Lance Mambondiani

Lance Mambondiani is an Investment Executive at Coronation Financial

Economy operating below capacity

IN FEBRUARY 2009, Zimbabwe’s bickering political parties formed a three-party coalition government underwritten by the African Union, a marriage of convenience following a disputed election. The economy, described then by Economist’s Economic Intelligence Unit as ‘the worst in the world’ had recorded ten consecutive years of contraction: the Zimbabwe dollar was worthless and inflation was stratospheric. Per capita income fell by 40 percent and real domestic product (GDP) had fallen by more than a third.

One of the coalition government’s greatest achievements, credited largely to Finance Minister Tendai Biti, has been a modest but remarkable turnaround of the economy, recording positive growth as high as 9.3 percent since 2009 – the fastest growing economy on the continent.

Recently, however, the country’s growth has started to slow down and with it, serious concerns over the country’s recovery path. The economy’s early growth following the coalition government was aided by an improved political climate and various fiscal and monetary policy reforms by the GNU. Unlike other African countries supported by multilateral aid, Zimbabwe’s recovery relied very little on foreign aid or foreign borrowing. The growth has been financed from resources extracted from its own population which reflects a potential for sustained growth when complimented with international support.

Economists say Zimbabwe’s striking growth can be attributed primarily to strong recoveries in its mining and agricultural sectors, although uncertainty remains because of concerns about the country’s financial structure and capacity.

High prices for gold and platinum, two of Zimbabwe’s main exports had increased the country’s revenue. The discovery of gold, however contentious, has also contributed significantly to the resurgence, leading to a budget surplus.

Economic slowdown

Despite early optimism, the latest ADB, Africa Outlook 2012 Report on Zimbabwe suggests that that the economy has started to slow down with economic indicators turning south.

Real gross domestic product (GDP) is expected to decelerate to 4.4 percent this year from 6.8 % in 2011.  Inflation figures, at 0.5 % when the coalition government was announced increased to 3.1 % in 2010, 5.3 % in 2011, 6.5 % in 2012 and projected at 6.7 % in 2013.

Another major concern has been the country’s deteriorating social indicators. A recent FinMark survey suggests that approximately 80 percent of the adult population in the country earned less than US$200 per month (approximately $6 a day) and that only 18 % of the population received a regular salary.

The income levels of the average population are not significantly higher than the World Bank’s poverty line of $2 a day or $1 per day for extreme poverty.  If you were to define poverty in terms of consumption amount per year, based on the estimated value of a ‘basket of goods’ (food, shelter, water, etc.) the statistics would paint a bleak picture.

What went wrong?

So what are the reasons behind the slowdown?  Zimbabwe’s economic crisis has been largely political than it is economic. The reasons for the slowdown are no different. Political uncertainties about the power-sharing arrangement still hold back the economy. The long drawn conflict and perpetual deadlock on the implementation of key reforms have cast a shadow on growth prospects.

The uncertainty and constant bickering on how and when to hold new elections has not been helpful. Addressing Parliament previously, the Finance Minister told the lawmakers that “Political issues are imposing serious shocks and pressures on our economy.” With the Zimbabwean government playing a major hand in economic activity, politics cannot be separated from the economy.  The controversial empowerment and indigenisation regulations though absolutely necessary, will significantly negatively impact on economic recovery if applied with discord.

The reality is that the Zimbabwean economy is operating far below its potential capacity. The growth spurt recorded since the formation of the unity government reflects this potential. This is because the quick-fire growth was about closing the capacity gap rather than an estimate on how fast the capacity could be expanded.

To sustain the economic recovery, spread its benefits to a larger share of the population and reduce significant external and financial vulnerabilities, it is necessary for the government to build consensus on a strong medium-term agenda focused on prudent macro-economic policies and a comprehensive package of structural reform.  Most important, politicians need to set the country on firm path of political certainty and put an end to the bickering before the people are  condemned to another ‘lost decade’ of economic suffering.

Dr Lance Mambondiani is an Investment Executive at Coronation Financial. He can be contacted on lancem@btinternet.com The view expressed in this articles are personal and do not necessarily reflect the position of Coronation Financial