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Struggling Zimbabwe only received $160m in Foreign Investment compared to $5,7bn in Mozambique in 2014

Eddie Cross says in 2014 the country attracted $160m in FDI compared to $5,7bn in Mozambique

 

Economic and Political Fundamentals for 2014/15

In 2014 the economy contracted sharply – beer sales declined by 30 per cent and VAT collections by 25 per cent – both clear indications that the GDP was declining by at least 10 per cent and maybe 14 per cent – the same rate of decline as during the collapse in 2008.

The Budget was $4,1 billion in 2014 – in fact, tax revenues were $3,8 billion – a shortfall of $300 million while expenditure was $4,8 billion – over budget by $700 million, giving rise to a massive budget deficit of $1 billion or 20 per cent of expenditure. This was funded mainly by short term domestic borrowings and creditors, giving rise to severe cash flow problems for 2015 and beyond.

In 2015 the budget has been curtailed to $3,5 billion – in practice the Government will not be able to restrain State spending and another massive budget deficit looms with few real opportunities of funding. The lesson is that Zimbabwe urgently needs to re-engage the International Community for budget support if it is going to be able to meet essential social and other targets.

During 2014 total foreign direct investment inflows to Zimbabwe were only $160 million – compared to $5,7 billion in Mozambique. At the same time, capital flight running to many hundreds of millions of dollars has continued. As a consequence the liquidity situation has reached critical levels with 10 Commercial Banks closing their doors since Zanu PF resumed control of the State in August 2013.

There are no signs that this ongoing financial collapse is being reversed or managed and business continues to be denied essential funding for operational purposes. This problem is being exacerbated by the complete collapse of confidence as represented by the Stock Market which has declined by 40 per cent since the elections in 2013. The stock market is probably the most sensitive indicator of business confidence and in the past few weeks it has continued to slide – suggesting that the recent political developments are negatively affecting the overall business climate.

In the past year unemployment has continued to spiral and in the past 18 months another 10 per cent of the national workforce has been made redundant or simply lost their jobs as their companies collapse. As we only employ about 600 000 people, 250 000 in the public service, any decline in employment on this scale has to raise the alarm. An economic crisis of this magnitude has to affect and have an impact on our politics as the country simply cannot go on as if it is business as usual.

Compounding our difficulties is the current wet season; it started late in the main cropping areas, then we had a very wet spell and after a week of sunshine, more heavy rain predicted in the north as a cyclonic weather system moves inland from the Mozambique channel. With the very weak state of our agricultural industry and the poor management and financial capacity of the people currently occupying the farming areas, these difficult weather conditions will simply result in yet another disastrous agricultural year.

Overall this suggests that 2015, unless something drastic happens, will be another year of economic decline associated with the collapse of social institutions and further reduction in the delivery of essential services to the population. The situation is simply not sustainable unless we are going to accept this state of affairs as being inescapable and allow our general population to sink further into a quagmire of poverty and human degradation.

This situation, coming after Zanu PF resumed full control of the State in August 2013, confirms the view held by just about everyone here that the leadership of Zanu PF is incapable of change, has no clue as to how to manage our affairs or bring development and growth back to the country. Instead of moving swiftly to put their house in order, they have self destructed in an orgy of internal violence and oppression. The democratic center of the Party has been pushed aside and marginalized; many have been alienated and are bitter and disillusioned.

Having won back absolute power after a brief interlude when they were forced for the first time to share power with the MDC, Zanu PF shows no signs that they have learned anything from their past except how to manipulate and control the population so as to maintain their grip on power. They use that power to extort revenue from a diminishing productive sector then use patronage and fear to keep their remaining pillars of support intact.

The danger of the present situation is that it presents us with a real prospect for serious instability if matters are not brought under control and in the near future. In particular, the new fragile center of power created by the recent coup, has to hold together and then to use its new control of the State to do what is essential to maintain stability and then bring some order and sanity to our economic situation. This depends almost totally on how the State President behaves when he returns from his annual leave in the Far East.

Given past experience and the public record of both the State President and the new Senior Vice President, the pessimism of the market seems amply justified. However they have gone so far down this road now that it seems unlikely that a reversal will be possible. But the policy gymnastics that are going to be required to effect the changes that are needed to persuade a skeptical investor community and major foreign observers is going to be worth watching.

If they do succeed in making the required adjustments to policy and are seen to be acting decisively, then I think they can turn the current economic crisis around in short order. The view expressed by Vice President Mnangagwa that the economy will start to turn by mid-year and they can achieve reengagement with the Western powers by year end might well be achieved. But it is going to take more than rhetoric.

Eddie Cross is MDC MP for Bulawayo South. This article first appeared on his websitewww.eddiecross.africanherd.com  

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