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Does MDC Alliance’s $100bn economy promise check out?

MDC Alliance principal and former Finance Minister Tendai Biti has repeatedly claimed that, if elected into Government, the opposition coalition would propel Zimbabwe to a $100 billion economy in eight years.

Biti told an MDC Alliance rally in Murehwa on March 24, 2018, that the $100 billion economy target could be reached in under eight years.

He repeated the claim in a recent interview with 263Chat:
263Chat: You are on record speaking about a 100 billion (dollar) economy…
Biti: Yes! That’s the vision, that’s achievable, that’s achievable. We will build a hundred-billion-dollar economy in eight years on the back of a growth rate of 8,5 percent economy (sic) anchored on five things. Number one, macroeconomic stability, this Government can’t run the economy… We have got a budget deficit right now that is 30 percent of GDP.

Number two, leveraging the mining sector, which can create billions and billions of dollars. We lost $15 billion in three years, from diamonds. One mineral alone. So, we’ll leverage the mineral sector.

We’ll leverage our agriculture, the agro-industrial transformation of our country. We’ll leverage the low hanging fruit that is tourism. We’ll leverage – and this is very key – the infrastructure … the gross capital formation, rebuilding of roads, dams, our transport network and in eight years we will have a hundred-billion-dollar economy.

It’s very possible, it’s very easy and, in fact, as I’m talking to you right now, we are actually working on our economic models on the kind of thing we will expect from livestock, the kind of thing we will expect from tobacco in the economic model that will produce that hundred-billion-dollar economy. That’s a vision, that’s a vision and we’re going to achieve that.

The figures do not add up
Zimbabwe’s official 2018 Budget Statement, presented on December 7, 2017, estimates that the country’s real gross domestic product was $14,5 billion. It projected real GDP to reach $15,2 billion this year.

Using the geometrical growth calculation formula Yt = Y0(1+r)t – Zimbabwe’s $15 billion economy – growing at 8 percent (or 8,5 percent for that matter), cannot possibly amount to $100 billion

Instead, growing at 8 percent annually for the next eight years, the economy would grow to just under $28 billion, as illustrated below:

$15 billion (1+0,08)?=$27,76 billion

The economy would need to grow at an astounding 27 percent per year, to expand to $100 billion in eight years.

Zimbabwe’s economy has, in recent years, achieved double-digit growth. This was off a low base, following the end of a decade-long recession in 2009, when former president Robert Mugabe set up a power-sharing government with the opposition, a move which saw Biti assuming the finance minister’s role.

Rule of 70
A less complex, if less precise but generally accepted, method to project growth is the rule of 70. The rule of 70 is used to estimate the number of years it takes for a certain variable to double. To estimate the number of years for a variable to double, the number 70 is divided by the growth rate of the variable.

Therefore, using Biti’s 8 percent growth rate, it would take nine years for Zimbabwe’s GDP to grow to $30 billion, which is double the economy’s current size.

Conclusion:
Biti’s claim that an MDC Alliance government would build a $100 billion economy in eight years, at an annual growth rate of 8 percent, is premised on erroneous calculations.

It would require a growth rate of 27 percent to build the current GDP to the levels envisaged by the former finance minister. Alternatively, it would take 25 years, at 8 percent growth, for Zimbabwe’s current GDP to reach $100 billion.

Source :

The Herald

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