ECONOMY: An Economy Strained By Contrasting Fortunes

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By Ray Matikinye
Zimbabwe is desperate for fresh lines of concessional lending to recapacitate its ailing
economy -hamstrung by decades of corruption and mismanagement, stoking dire
foreign currency shortages causing it to weltering on its economic vision.
Because it is shunned by international lenders for defaulting on previous debt, this has
largely hobbled its resolve to transform from the backwaters to an upper middle- income
economy in the next decade amid economic turmoil.
As prices of basic commodities spike and the foreign currency black market becomes
volatile, apparatchiks in President Emmerson Mnangagwa’s governing Zanu PF party
find it harder to resist the urge to revert to its old errors of decisions by fiat hostile to
national economic progress.
And central to the drama is whether Mnangagwa will continue to stand by his Finance
and Economic Development Minister, Professor Mthuli Ncube, or balk to pressure from
his party’s apparatchiks where discontent is apparently swelling among a coterie of idle
ideologues that feels left out of decision-making.
Mthuli Ncube has introduced a raft of policy changes, pared stifling legislation in a
strong-willed thrust crafted to attract foreign investment such as a reversal of
 obstructive Indigenisation laws that forced investors to turn up their noses at an
erstwhile ‘pariah state’.
When appointed, the first thing Ncube put in his cross-hairs was to arrest the budget
deficits, ‘austerity for prosperity, he called it. He crafted a Transitional Stabilization
Programme that runs from October to December next year to confirm the position that
fighting budget deficits is his priority.
A quarterly treasury bulletin (2018 Q4) released recently indicated that government had
nipped budget deficits and had kept its lane to achieve its growth targets when it
recorded a budget surplus on the back of improved revenue collection by December last
year.
Revenue rose by 43.4 percent to US$1.69 billion against a set target of US$1.8 billion
abetted by implementing austerity measures.
Although Zimbabwe managed to settle its debt to the International Monetary Fund (IMF)
it still owes the World Bank and the African Development Bank (AfDB) in the region of

US$2 billion with official data putting the total external debt at US$11.5 billion. Harare
has continued “Looking East” pinning its hopes on China for a bailout.
But Beijing has expressed reservations over Zimbabwe’s capacity to repay. China has
ladled out more than US$700 million in loans and grants to Harare with close to US$200
million of these loans falling due this year alone.
At the beginning of the year, South Africa was working on extending a short term credit
facility in the region of $7 million to Zimbabwe to help expunge Harare’s external arrears
and discussing specifics of a bailout package.
But early this year in February, South Africa turned down a separate request for a
US$1.2 billion bailout package.
Worsening matters, the Reserve Bank of Zimbabwe (RBZ) currently only has $1.19
billion worth of liquidity facilities insufficient to address the forex challenges according to
chairperson of Parliamentary Public Accounts Committee Tendai Biti who says the
central bank is effectively broke after government ran up its overdraft facility with the
bank to finance its budget deficit.
At a meeting to discuss the state of the economy organised by the British Council
recently Biti, a former Finance minister in the ill-fated national unity government
between 2009 and 2013, said government has been running up the overdraft facility to
partly finance the budget deficit despite the RBZ being broke.
“Government’s overdraft with the central bank exceeds US$3 billion. The central bank
itself is broke and under-capitalised because there had been a bank robber who had
actually literally and metaphorically raided the central bank and that bank robber was
central government,” Biti said, claiming that when the GNU collapsed in 2013, US$6.5
billion was physically left in the central bank coffers.
Reserve Bank of Zimbabwe Act, says the government overdraft with the central bank
should not be more than 20 percent of the previous year’s revenue but government’s
foray into central bank coffers is about three times its permissible overdraft limit as
stated in the Act.
As a result of this, Zimbabwe has very little credit until it expunges its huge debt, which
according to the Parliamentary Budget Office, is over $11 billion – debt accumulated
over decades of borrowing and credit facilities both locally and internationally that
remained in arrears owing to government’s high expenditure constituting about 90
percent of annual revenue.
Last September, the Parliament Budget Office said the country’s sovereign debt of
US$20 billion (estimate for 2018) was primarily driven by government’s deficit financing
activities of running up the RBZ overdraft facility and the issuance of Treasury Bills.
Mnangagwa inherited an economy tipping on the brink, which he has been battling to
pull back through radical policy reversals and a rigorous charm offensive aimed at
recovering lost international investor confidence.

He inherited an economy ravaged by derelict infrastructure and a host of other socio-
economic ills now seemingly ranged against his vision of turning the country into an
upper middle income economy by 2030 through targeted austerity measures though this
threatens to turn into a nightmare.
“Our biggest challenge at the moment is the debt problem, whereby because of that
debt we are unable to access new capital,” former Finance Minister Patrick Chinamasa
(now hived off, among other hard-line ideologues to the party headquarters) said.
Amid diverse and varied economic fortunes, Zimbabwe’s mining sector is on an
exponential growth trajectory with the sector expected to earn $3.5 billion this year from
increased production. Last year, the country earned $2.6 billion from the sector.
The latest figures from the Chamber of Mines show that the 2017 earnings when
Mnangagwa ousted long-serving dictator, Robert Mugabe in a military-backed putsch,
will be easily eclipsed by strong production in gold, diamonds, chrome, coal, nickel and
lithium.
“The mining sector in 2017 recorded gross revenues of around $2.6 billion and we
expect this figure to go to $12 billion by the year 2023, and this is underpinned by
growth in most minerals,” Mines minister Winston Chitando said.
“For 2018, we are expecting to earn around US$3.5 billion, which is an increase in
earnings by about $1 billion from last year. Everything so far indicates that we will reach
this year’s target.”
Minister Chitando said President Mnangagwa’s vision for a middle-income economy by
2030 had primed the mining sector to pursue ambitious but realistic targets, such as
gold output of 100 tonnes by 2023.
Chitando’s optimism of removing Zimbabwe out of a financial rut is based on the fact
that Australia Stock Exchange listed Prospect Resources Plc says its Arcadia Lithium
project just outside Zimbabwe’s capital has proven capacity to generate nearly US$3
billion in export revenue.
The project is expected to go into production next year in 2020.
Lithium gained global significance due to expanding use in electric vehicle batteries as
the industrialised countries scoot towards reducing carbon emission blamed for fueling
climate change.
“The completion of the feasibility study is a great achievement and the results position
the company to become a key player in the global market, Prospect Resource Plc
Managing Director, Sam Hosack said.
Zimbabwe Lithium Company and the Zimbabwe Mining Development Corporation
(ZMDC) have entered into a joint venture agreement for the development of lithium
tailings deposit at Kamativi Mine in south-western Zimbabwe.

Managing director, John McTaggart said his company was pleased to have entered into
a joint venture partnership with ZMDC, paying tribute to mines minister, ZMDC and “all
stakeholders that have worked with us to bring this project to its current stage.”
Yet another high-profile resource firm, Invictus Energy, which has been conducting
feasibility studies of oil and gas-drilling is upbeat about a sizeable increase in the
prospective resource estimate of the Muzarabani oil prospect that currently stands at
3,9 trillion cubic feet and 181 barrels of condensate in eastern Zimbabwe.
The Carbora-Bassa project covers Muzarabani Prospect, which is potentially the
largest, undrilled seismically defined structure onshore Africa.
Invictus Energy managing director, Scott Macmillan is excited: “The better imaging over
the Muzarabani structure particularly along the basin fault is very encouraging. We are
excited to have received the final data from our contractors and see significant
improvement in the quality of seismic data and sub-surface imaging,” he says.
While prospects for major economic upturn are promising on the back of growth in the
mining sector, manufacturers are straining under a US$100 million external debt as
foreign currency shortages continue snapping at their heels. Key industry players say
they have run out of raw materials. The central bank has done little to assist, directing
them to resource-short inter-bank market.
Manufactures now face onerous challenges of outstanding external debts and no
foreign currency to import essential stocks of raw materials.
An increase in the price of staple maize meal is imminent due to the rise in the cost of
procuring grain which had gone up by close to 70 percent, Grain Millers Association of
Zimbabwe chairman; Tafadzwa Musarara told a Southern Region Millers meeting in
Bulawayo, the country’s second largest city.
“There is going to be an increase, we can’t stomach the 70 percent in the face of
importing the grain owing to a failed cropping season. The country’s annual maize
requirement for human consumption is around 1.6 million tonnes, while 300 000 tonnes
is required for livestock feed.
To counter spiraling basic commodities prices, government, according to Industry and
Commerce deputy Minister Raj Modi, has been putting shoulder to wheel working on
mechanisms for the National Competitiveness Commission (NCC) to work with industry
on a framework for pricing of goods, and service delivery at a time goods and services
have spiked by between 25 and 75 percent in recent month, gnawing into consumers’
pockets.
“My ministry is also looking into how the NCC together with suppliers, retailers and
wholesalers engage to come up with best practices on issues of pricing, standards and
service delivery,” Modi noted.

At the same time, Central Bank Deputy Director for Economic Research Division, Dr
Nebson Mupunga, implored wholesalers and retailers to abstain from speculative
tendencies and adopt acceptable profit margins.
“There is need to agree on how our products can be priced using reasonable mark-ups
especially between wholesalers and retailers as your role is critical to consumers.”
Mupunga said.
Currently there are serious concerns that both wholesalers and retailers are charging
high prices of between 10 and 50 percent on products.
But until Mnangagwa and Finance Minister Ncube come up with a short-term plan to
stabilise prices, there will be much fodder for the gossips and plotters among idle
ideologues at his party headquarters still unhappy about being left out in the cold and
exasperation, as well as frustration among consumers hard done by perennial price
increases.
Economist Kipson Gundani attributed the increased consumptive nature in the economy
to lower earnings of individuals over the years and an almost non-existent savings
culture in the economy that has turned it consumptive in nature.
The country may not have a local currency but the growth in premiums in the parallel
money market has caused a loss in value in real time gross settlement balances, and
even the fiat currency bond notes against the greenback.
With these distortions, inflation has been on the rise with the parallel market now
effectively determining the pace of the economy.
Government and the IMF recently reached an agreement on macro-economic policies
and structural reforms that can underpin a Staff Monitoring Programme (SMP), which
would be monitored quarterly with an aim to implement a coherent set of policies that
facilitate a return to sustainable macro-economic stability.
Noting that Zimbabwe is facing deep macroeconomic imbalances with large deficits and
significant distortions in foreign exchange and other markets that severely hamper the
functioning of its economy, SMP team leader, Gene Leon said successful
implementation of the programme would assist Zimbabwe build a track record and
facilitate the country’s re-engagement with the international community and thawing
erstwhile frosty relations that have frayed economic relations. MA