2022: No light at end of the tunnel
THE Zimbabwe government is facing a Herculean task in the new year to revive the economy, which is facing major headwinds that include a decline of business and investor confidence.
At the backend of last year, the country’s economic crisis had deepened particularly with the ever-widening chasm between the parallel and official foreign currency exchange rates. The auction rate is currently standing at ZW$108,666 against the parallel market rate of ZW$230 to the US$1.
The disparities have resulted in the weakening of the local unit and the erosion of incomes against the skyrocketing prices of basic commodities.
This has resulted in a massive brain drain as professionals leave in droves due to poor remuneration and working conditions.
The Health Services Board (HSB) revealed recently that more than 2 000 health workers left the country last year alone. Chief Justice Luke Malaba this week said that poor working conditions have resulted in the resignation of 88 judicial officers, including 18 magistrates in 2021. The country has also been hit by a severe brain drain of auditors who have been lured by international firms who offer much higher wages.
Such has been the weakening of the currency that the government, despite their stance to shore up the local unit as the sole legal tender, took the unprecedented step of paying civil servants’ bonuses in hard currency. This, the government said, had been done to protect its workers from what it called “exchange rate fluctuations”.
Inflation, which had begun to decline, has started rising again ending 2021 at just over 60%.
It is due to this economic decline that there is doubt that the country can achieve the 5,5% growth this year as projected by Finance minister Mthuli Ncube in the 2022 National Budget.
Even the Treasury chief has warned that unpredictability of the exchange rate, among other factors, could be a major threat against achieving the 5,5% growth he has forecasted for this year.
The chaotic economic environment has had a profound negative effect on Zimbabwe’s international standing which has negatively impacted investment prospects.
American market research firm, Fitch Solutions, said Zimbabwe remains the highest economic risk country in the southern African region.
In its December 2021 Southern Africa Outlook, Zimbabwe scored the lowest on the economic stability index in the region both in the long and short-term. The country risk index by the think-tank scores countries on a scale of 0-100 in which a higher score equals lower risk.
On the short-term economic risk index Zimbabwe scored lowest at 27,7 and is far below the regional average of 43,2.
Botswana scored the highest on this index with 57,9. Zimbabwe also anchored the long-term economic stability index scoring just 20 against a regional average of 42,2. South Africa scored the highest on this index with 55,2.
The United Nations Conference on Trade and Development (Unctad) revealed recently that Zimbabwe is ranked bottom on the Trade Openness Index.
In a further blow to President Emmerson Mnangagwa’s administration, even companies from the country’s close ally, China, are abandoning ship.
Chinese explosives company Hunan Nanling Industrial Explosive Materials recently cancelled its contract to invest in a US$7,5 million 12 000-tonne emulsion explosives fixed production line in the country through one of its subsidiaries, Qianhai. It attributed its decision to what it says is a “turbulent domestic situation” in the economy.
The economic crisis is a far cry from the government’s rosy picture of economic recovery according to labour development analyst and former Employers’ Confederation of Zimbabwe executive director John Mufukare.
“The official version is that everything is hunky-dory with a projection of 5,5% growth. The picture on the ground, however, is far removed from this. When one reads the signs, one cannot say that everything is hunky-dory,” he said.
Mufukare said with the current challenges bedevilling the economy, it would need a magician to propel the country to a 5,5% growth by the end of the year.
The projection of 5,5% growth cannot be achieved with the current exchange rate volatility, according to business consultant Simon Kayereka.
“The biggest challenge this year is the gap between the official exchange rate and the parallel rate. Since all prices are based on the parallel market, it basically erodes incomes. Therefore, labour cannot remain in the active interface of this erosion,” he said.
“The RBZ, which has been manipulating exchange rates, has now run out of ideas. They are now failing to rein in the arbitrage opportunities they created. The growth of 5,5% in real terms is not attainable.”
The Zimbabwe National Chamber of Commerce (ZNCC) Inaugural State of Industry and Commerce Survey 2021, which was undertaken to provide updated information on industry performance relating to capacity utilisation, said more than three quarters of businesses across various sectors of the economy found the Ease of Doing Business in Zimbabwe unfavourable last year.
The survey also noted that over the past three years the promulgation of a plethora of statutory instruments (SIs) have had unintended destabilising effects on businesses adding that these SIs are introduced with neither consultation with the business community nor impact analyses.
This has further dampened business and investor confidence.
It remains to be seen whether the government can make any headway in resolving the country’s many challenges in 2022.