Economic Outlook for Zimbabwe in the Context of Zim Asset, The Budget and The Monetary Policy

1. Economic Outlook for Zimbabwe in the Context of Zim Asset, The Budget and The Monetary Policy Presented by Moses Chundu (Msc Economics) IAC Breakfast Seminar on the Economy 7 February 2014

2. Introduction-Economic Highlights Zimbabwe economy stuck in a rut as national aggregate demand continue to fade and economic output trend downwards.… The current account deficit continues to widen Attracting FDI still a challenge Inflation continues to recede as aggregate demand tumbles Agriculture – Tobacco, a bright spot in a darkening economy, serious grains deficit anticipated

3. Introduction-Economic Highlights Mining and Quarrying: Pressure continues to mount as capital remains scarce Tourism: Arrivals are trending upwards as occupancies improve ICT: Competition is on the rise in telecoms Manufacturing Sector in Limbo Banking: Worsening NPLs, the albatross around the banking sector’s neck

4. Introduction-Economic Highlights GDP at market prices 2009 2010 2011 2012 2013 2014 2015 Actual Actual Actual Est. Proj. Proj. Proj. 5.4 11.4 11.9 10.6 3.4 6.1 6.4

5. 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, 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

6. Zim Asset-Funding Dilemma The Plan to be funded from, tax and non tax revenue, -firms closing leveraging resources, -lack of transparency Sovereign Wealth Fund, -not now cannot save 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 other financing options, focusing on the BRICS.-not interested in us but our resources

7. 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.

8. 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.

9. 2014 Monetary Policy statement ‘I remain optimistic that the economic prospects for Zimbabwe will not disappoint, providedwe decisivelyand holisticallyimplementall 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.

10. 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; and Enhancing Export Receipts-reducing overdue CD1s

11. 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. The porous ZIMRA system and duty regime not helping either. Archaic labour law regime adding salt to the injury.

12. The Outlook-The Sad Reality Economic activity to remain depressed with more company closures expected. Liquidity 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-less than 2 percent. Government revenues will remain squeezed against the backdrop of a blotted and populist government.

13. 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 favorand upholding the doctrine of restitution ahead of retribution, recovery ahead of imprisonment.

14. 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. 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.

15. Thank you