By Mvelo Ngwenya- Bulawayo, Zimbabwe.
When a diamond is in the mud what do you choose to focus on, the mud or the diamond? Your answer to that question may well depend on whether you are an optimist or pessimist.A superficial and casual analysis of the situation in Zimbabwe can be misleading. At face value, all seems to be gloom and doom. However as Mthuli Ncube, the man who has been tasked by the president of Zimbabwe, E.D Mnangagwa, to steer the country’ s economy out of the murky waters rightly points out in one of his posts
“you can only know the real state of the car when you open the bonnet and take a look inside”.
Behind the ramshackle that everybody is seeing and is obsessing about are processes underway that could possibly lift the country’s economy out of the quagmire and catapult it back into a powerhouse in the next few years.
In this article, I take a look at some encouraging developments that are taking place currently that could help pivot the economy into a positive high growth trajectory.
Restoration of fiscal discipline.
Zimbabwe was running a fiscal deficit of hundreds of millions per month. The government is unable to access funding from financial institutions i.e. the World Bank and the IMF. So it has resorted to local financial markets to access funds, the government has been borrowing from local banks and this creates a problem in the sense that local companies which are key economic drivers are left clutching at straws as the government has been getting a lion’s share of the limited funds available from the banks for borrowing. In short, the government has been crowding out other key economic players who need to also borrow, consequences of this are that it has perpetuated economic stagnation by exacerbating liquidity challenges. Companies are unable to import raw materials and expand operations as funds to do so are unavailable partly due to government’s voracious appetite to borrow, this has been happening for years but the situation is changing now. The finance ministry under the oversight of the newly appointed Ncube has restricted government borrowing in line with the RBZ statutes which state that borrowing from the reserve bank should not exceed 20% of government’s previous year revenues. As a result for the first time in more than 10 years, the government is now living within its means. This is a positive fiscal development that is unlocking capital to other economic players, particularly industry and at the same time, it is allowing the Reserve Bank the possibility to build reserves. In fact, as of December 2018, the government cut the fiscal deficit from $242 million in November to a surplus of$733 million in December.
Introduction of an intermediated money transfer tax.
Although criticised as being anti-poor at its inception the tax has proved to be a wise move especially in the wake of the devastating cyclone Idai. Writing in one his posts recently to defend and justify his stance, the finance minister quoted the words of Albert Einstein-
“ what is right is not always popular and what is popular is not always right”.
Introducing the tax was a tough decision that the minister says needed to be done. To date, the government has collected over $449 million dollars. This money is meant to finance various government programmes and help balance the budget. Secondly, the tax was introduced to help the government deal with “inescapable and unexpected” expenditure. Zimbabwe is located in a region that is susceptible to the effects of climate change; the recent cyclone underscores that fact. In the aftermath of the cyclone, the government availed $100 million to assist with the disaster relief programme. All that money came from the unpopular 2% tax, which was introduced for among other things, exactly for those kinds of events. The tax has also enabled the government to absorb more people into the civil service and to finance other development programmes.
Expansion of the RGM International airport.
The upgrade of the airport to the tune of $153 million USD which was launched last year is well underway, the work is expected to be completed in 2023. The expansion of the airport will see passenger capacity increase from the current 2.5 million to 6 million a year. Infrastructure projects are key enablers of economic development and growth.
Scrapping of the 51 percent local share requirement.
Previously under the much famed Indigenization Programme, foreign investors were required to seed 51 percent of their hard-earned capital to locals for free, and retain only 41percent for themselves, a move that obviously spooked investors. This policy is about to be gutted as the new economic policies kick in. Foreign investors will now be permitted to own a hundred percent of their capital, a move that is pro-investor and which is likely going to result in increased foreign direct investment.
$5 billion Butoka Gorge power project.
This project which is jointly being pursued by Zambia and Zimbabwe will result in an additional 24000 megawatts for the countries; the power will be shared equally between the two nations. Electricity generation is a catalyst for reindustrialisation.
An economist’s point of view.
One of Zimbabwe’s respected economists, Eddie Cross states in one of his recent posts concerning the current hardships stated
–“This is a period of austerity the local currency has declined 25 percent of what it was 2 years ago but”,
“it is necessary, it is part of the process of establishing a market-driven economy, the process of price discovery”.
The process is on-going which will allow the market forces to find and establish a rate of exchange at which supply and demand are in equilibrium. An economy is stable when supply and demand are at that point. Meanwhile, this is a time of painful sacrifice. So, rather than being one dimensional and catastrophising over the current situation which is necessary by the way if the economy is to get back to the path of recovery, perhaps people should in the words of Zimbabwe’s finance minister
– “open the bonnet and take a look inside” in order to gain a deeper understanding “.