… amid fears Zim economy will slump by double digit
PHILLIMON MHLANGA
Political dialogue between the ruling ZANU-PF and the MDC Alliance could extricate Zimbabwe from unrelenting socio-economic crisis amid fears that the already frail economy is headed for a double-digit percentage contraction, a leading investment firm has said, as the coronavirus induced lockdown disrupts operations.
Zimbabwe’s political landscape remains highly polarised with the country’s two biggest political parties ZANU-PF and MDC-A locked in an impasse over a possible dialogue to resolve the political crisis.
The MDC-A presidential candidate in the 2018 elections Nelson Chamisa remains defiant, disputing the presidential election results won by President Emmerson Mnangagwa.
The Supreme Court recently ruled that Chamisa is not the legitimate leader of the opposition party although he maintains a stranglehold on the party’s multitude of supporters and sympathisers.
Former South African president Thabo Mbeki last year tried to lay the groundwork for possible negotiations between the belligerent parties, which now appear to have collapsed Mnangagwa vowed negotiations will only be held under the Political Actors Dialogue (POLAD) platform established last year, which involves fringe parties that participated in last year’s polls. Chamisa said he will not join POLAD.
Now, Imara Asset Management Zimbabwe chief executive officer, John Legat said the Government of National Unity could be the tonic required to extricate the economy post Covid-19.
“The last time that Zimbabwe’s economy was on the rocks was back in 2008.
Ultimately this led to the Government of National Unity that brought all Zimbabweans together to resolve the economic issues at hand. COVID-19 may well be the catalyst that brings such an outcome to the fore once again and which leaves the current political bickering behind for the sake of the entire Nation,” Legat said.
There are fears the economy could contract by double digits. The distinct nature of the economic downturn-stemming from a health crisis due to coronavirus crisis-will be a further obstacle for economic rebound.
The projection reaffirms sentiments by the International Monetary Fund (IMF) and other local economists, who also reflect the same trend.
It appears there is consensus among economists.
Their forecasts range from 10% to 15%. Some are even suggesting a much steeper decline.
Legat believes the process of resuming economic activity after the COVI-19 pandemic will be a challenging one. Zimbabwe, Legat pointed out, needs a “strong monetary system to build upon, not one of quicksand”.
“This is not a great starting point when trying to rebuild an economy and hence a focus on property rights and the law of contract remains a fundamental requirement going forwards.
In our view this will require extensive institutional reform in Zimbabwe and liberalisation,” Legat said.
He said Covid-19 may well be the catalyst that brings such an outcome to the fore once again and which leaves the current political bickering behind for the sake of the entire nation.
“Post Covid, we would expect GDP to decline in the double-digits but this remains a moving target and depends on the end to the global, regional and local lockdowns,” Legat said.
“Government decisions across the world to close down their economies through lock-down periods will of course have a devastating impact upon the world economy and global trade.
An end to the global lockdown won’t necessarily result in a sharp bounce back either. So the future is very much uncertain.
For Zimbabwe whose foreign exchange reserves are negligible -about one week’s import cover according to the IMF- any lock down that restricts export earnings will be very bad news.”
He said it would be much harder for the Zimbabwe economy to recover based on a weak foundation centered on the Zimbabwe dollar, adding that Zimbabwe needs a strong monetary system to build upon, not one of quicksand.
Legat said Zimbabwe industry was in turmoil and expects growth domestic product to shrink further.
Last year, the economy contracted by 6.5%. As the coronavirus pandemic continues and no one knows when the lockdown will be relaxed, many sectors of the economy are feeling the stain.
Government is facing more calls for direct intervention. Companies are crying out for more than ZWL$2bn bailout package.
Most companies in Zimbabwe have one thing in common at the moment. They all fear the deadly virus will perpetrate lasting damage on them. “Our discussions with management in industry, banking, mining and agriculture all point to a further decline in GDP in 2020,” Legat said.
“Agriculture has been badly affected by another devastating drought whilst a decline in funding reduced the amounts initially planted although tobacco should be on a par with 2019.
“Gold production looks as though it will fall further and platinum at best should be stable. In industry, consumer demand has collapsed pushing volumes down by on average 30% year on year.”
The financial sector as well has a huge challenge. The capital and liquidity buffers they have built over the last 12 months is not sufficient enough to support the dramatic economic crash due to coronavirus crisis.
Banks’ ability to cope with the unprecedented downturn is in doubt. And the coronavirus crisis has seen banks declining substantially in real terms to the extent it can no longer finance either the private or the public sectors.
Legat says Covid-19 could be the catalyst to force the widespread political and economic reforms that Zimbabwe so desperately needs.
In addition to creating a strong monetary foundation, he said Zimbabwe will have to focus on a radical rethink with regard to property rights and the rule of law governing them. Apart from the impact of the Covid-19, the government has been scoring numerous own goals.
Government de-dollarised the economy in support of the Zimbabwe dollar introduced last year in June after banning the multicurrency system. But, recently, government allowed the wider use of the other currencies, especially the United States dollar.
“The effect of redenominating assets and liabilities into ZWL was to enable the government to fund itself again by printing money and/ or Treasury Bills and to rescue the banking sector.
The flip side of such a policy was to break the illusion that Zimbabwe supported property rights, the fundamental backbone of a modern economy,” Legat said.
To unlock foreign investment and remove a significant perceived risk to the sector, Legat said a formal agreement for compensation of previous farmers who had their land expropriated is indispensable.
While land remains as ever a critical sector with regard to property rights, so too should the financial system where the entire population has been subject to the loss of savings and their earnings as a direct result of the conversion of their USD monetary assets into Zimbabwe dollar, Legat said.
Zimbabwe has experienced large depreciation episodes due to policy uncertainty which has severely impacted the economy
