SA exports 3,000 tonnes of poultry to Zim/mth

It is common cause that the Inclusive Government (IG) has presided over a dramatic economic turnaround, which has seen the country claw its way back from the brink of total economic collapse.

It is also widely acknowledged that there are serious obstacles in the way of a sustainable economic recovery. However, it is not universally known that one of the most serious constraints – indeed it is an almighty albatross around the country’s neck – is Zimbabwe’s massive debt burden.

To appreciate the full scale of the economic crisis, it is important to note that Zimbabwe faced a myriad of socio-economic and governance challenges prior to the inauguration of the IG. The economy had cumulatively declined by 54.8 percent from 1999 to 2008, resulting in one of the longest recessions in the history of any country.

Prolonged international isolation since the launch of the Fast Track Land Reform Programme in 2000 had resulted in no meaningful engagement with the international community and development partners.

Widespread poverty and grotesque inequality had combined to unleash a damaging decline in social stability. Social indicators had fallen dramatically, while incomes had plummeted across the labour market as more.

Other key characteristics of Zimbabwe’s macroeconomic instability included foreign currency shortages, de-industrialisation, deteriorating infrastructure, low capacity utilisation, food and fuel shortages and constrained supply of basic utilities, such as electricity and water among others. Industrial capacity utilization had sunk into the 20s demonstrating the severity of the economic collapse and the extent to which the manufacturing sector – the second most dynamic sector of the economy after agriculture – had surrendered its potency and promise.

Runaway inflation

The economic meltdown was largely underpinned by runaway inflation, which officially peaked at 231 million percent in July 2008 – although an unpublished report in December 2008 estimated that it had risen to 3.2 quintillion percent. The country had to formally abandon its own currency and introduce a US dollar led multi-currency system to ensure that the national payments system was sustained.

The multi-currency regime boosted business confidence, generated an atmosphere of predictability and soon companies began to increase their activity and profits. But taming inflation has not been the only improvement.

The tireless work of the Ministry of Finance and other economic ministries – to re-establish basic economic governance rules, ensure that the Central Bank focused on traditional central bank functions rather than its more notorious quasifiscal activities, and renew legally enshrined financial management controls – resulted in a new economic regime exercised by the government.

This helped to stabilise the economy and pave the way for the current economic recovery, which has been led by the retail sector, powered in part by South African retail chains, goods and services.

For example, South Africa is exporting 3,000 tonnes of poultry products to Zimbabwe every month, while the South African supermarket chain, Spar, trades in the leafy suburb of Mt Pleasant in Harare on a 24-hour basis – something that was unheard of before the GPA. In many ways, the recovery has been consumption driven at least going by the indicators of early 2009 and 2010.

Fragile recovery

Significant progress has definitely been made under the auspices of the IG, at least in terms of stabilising the economy and meeting basic needs, particularly in health and education.

For this, the economic and social ministries need to be commended.

However, these gains are slowly being reversed by the lack of sustainable economic development and the absence of an effective recovery strategy for the economy. Indeed, the economy is suffering from a structural malaise.

Despite registering economic growth in the last two years, this growth has not translated into better human development indices or much needed jobs. Zimbabwe is experiencing a kind of zero sum growth trajectory – with a nominal growth in GDP without any corresponding jobs or opportunities created.

Therefore, the economic ‘recovery’ remains very fragile, particularly as it is dependent on a stable political environment. And because it is being weighed down by an enormous burden – billions of US dollars of debt.

Next week we will look at exactly what this burden of debt is. – This was first published by OSISA (www.osisa.com)