State of nation address a far cry from economic reality

THE concerns raised by bellwether company Delta Beverages over the state of the economy in its financial results coupled with the World Bank’s unflattering report on Zimbabwe last week indicate the impossible task President Emmerson Mnangagwa’s (pictured) administration still faces to resuscitate the economy.

Delta chairperson Canaan Dube pointed out that currency depreciation last year was complicated by multiple exchange rates, hyperinflation and reduced business following the advent of the Covid-19.

“The board is concerned about the unstable operating environment as indicated by hyperinflation, frequent changes to the policy environment, a weak local currency and the existence of multiple and disparate exchange rates,” Dube said in Delta’s financial results for the period ending March 31, 2021.

“The access to foreign currency has however improved following the introduction of a foreign currency auction system and partial re-dollarisation. The legacy foreign liabilities are covered by the Reserve Bank of Zimbabwe arrangements, although the policy framework is not in place.”

This is in stark contrast to the upbeat tone struck by Mnangagwa in his State of the Nation address last weekend.

“Led by the Minister of Finance and Economic Development, Professor Mthuli Ncube, the deep and broad reforms of the last three years are beginning to bear fruit, and the world is taking note,” Mnangagwa said.

“These are perhaps the largest set of reforms in our nation’s history. In just three years, we now see hope and progress. We see a once broken economy showing all the fundamental indicators that it is on the road to being well and truly fixed.”

However, the World Bank report on Zimbabwe, launched last week, painted a grim picture of the parlous state of the economy that is divorced from Mnangagwa’s rosy assessment.

Titled Overcoming Economic Challenges, Natural Disasters and the Pandemic: Social and Economic Impacts, the report by the World Bank pointed out the number of extremely poor Zimbabweans grew by 1,3 million last year, pushing the figure of citizens living on the fringes to 7,9 million.

World Bank surveys done last year showed that nearly 500 000 Zimbabwean households had at least one member who lost a job.

Less than a quarter of the Zimbabweans classified as extremely poor received food aid in June last year and this share dropped to 3% of rural households in September 2020, the World Bank added.

Even though there have been some positive signs, there is still a lot to do before the economy can recover, according to economist Prosper Chitambara.

“We still have a lot of challenges,” Chitambara said “There have been policies that have unsettled market confidence and to regain that confidence there needs to be a track record, which is not there, which is difficult.”

He added that the government cannot afford “to sit on its laurels and pat itself on the back” given the magnitude of the economic challenges the country faces.

The current economic challenges are epitomised by the foreign currency auction market which was launched in June last year to improve the availability of foreign currency and help stabilise the local unit. Though it initially bought stability, it has faced major bottlenecks.

These include the lengthy delays of between six to nine weeks by the central bank to settle winning bids despite the initial promise that the bids would be settled within 48 hours. The backlog is estimated to be more than US$150 million which has given the parallel market a new lease of life .

e promulgation of Statutory Instrument 127 by the government which effectively bars and penalises the pricing of goods above the official auction rates has resulted in the parallel exchange rate shooting up to as high as ZW$140 to the greenback.

The turmoil on the currency market and three digit inflation can be attributed to the government’s decision to ban the multicurrency regime and make the Zimbabwe dollar the sole legal tender through Statutory Instrument 142 of 2019 without meeting the vital benchmarks.

Unsurprisingly, this led to the collapse of the local currency with inflation skyrocketing to more than 800% in July last year.

Government was forced to make a climb-down bringing back the multi-currency regime last year under the guise of ameliorating the impact of the Covid-19 pandemic.

Policy inconsistency remains the major impediment to implementing far reaching economic reforms, according to the former Employers’ Confederation of Zimbabwe executive director and labour market analyst John Mufukare.

“Our biggest problem is policy inconsistency which is something that has been happening since independence,” Mufukare said. “Investors need to know that the policies that are in place today will be the same in five years’ time. Investors will ask why on earth the country cannot have policy consistency.”

He gave the example of the policy inconsistency around the issue of currency, which has hamstrung the country’s development.

“If we have policy consistency then we are halfway done to achieving economic reform,” Mufukare said.

Policy inconsistency particularly on issues around currency has wreaked havoc on the economy which has largely contributed to the country’s foreign direct investment plunging from US$717,1 million in 2018 to US$154 million in 2020.