Transcript ECONOMIC OUTLOOK OF THE WORLD ECONOMY AND …

ZIMBABWE’ ECONOMIC PROSPECTS
PRESENTATION AT THE AFRICAN
STUDIES CENTRE, LEIDEN, THE
NETHERLANDS, APRIL 2010
OUTLINE OF PRESENTATION
The presentation is structured as follows:
Zimbabwe’s Socio-Economic Outlook
Strategic Objectives and Thrusts
Measures undertaken by the Inclusive Government
Way Forward
Key Challenges
ABJECT POVERTY IN A RESOURCE-RICH
ECONOMY: A PARADOX
Like most African countries, Zimbabwe is resource-rich, yet poverty
stricken – indeed a paradox.
As stated in the Monetary Policy Statement (MPS) of 2 February 2009:
“The fact that in spite of the presence of so much mineral resources
and human capacities in our country, we remain unable to utilize the
same signifies the need for a total paradigm shift in the way we
conduct our economic and financial affairs as a country, as a
people, and Government,” (paragraph 1.57).
That MPS goes on to list the estimated mineral resources against the
low levels of current extraction (paragraph 1.58).
SOCIO-ECONOMIC OUTLOOK
A. Macroeconomic Management
• Cumulative economic decline of at least 51% between 1999 and
2008.
• Hyperinflation officially estimated at 231 million percent by July 2009
• Unsustainable budget deficits and unmanageable public sector debt,
foreign and domestic
• Uncontrolled monetary expansion driven by quasi-fiscal activities
• Volatile and unpredictable exchange-rate systems (multiple
exchange rates, rapid dollarization and a collapsing currency)
• Pervasive controls in the financial sector
• Central bank engaged in quasi-fiscal operations
ZIMBABWE’S GDP GROWTH: 1994-2007
10.00%
5.00%
0.00%
-5.00%
-10.00%
-15.00%
1994
1996
1998
2000
2002
years 1994-2007
2004
2006
GDP GROWTH (%):ZIMBABWE, SSA & AFRICA,
1980-2006
B. Productive Sectors
• Diminishing international competitiveness
• Lack of secure and predictable property rights
• Rapidly-worsening shortage of skills arising from out-migration
• Hostile investment climate characterized by excessive, volatile and
mutually-conflicting government interventions and uncertainty over
economic empowerment initiatives
• Acute shortages of essential inputs, especially fuel, raw materials
and intermediate inputs
• Uncertain agricultural land rights and land tenure insecurity
• All sectors operating well below capacity levels (capacity utilisation
in industry was at 18.9% in 2007, down from 35.8% in 2005)
• High operating costs on account of infrastructural deficiencies,
especially electricity
• Business decision-making undermined by volatile, often
contradictory, regulatory environment
• Inadequate and dilapidated productive infrastructure
• Inefficient and subsidy-dependent public enterprises
C. Poverty
• High levels of unemployment and decent work deficits: 72% of the
population below the poverty line by 2003, up from 55% in 1995
• The percentage of the population employed in the formal sector
declined from 14% in 1980 to 10% by 2004 & around 6% by 2007.
• Growing informalization and deepening dualism in the economy: 4
out of 5 jobs were informalized by 2004
• Inequality worsened: the gini-coefficient increased from 0.53 in 1995
to 0.61 in 2003.
• The disappearance of a middle class: the ‘missing middle’
• Serious and rapidly increasing social distress and chronic food
insecurity
• Supply-driven education system without a ‘pathways’ approach
• Inadequate and dilapidated social infrastructure
• HIV and AIDS (adult prevalence rate of 15.9%) & the re-emergence
of diseases that had been controlled (malaria, TB, cholera).
D. How the State Does Business
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Fixation with short-term considerations: fire fighting mode
Institutional incoherence, inconsistency & overlap
Contraction of the revenue base
Deteriorating governance indicators
Estrangement from traditional development partners and processes
Zimbabwe’s isolation from the ‘mainstream’ of international
development means that when re-engagement takes place it will
have a poor understanding of how to do business with the aid
community
• Concepts, principles, processes developed since 1997 will be new
to the country.
E. Data deficiencies
The quality of data has declined over the last few years.
This is serious given that reliable baselines are key to the formulation
of sound strategies, the setting of targets and the monitoring of
progress.
F. The global economic recession:
• Sources of funding, including foreign direct investment, lines of
credit and migrant remittances are expected to decline significantly.
• The duration and depth of the recession will depend on the efficacy
of the stimulus monetary and fiscal support measures.
• Zimbabwe has already experienced a worsening balance of
payments deficit, from US$33 million in 2007 to US$410 million in
2008.
• Mineral exports, which accounted for 51% of total exports in 2008,
declined by 15.7% in that year.
STRATEGIC OBJECTIVES AND THRUSTS
A) Establish sound macroeconomic management
Strategic Thrusts
• Achieve price and exchange rate stabilisation
• Carry out fiscal consolidation and exercise monetary restraint
• Establish independent central bank
• Improve national management of aid flows based on Paris principles
B) Revive and restructure the productive sectors
Strategic Thrusts
• Rebuild competitive markets
• Establish clear property rights and land tenure security
• Utilize diaspora skills and capital effectively
• Implement relevant Doing Business reforms
• Ease skills constraint
• Improve efficiency of public enterprises
• Provide well maintained productive infrastructure
C) Ensure pro-poor growth
Strategic Thrusts
• Rapidly improve human development indicators
• Transform the dualistic structures in the economy
• Strengthen household food security
• Develop more demand-driven education and training systems
• Promote employment-intensive growth within a decent work
framework
• Provide well maintained social infrastructure
• Engage with international donor community
D) Build a developmental state and good governance
Strategic Thrusts
• Reform national institutions
• Expand the revenue base
• Promote stakeholder participation in national decision-making
• Strengthen the rule of law
• Transform State into a facilitator of development
Measures undertaken by the Inclusive
Government
Just before the advent of the Inclusive Government, the 2009 budget &
Monetary Policy Statement introduced the following measures:
• use of multiple foreign currencies; ‘multicurrencing.’
• Liberalization of the domestic pricing regime with the role of the
National Incomes and Pricing Commission (NIPC) reduced to
monitoring price trends in the region.
• Decentralization of the management of water to local authorities with
effect from 1 February 2009, with ZINWA reverting to its status prior
to 9 May 2005.
• Payment of allowances to civil servants at US$100 a month.
• Cessation of quasi-fiscal operations with the RBZ reverting to its
core mandate of ensuring price and financial sector stability.
The Short-term Emergency Recovery Programme (STERP) unveiled by
the Inclusive Government had 3 key goals and 3 priority areas. The
goals were:
• To stabilize the macro and micro economy
• To recover the levels of savings
• To lay the basis of a more transformative mid-term to long-term
programme that would turn Zimbabwe into a developmental state.
The priority areas being:
• Political and governance issues
• Social protection
• Stabilisation.
Key focus areas of STERP include:
• Social protection measures to mitigate poverty by strengthening
humanitarian assistance
• Support the revival of the productive sectors
• Creation of a conducive investment climate
• Restoration of a stable macroeconomic environment
• Collection of taxes in foreign currency
• A cash budget as part of fiscal austerity measures
• Cessation of quasi-fiscal expenditures to stem fiscal discipline
• Restoration of positive real interest rates to boost domestic savings
and attract portfolio investment.
Successful implementation of STERP will depend on the mobilisation of
US$8.3 billion, a task that has proven illusive.
Government has adopted partial dollarisation because it cannot finance
full dollarisation, with official foreign currency reserves at 0.8 months
of import cover in 2008
Full dollarisation involves the RBZ buying the deposits of the banks and
financial system as a whole, and converting them to US dollars,
which is not feasible without external assistance
The major advantages of (partial) dollarisation include:
• Enhances policy credibility
• Promotes macroeconomic stability by immediately killing
hyperinflation
• Instills fiscal austerity.
Its main disadvantages are:
• Loss of financial sovereignty
• RBZ loses its role as lender of last resort
• Limits government’s capacity to respond to economic shocks
• Loss of seigniorage revenue (revenue from printing money)
• Leaves the majority of the people out of the system (the Minister of
Finance has stated that ‘you eat what you kill.’)
WAY FORWARD
• Pro-poor growth
Future growth must be ‘pro-poor’ i.e. broad-based and inclusive.
This can be done by ensuring that the ‘integrability’ of the poor in a
growth dynamic is enhanced.
‘Integrability’ refers to the extent to which the poor are able to
integrate into economic processes such that, as growth and
employment expand, they can take advantage of the opportunities
that arise to improve the quality and quantity of their employment.
Robust growth must be translated into employment growth which is
the key nexus between growth and poverty reduction.
• The need to build a ‘developmental state’
A state committed to a technically-sound, long-term national
development agenda.
Developmental states are able to trigger and sustain growth and
poverty reduction over extended periods of time leading to a
structural transformation of the economy and society.
They successfully remove impediments (capability deprivation) to
participation of the poor in a growth dynamic.
Developmental states also demonstrate:
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Sound management of public finances
Effective public borrowing
Effective investment in human capital formation
Provide and maintain infrastructure
Cooperate with and stimulate the private sector
Respect private property rights
The importance of catch-up
A rapid process of familiarisation with the new aid architecture is
essential because:
• In line with the Paris Declaration, it will have to exercise leadership
in national development
• It will be a key partner in ensuring the efficiency and effectiveness of
aid received and accountable for it both domestically and externally.
Some key prerequisites
interactions
for
productive
Zimbabwe-donor
• A single overarching, technically sound, Government document
based on extensive consultations around which donor
harmonisation and alignment can take place.
• Rapid Government moves to address donor fiduciary risk concerns
through Public Financial Management (PFM) reforms.
• Begin work as soon as possible on operationalising the mutual
accountability principle through a Performance Assessment
Framework (PAF).
• Debt management capacity
HIPC debt relief, if granted, is not a panacea.
The dangers of slippage i.e. a return to unsustainable debt levels
after HIPC, are real.
Therefore rapid progress should be made in terms of strengthening
national debt management capacity so that the past is not
repeated again.
Key Challenges
The key challenge facing recovery is lack of progress in the
implementation of the Global Political Agreement (GPA).
The main areas of disagreement include the following:
• Appointment of the Governor of the Central Bank and
the Attorney General;
• Appointments of permanent secretaries, ambassadors,
provincial governors and the deputy minister of
Agriculture;
• Security sector, media, electoral reforms (a new electoral
act is in place and a new Electoral Commission has
been appointed);
• Governance reforms (removal of draconian pieces of
legislation – POSA, AIPPA, the Broadcasting Services
Act, the Criminal Law Codification and Reform Act etc);
• These laws are still being used to restrict individuals and
organizations’ rights (e.g. ZCTU);
• Land, public sector employment and payroll, and debt
audits.
• ZANU (P.F.) insists the key issues are the lifting of
‘sanctions’ and closing of the ‘pirate’ radio stations
transmitting anti-Zimbabwe propaganda from bases
outside the country.
• In December 2009, the ZANU (P.F.) Congress resolved
that it would not make any further concessions until
‘sanctions’ are removed;
• This position was reiterated on 26 January in response
to a statement from the British Foreign Secretary, David
Milliband who told the House of Commons on 19
January that their position on sanctions would be
informed by the MDC;
• Clearly, ZANU (P.F.) is stalling progress apparently to
ensure that MDC does not exploit the space created by
the GPA;
• On 29 January 2010, the Indigenization and Economic
Empowerment Regulations were gazetted stipulating
that any business with an asset value of US$500,000 to
cede 51% of ownership to indigenous Zimbabweans –
no consultations were held with the MDC;
• The Prime Minister’s spokesperson announced after the
cabinet meeting on the 13th of April that the regulations
were set aside;
• The President responded in the government daily
newspaper, The Herald of the 15th of April that they were
not set aside but were being improved;
• On February 2, the chief secretary to cabinet announced
that all Ministers would now report to the deputy
Presidents and not to the Prime Minister, a position that
was quickly reversed;
• When President Zuma came to review progress on the
implementation of the SADC Maputo resolutions, he
announced that all the sticking issues were being
attended to, only for the ZANU (P.F.) Central Committee
to announced three days after Zuma left that it still
upholds the resolution of its Congress.
• The Constitution making process has stalled, despite the
putting in place of the various sub-committees;
• The president has indicated elections could be held in
2011;
• The Prime Minister also has said the same, but insists
that before then there should be a credible electoral
system in place and a mechanism for the transfer of
power.
• It seems that the strategy of ZANU (P.F.) is to use
whatever means at its disposal to have the Inclusive
Government collapse and revert to the old order where it
can run elections as it sees fit.