Transcript 10zimbabwe_fanuel_tagwira

THE POLITICAL AND ECONOMIC
SITUATION IN ZIMBABWE
Prof. Fanuel Tagwira
Africa University, P.O. Box 1320,
Mutare, Zimbabwe
Post Independent Zimbabwe
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After independence Zimbabwe developed into vibrant
Democracy
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Lifting of sanctions in 1980 resulted in economic recovery.
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Real economic growth for 1980-1981 exceeded 20% but
declined in 1982 to 1984 due depressed demand in country’s
mineral exports and drought.
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In 1985, the economy rebounded strongly due to a 30%
jump in agricultural production.
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However it slumped in 1986 to a zero growth rate and
registered negative of about minus 3% in 1987 primarily
because of drought and foreign exchange crisis.
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Zimbabwe's GDP grew on average by about 4.5% between
1980 and 1990.
First land Reform program
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Legal and constitutional framework made land
acquisition costly
Program did not meet targets of land to be
acquired and number of people to be resettled
Demand for land by women was hardly catered
for except for widows.
Despite the short comings, by 1997, 67% of all
staple maize production and 80% of cotton
production was being done by smallholder
farmers.
Perceptions: first land reform
program
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It was a social program with no economic
objectives and therefore did not empower the
people. While the program succeeded in
transferring ownership of land to
disadvantaged people, it failed to boost
productivity because:
 Little infrastructure support was provided.
 No farmers selection was done and
 No meaningful financial support was put in
place for the resettled farmers.
Objectives of second land
redistribution program
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To acquire 5 million hectares of land
Resettle 150 000 families in a gender sensitive manner
Increased contribution of agriculture to GDP by increasing
number of commercialized small scale farmers
Reduce extend and intensity of poverty of rural families and
farm workers by providing them with land
Promote environmentally sustainable utilization of land
Increase conditions for sustainable peace and social stability by
removing imbalances in land ownership.
Second land reform.
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Program was necessary but it became a victim
of shifting Zimbabwe-British relations
Faced with a tough election (British and
commercial farmers through their weight behind
the opposition) the ruling party used land as an
election tool and unleashed terror on the farms.
The resultant compulsory acquisition of
productive land should have been avoided as
there was enough good underutilised land that
should have been used for resettlement.
The original intention of only acquiring land
from multiple farm owners was not followed.
The Zimbabwe brand became tainted.
Contribution of agriculture to GDP in 1997
17%
Agriculture
83%
Other sectors
Gross agricultural output($million) black smallholder farmers in 1997
24%
Smallholder
Commercial
76%
Results of second land reform
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Transferred land but production declined due to
lack of resources and experience by the new
farmers
Decline in export proceeds and therefore foreign
currency
Loss of credit worthiness of commercial
agriculture built over generations
Because agriculture provided 60% of inputs to
industry, the consequences to manufacturing
were dire.
Government prioritised the farmers this time
around but its sources of revenue had declined
because of effects of land reform on
manufacturing and tourism.
Results of second land reform
Financial institutions prejudiced by
closure of commercial farms.
 International market confidence in our
export crops was affected and buyers
turned to more dependable suppliers
 National tax revenue base declined
 Security of tenure,the basis of
investment, was eroded.
 Skilled and productive farmers left the
country
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Post land reform challenges
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Serious economic hardship caused by failing
economy after land reform and sanctions
imposed by the west.
Between 2000 and 2007, the national economy
contracted by as much as 40%
Hyper inflation, persistent shortages of hard
currency, fuel, medicine, and food.
GDP per capita dropped by 40%, agricultural
output dropped by 51% and industrial
production dropped by 47%.
Direct foreign investment dropped from US$400
million in 1998 to US $30 million by 2007.
The Crisis of 2008
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This became the pick of the crisis
Empty shops, food shortages, failure of basic
services: electricity, water, health delivery,
education system, communication, transport
system.
Collapse of financial system which could not
cope with the zeroes as money was now
counted in millions, billions, trillions,
quadrilions, quintilions …. hexilions.
Hyperinflation estimated at 500 million
percent. Local money became completely
valueless.
It is safe to say
The problems that Zimbabwe has been
going through have had both a political
and an economic dimension. The two are
intricately linked.
 Solution to the political situation and
lifting of sanctions will help economy to
recover even though it will take time to
reach its former glory
 Relations with the west is critical in all
this.
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2009 year of hope……
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The year began with great hope after formation
of government of national unity (GNU) in April.
The African Union embraced the new GNU and
called on the international community to
remove sanctions.
UN Secretary General expressed his support for
the country.
Zimbabwe began to engage the international
community in a constructive way.
EU and USA however decided not to lift the
sanctions imposed on the country.
Positive signs
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Basic commodities became available and prices
stabilised or started to go down. The country
adopted a multicurrency regime and set the
Zimbabwe dollar aside.
The 2009 gvt budget and the monetary policy
statement removed many of the controls and
distortions that existed in the economy,
allowing market forces to operate.
Schools, State universities, hospitals opened.
Gvt has no money, industry is operating at
20%, limited forex available is from
remmitances by diaspora.
Liquidity remains major problem.
Donors remain on the sidelines waiting to take
Short Term Economic recovery
program (STERP)
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Program recognizes that foundation for new
Zimbabwe depends on addressing issues of
rule of law, crafting new constitution,
restoration of property rights, opening up media
etc.
Important recovery steps to be taken include;
 Restoration of export and business viability
 Completion of land Audit and restoration of
land tenure security.
 Revival of the mining sector,
Needs US$8billion to grow economy by 4%.
“Without support STERP is a beautiful dream
about home by a solder at the war front” DPM.
Current situation- Political
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Implementation of the global political agreement is
incomplete
The constitution making process is acrimonious
Continue arrest of MDC activists and selective prosecution
of opposition MPs is a major concern.
State’s failure to halt farm invasions is sending wrong
signals.
Need to uphold property rights
Biased state media that vilifies the opposition
Despite all this challenges, all parties say the marriage is
irreversible and they are in it for the long haul.
The good news is that the nation is fully behind the
inclusive government and wish them success.
In march a poll conducted by MASS showed that 80% of
the people polled wanted the GNU to run for 5 years.
Current situation - economic
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The economy has begun to recover slowly.
From hyperinflation in 2008 to monthly
deflation in January to May 2009 and inflation of
3% in june 2009.
Goods on the shelves, growing interest by
investors, near total absence of money
changers, slow but growing inflow of
international funding & positive assessments by
IMF.
The economy is expected to grow by 3.7%.for
the first time in many years.
The key drivers of the economic recovery:
agriculture, manufacturing, tourism, mining and
foreign direct investment must work.
Challenges in Agriculture
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Economy is anchored on Agriculture.
Agriculture contributes 16.5% of GDP, income
to 70% of population, contributes 15% of
formal employment, 17% of total exports, 60%
of raw materials for manufacturing & 33% of
country’s foreign currency.
Farmers need inputs to produce the desired
growth- fertilizers, seeds, diesel, chemicals.
Smallholder farmers were producing 67% of all
the staple maize crop and most of the cotton
For agriculture to turn around there is need for
funding to finance inputs
Also market is flooded with cheap food imports.
Manufacturing
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Key to economy recovery.
In the past it was the second greatest employer
of labour and generator of foreign currency
after agriculture.
Restoration of the manufacturing sector can be
achieved at a faster pace than the restoration of
agriculture.
The industry is confronted by a host of
challenges:
Recurrent demands by labour of wage increases
far beyond means of manufacturers.
All industries are now highly undercapitalised
Erratic services of parastatals and high charges.
Electricity, water, telephones.
Manufacturing…….
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Skills losses in recent years. This has been
caused by poor wages. The old manufacturing
equipment now requires constant attention but
skills are not available.
The effect of cheap imports from the far East
and China brought in through means that
circumvent duty. Clothing, footwear, foodchicken, Country is flooded with imported
substandard, second hand and factory reject
goods.
Government’s demand for payment of VAT by
the 5th day of the month. This affects working
capital base.
Manufacturing …..
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Industry faces liquidity problems, short loan
repayment periods (90 days), power cuts, raw
material shortages.
While government hoped industry would
recover to 60% industrial performance, the
industrialists believe the most optimistic
projection should be 30 to 40% provided
Money is made available at the right price to
enable borrowing for capitalization of the sector.
Capacity utilization continues to rise slowly.
Shops are full of goods but all imported.
Banking system…
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Banks suffer from low income and low deposit
environment.
Banks are lending for period not exceeding six
months.
Banks face following challenges:
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low deposits from industry due to low capacit
low household incomes which form the deposit base of
financial markets.
low banking confidence. Many keep money at home.
shortage of lines of credit for recapitalization
weak interbank market
Absence of a lender of last resort - gvt
Banks are a financial mirror of the economy.
Tourism and foreign direct
investiment
Tourism is a great potentials that Zimbabwe has.
There is a lot of activity going on in the tourism
sector.
Proper marketing strategies are required.
Tourism is expected to grow by 2% from growth
of -9% previously.
Foreign Direct Investment
 Currently foreign direct investment contributes
4% to GDP and government projects 25% by
end of year.
Overview…
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Adoption of multicurrency has brought about
stability and predictability.
The political environment is still affecting the
economic environment.
Scepticism by the developed countries is
keeping investors away from Zimbabwe.
The Prime Minister’s trip to USA ad Europe
produced mixed results as some countries
maintained a hostile foreign policy towards
Zimbabwe.
Enduring negative perceptions about Zimbabwe,
and mistrust of the inclusive government
hamper prospects of securing balance of
payment support from multilateral institutions.
Overview..
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Revenue increased from US$4 million in
February to US$100 million by June 30th.
Inability to secure lines of credit means most
programs in STERP will not be implemented.
Government had to defer civil service salaries
and maintain the US$100 allowances until June
2009.
Country’s roads are in a state of disrepair and
water is now in a trickle.
All these stand in the way of economic turn
around.
Overview….
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Challenges in securing lines of credit.
We must address challenges of capacity
utilization in agriculture, manufacturing, mining,
tourism.
The more we take to address these challenges
the more we are vulnerable to external
macroeconomic fluctuations.
If the multicurrency is withdrawn the madness
of last year may come back in full swing.
It means we are not yet out of the woods.
TATENDA
GOD BLESS YOU