Presentation on theme: "Where is the economy heading to? CiZC Policy Monographs: Zimbabwe Economy Post July 31 Where is the economy heading to? Presented by Moses Chundu (Msc."— Presentation transcript:
Where is the economy heading to? CiZC Policy Monographs: Zimbabwe Economy Post July 31 Where is the economy heading to? Presented by Moses Chundu (Msc Economics) CiZC Seminar on the Economy 17 June 2014
Introduction-Economic Highlights Zimbabwe economy stuck in a rut as national aggregate demand continue to fade and economic output trend downwards.…deflation The current account deficit continues to widen Attracting FDI still a challenge thus worsening the liquidity situation-confidence issues Inflation continues to recede as aggregate demand tumble-its more than price correction don't be fooled. Agriculture – Tobacco, a bright spot in a darkening economy, grains deficit anticipated though proving to be the best grain year courtesy of the fair rains-not ZIMASSET/Presidential input scheme as claimed
Introduction-Economic Highlights Mining and Quarrying: Pressure continues to mount as capital remains scarce and indigenisation confusion takes its toll. Tourism: Arrivals are trending upwards as occupancies improve-best tourist destination by EU at the back of relative peace following the not so violent 2013 poll. ICT: Competition is on the rise in telecoms, improved service delivery and connectivity Manufacturing Sector in Limbo-no capital, no utilities, no demand, rising worker demands-hence more company closures with attendant rising unemployment. Banking: Worsening NPLs, the albatross around the banking sector’s neck, reverse indigenisation.
Zim Asset-the Pillars ‘Zimbabwe experienced a deteriorating economic and social environment since 2000 caused by illegal economic sanctions imposed by the Western countries’. Pg 1 The implementation of Zim Asset will be underpinned and guided by the Results Based Management (RBM) System through OPC, since the 1990s Zim Asset is a cluster based Plan, not new National Corporate Governance Framework will be launched and implemented-endemic corruption Value addition will be key-not a novel policy stance, has remained statement of intent for decades now Nothing new in the above pillars of the Plan. Failure to establish causality will be its downfall
Zim Asset-The Assumptions Improved liquidity and access to credit by the key sectors of the economy such as agriculture;-a pipedream, though there is mystery surrounding the $2.4 billion agric facility for 2014. Establishment of a Sovereign Wealth Fund;-impossible Improved revenue collection from key sectors of the economy e.g mining;-the reverse is true the action on the ground not backing this assumption-policy conflict. Increased investment in infrastructure, through acceleration in the implementation of PPPs and other private sector driven initiatives; -corruption main challenge
Zim Asset-The Assumptions Increased FDI;-ground actions actually achieving the opposite-capital flight Establishment of Special Economic Zones;-not magic, the whole country actually needs to be turned into a SEZ. Continued use of the multi-currency system;-still holding but on a narrow string Effective implementation of value addition policies and strategies;-threat of policy contradictions Improved electricity and water supply;-you just need to listen to Mavahaire and see a list of his board members to judge.
Zim Asset-Funding Dilemma The Plan to be funded from, tax and non tax revenue, -firms closing, negative variance for ZIMRA collections, Chiadzwa gone dry trying to do the right thing when its late-one firm to mine nothing. leveraging resources, -lack of transparency Sovereign Wealth Fund, -not now cannot save- S t+1 cannot fund E t issuance of bonds, -no takers-trust issues accelerated implementation of Public Private Partnerships,- corruption main challenge securitization of remittances, -not easy re-engagement with the international and multilateral finance institutions and-difficulty given gvt’s double standards and multiple messages other financing options, focusing on the BRICS.-not interested in us but our resources; where is SA R700m 2009 pledge?
2014 Budget ‘Business confidence remains low and Zimbabwe’s country risk premium is still high. The result is a lack of investment and financial inflows required to drive future growth’. Min Chinamasa The 2014 National Budget, consequently seeks to facilitate the implementation of ZIM-ASSET programmes Central to this is recovery of both public and private investment in the economy. Minister was spot on but his subsequent pronouncements are addressing other issues not the above issues, if anything making it worse e.g. stance on indigenisation.
2014 Budget Budget sought to effect the principle of value addition by revamping the duty regime. The targeting of industries and products has not been strategic at all, needed more consultation. Value addition means investments and as long as confidence issue are not addressed, the support to Zim Asset will not materialise. Funding gap will remain a challenge in the absence of deficit financing in a multicurrency regime. The role of the sovereign wealth fund and timing of its launch demonstrates a deficit of knowledge of its make up and functions. Budget strain will continue to manifest in delayed civil servants salary payments.
2014 Monetary Policy statement ‘I remain optimistic that the economic prospects for Zimbabwe will not disappoint, provided we decisively and holistically implement all the ingredients as embodied in Zim-Asset’. Acting Governor Dhliwayo. MPS a failure from the onset given the impossibility of fulfilling the above assumptions. Proposed measure below not new and therefore will not work miracles on their own. Bound to fail for the same reasons previous interventions failed, need to deal with fundamentals of economic management.
2014 Monetary Policy statement Proposed policy measures include; Enhancing role of the Reserve Bank -lender of last resort; Capitalization of banks-extension of compliance; Consolidations and Mergers-of small banks Insider Loans and Non-Performing Loans; No more Enhancement of Supervision through Amendment to the Legal Framework; Gold Mobilization;-legalising makorokoza Use of electronic means of payments to enhance financial inclusion; means ok but object is fast dwindling; and Enhancing Export Receipts-reducing overdue CD1s-how do you control this, we need to export more period!
The Real Challenge Zimbabwe facing a governance crisis, the recent cashgate issues just tells of the extent of the rot in governance circles both in government and private sector. Corruption tax is too high in both government and private sector. Competitiveness is more affected by corruption ahead of the other causes that are fronted like infrastructure and liquidity, these are symptoms. What is reported on the $144m HCC Chinese tender is happening at all levels, ending up producing goods that are 2-5 times our regional competitors. Ref ZBC OBV! The porous ZIMRA system and duty regime not helping either-smuggling and dumping killing the remaining industries. Archaic labour law regime adding salt to the injury.
The Outlook-The Sad Reality Economic activity to remain depressed with more company closures expected. Liquidity and budget challenges to persist in the outlook. Confidence in the banking system to remain low thus locking the little liquidity away. If multicurrency regime is maintained the economy will just go by registering negligible growth figure way below the projected numbers-around 2 percent. Government revenues will remain squeezed against the backdrop of a blotted and populist government. Do we need 10 boards to deliver electricity? Infrastructure deficit to persist dampening any prospects of a recovery.- no ZESA, no water, more potholes, yet, higher tariffs, more charges, double tollgate fees
The Outlook-Game Changers The questioned legitimacy of the government no longer an issue, the government is here to stay, the best that can happen is for the present government to respect basic principles and laws of economic management and avoid the populist trap as it has always backfired. To avoid total collapse government will have to avoid the dual temptation of Z$ reintroduction and controls. The real game changer will be the attitude of government towards addressing corruption that is now endemic at all levels of society. Bringing perpetrators to account without fear or favor and upholding the doctrine of restitution ahead of retribution, recovery ahead of imprisonment.
The Outlook-Game Changers Merit based appointments in all key institution and injection of new blood to drive institutions into the future-no recycling of deadwood starting with cabinet all the way down. Balancing loyalty and performance/competence Clear and better signals on key policy areas affecting key means of production eg. Land reform, and indigenisation laws. Beyond populist pronouncements to amendments of relevant statutory instruments to foster certainty. Immediate review of labour laws away from the tired principle of collective bargaining which creates unemployment to competitive productivity linked industry/firm specific wages negotiations. Implementing a duty regime that promotes winners and not losers or speculators. Protection not for its sake but to preserve jobs in competitive industries.
The Outlook-Role of Civil Society Talk of regime change in the old tone a tired script overtaken by time and events. Sad reality is you are stuck with a regime that is not patriotic. Lobbying role need to leverage factional fights and buttress the facts coming out of the fights, i.e. lobby for reform of laws to back up good policy pronouncements; lobby for amendments of the various laws esp. on rule of law and civil rights in compliance with the new constitution; lobby for accountability and prosecution of blatant corruption in public domain-pursue more private prosecutions; lobby for reform of electoral law ahead of 2018. Post December 2014 the landscape can significantly change so much of the lobbying must gain traction now when intra- party fights are still pronounced.