A final review of the progress made in these 100 days showed that over 90 percent of the targets were met!
This work, under the RRA and NCR, is quite significant as these soft issues which will help address the country’s perception and competitiveness.
As we go into 2016, we must consolidate progress made in these areas.
In summary, basing on the reflection of what happened in 2015, as we go into 2016, we must focus in the following areas:
In the face of continuous variability in commodity prices, we must move with speed to value add our exports especially minerals. We must move with speed to find common ground on the modalities such as timeframes;
In order to stop the demise of the local industries, we must move very fast to reinforce business linkages and local content — there is no business case for us to continue watch foreign owned retailers sourcing commodities like agricultural products outside the country — they must work with local farmers as in the case of Delta, Seed Co and Cairns Foods;
The Lima outcome was one of the significant outcomes of 2015. We must work with the Minister of Finance collectively to implement our proposal;
In the face of climate change variability, we must seriously work on using our water bodies to address agricultural productivity. Here, we must not endeavour to do a wholesale support since we have no resources BUT we must focus on targeted projects say under Agricultural Rural Development Authority (ARDA). It is my conviction that if we focus on ARDA only we can feed this nation!
- In order to generate savings, we must work on how we can formalise and bank the informal sector;
- We must continue from where we left to work on key reforms aimed at creating an enabling environment for business;
- In order to finance development, we must continue the drive to attract FDIs through campaigns and policy reforms;
There is quite some good work on the ground towards development of new power stations. This is good. We must keep up the good work. However, renewed effort to raise tariffs by the Zimbabwe Energy Regulatory (ZERA) aimed at financing electricity imports is unfortunate! Our tariffs as they stand are the highest in the region. Hopefully ZERA will see sense in this matter and stop it!