Reviving Zimbabwe’s battered economy will not be a walk in the park for the incoming Zanu-PF government, as there is so much that needs to be done. During the campaign for the harmonised elections held on July 31, both the “winning party” Zanu-PF and the loser MDC-T promised the electorate that they had the right remedy for the country’s ailing economy. Since the MDC-T “lost” the elections, the ball is now in Zanu-PF’s court to deliver on their promises. Zanu-PF promised to create 2.265 million jobs across key sectors of the economy and ensure food security. The party also said it is targeting to create value of $7.3bn from the indigenisation of 1 138 firms and over $1.8bn from the idle value of empowerment assets unlocked from parastatals, mineral rights and claims. Zanu-PF also promised an average gross domestic product growth rate of 9% by 2018, up from the current 4.4%. Burt making promises has never been a problem for politicians, Zanu-PF included. The sticking point is implementation, and making good on such promises.
Does Zanu-PF have the means to end the country’s economic stagnation? The party’s trump card to economic glory is the Indigenisation and Economic Empowerment programme. Critics believe the policy will actually be the its biggest undoing, as it has already resulted in loss of investor confidence and capital flight. I believe it would have to be a Houdini act for Zanu-PF to deliver on its promises to the Zimbabwean populace. Even if there is the will power to deliver, circumstances and size of the task might be the biggest drawback. One thing Zanu-PF must not forget is that the country does and will not be operating in a vacuum; its recovery and growth will also depend on events happening across the globe, particularly in China and the US.
In the past two or so years emerging markets as well as frontier markets have been recording solid growth rates on the back of strong demand from China for commodities, as well as spillovers from the US’s Quantity Easing Policy. China has been the world’s largest consumer of a broad range of primary commodities. As a percentage of global production, China’s consumption during 2010 accounted for about 20% of nonrenewable energy resources, 23% of major agricultural crops and 40% of base metals. Chinese demand however seem to have faltered, and this will take its toll on investment and exports for many countries across the globe, Zimbabwe included. China’s slowdown in growth will have a significant impact on commodity producers such as Zimbabwe, where exports are dominated by minerals. Plummeting commodity prices suggest that mining will not easily help Zimbabwe recover unless there are serious adjustments to the costs of production/mining.
The normalisation of monetary policy in the US is also going to weaken investments across the globe. As of March 20 2013, the Federal Reserve under Ben Bernanke had added US$ 2 101trn to the base of the US money supply since September 2008. Much of the new money spilled into the developing world, as investors desperately sought better returns in new markets. Countries that were previously shunned by international investors suddenly received windfalls as they managed to access international capital for the first time.
This year, Zimbabwe got its fir share with the stock market recording a 39% year-to-date gain as at May 30 after foreign investors poured money onto the market. With the Fed eyeing an exit from loose monetary policy, emerging markets are coming under pressure. Bernanke has already said if all went well, the Fed would begin tapering off sometime: the party cannot last forever. His words have echoed loudly in emerging economies as growth is already slowing, and could slow further. Obviously this is not the kind of economy that the “New Zimbabwe” would want to contend with, as chances of a recovery will be very slim. Foreign direct investment and loans could become scarce, which would also impact the country’s attempts to improve productivity and growth.
Looking into 2014 and probably a few more years down the line, Zimbabwe will have to move mountains to be able to make a strong growth comeback given these events happening elsewhere in the world. In theory, the new Zanu-PF government is expected to bring in much-needed stability in terms of policy formulation and implementation, and help soothe investor fears currently characterising the economy. However, it’s no guarantee that conditions are significantly going to improve in the next two or so years. Aside from the obvious China susceptibility and the presumed end of US quantative easing, the country faces a myriad of domestic problems, particularly in terms of over indebtedness. Corporate balance sheets are in a poor state and the Zimbabwean consumer is heavily leveraged, which might lead to a seize-up in domestic demand. The country’s manufacturing sector is deeply in the red, while the mining sector is feeling the crunch of plummeting commodity prices.
Even so, the country remains extremely uncompetitive, with constraints such as aggressive wage legislation and obsolete machinery at most companies all likely to impede the recovery process.