THE Zimbabwean economy has remained under stress throughout the year due to low production across all sectors, with authorities revising downward growth projection to only 0.6 percent in 2016, which will mark a lowest growth rate since 2009 when the economy began to grow from a decade-old recession.
A myriad of challenges have been keeping the economy in the doldrums, among which are notably a liquidity crunch, a severe drought, government policies which are complained as business-unfriendly as well as depressed international commodity prices.
The introduction of bond notes was the highlight of 2016 as Zimbabwe battles liquidity challenges and cash shortages which began early in the year. Many reasons for the liquidity challenges have been proffered, among them few exports and externalizing of the U.S. dollar.
Unsustainable current account and capital account deficits have put pressure on the nostro accounts of banking institutions, resulting in cash shortages and putting pressure on the Reserve Bank of Zimbabwe to introduce the bond notes in November.
They were released in a denomination of 2 dollars, together with a 1 dollar coin, while a 5-dollar bond note will be released in due course. So far 29 million dollars-worth of bond notes and coins has been released.
Cash shortages continue
But despite their injection, which the RBZ is doing in small doses, cash shortages still prevail and people spend many productive hours waiting in bank queues.
“We are going towards Christmas and I fear that I may spend the festive season without cash in my pockets.
“Yes, I can use plastic money here and there but there are instances I need hard cash,” said a depositor waiting in a queue in Harare.
Many people are also still sceptical of the notes fearing that the government intends to reintroduce the Zimbabwe dollar via the back door.
Apart from the cash shortages, the 2015/16 El-Nino induced drought had a telling effect on farming output and economy as a whole, as did depressed international commodity prices on mineral exports and reduced output across all the other sectors.
The country was hit hard by a severe drought which followed another one the previous year, taking a heavy toll on agricultural production where maize recorded a mere 511,000 tons against the average national requirement of 1.8 million tons.Advertisement
This left 5 million people in need of food assistance, while at least 20,000 cattle died because of lack of pasture and water as agriculture recorded a growth decline of -3.7 percent in 2016.
Presenting the budget statement for 2017 early December, finance minister Patrick Chinamasa said the adverse effects on agriculture, mining and manufacturing had caused low domestic production underpinning the prevailing low capacity utilization across sectors, low incomes, high unemployment levels and domestic liquidity and cash challenges.
Unemployment still high
Economists put the rate of unemployment at above 80 percent, but Zimbabwe’s official statistical agency puts the figure at 11 percent.
Low industrial production levels prompted the government to invoke a statutory instrument in July banning the importation of certain goods in a bid to protect local manufacturers and boost capacity utilization.
This prompted violent demonstrations by cross-border traders who burned down a warehouse belonging to state revenue collector the Zimbabwe Revenue Authority in Beitbridge, on the border with South Africa where most of the goods are sourced.
However, Industry and Commerce Minister Mike Bimha said recently that the restrictions on imports had resulted in a significant capacity utilization increase to 47.4 percent this year, up from 34.3 percent in 2015.
Exports also performed badly in 2016 and are expected to reach only 692.4 million dollars by year-end, against 1.2 billion dollars recorded in 2015.
Meanwhile, policy contradictions in government over indigenization regulations also left many potential investors bemused, with some opting to stay away for the time being.
“We all know that capital is a coward and that the confusion compelled some foreign companies operating in the country to halt implementing their planned investments and taking a wait and see stance,” said economist Clemence Machadu.
“Even foreign investors too are still sceptical, which is partly why you saw foreign capital inflows declining this year,” Machadu said.
Machadu said another key highlight of 2016 was the excessive appreciation of the U.S. dollar against currencies used by Zimbabwe’s key trading partners and the currencies of foreign countries where most Zimbabweans are based.
“This affected export receipts and remittances, which are key sources of revenue for our country. Most Zimbabweans abroad are in the United Kingdom and South Africa.
“The depreciation of the pound and the rand resulted in lower remittances by those who have friends and family abroad,” Machadu said.
Financial expert, Persistence Gwanyanya also told a local daily that a recent increase in interests rates by the United States Federal Reserve could derail Zimbabwe’s economic recovery prospects.
Strong US dollar
He said Zimbabwe and the Southern African region were commodity-based markets, and as such, the country’s trade would remain uncompetitive because the hike meant a firming of the U.S. dollar.
Commodities such as gold would attract lower prices as a result, he said.
“But, I do not expect a significant firming of the dollar because the issue of increasing the interest rates has been talked about for a long period of time now, such that investors, businesses and a number of economic agents have already factored that anticipated increase in their pricing models,” he added.
Despite a challenging 2016, Chinamasa predicted overall GDP to grow at a moderate 1.7 percent in 2017 but this will be dependent on anticipated moderate improvements in international commodity prices, fruition of planned mining investments, benefits from the ease of doing business reforms, and anticipated normal to above-normal rainfall.