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Medium-Term Policy: Doubts, expectations
By Takunda Mugaga
AS the winter season has just arrived, it is definitely time to warm up for the harsh weather condition to be experienced.
This would not be limited to the physical weather but also the economic weather is definitely bound to change this second quarter of the year. This is the moment Zimbabweans have to brace for the Verkoyansk kind of weather.
For starters, Verkoyansk is the coldest inhabited place in the world, located north-east of Russia.
As a nation, this is the moment to continue building on the stabilisation induced by dollarisation. What nature of economic policy is required to weather the Verkoyansky climate we are currently dipped in?
The week had begun on a good note with Deputy Prime Minister Arthur Mutambara and his entourage visiting Tanzania for the World Economic Forum.
It is also the week which saw the appointment of new board members at the Reserve Bank and also a make it or break it week for the Labour Party in Britain, our erstwhile colonialists.
All such factors are normally expected to have an influence on the direction our economy is to pursue.
The bad news to come from the West being, even if the Tories are to get the better of the Labour Party, this will not be expected to shift Britain’s foreign policy towards Zimbabwe.
The major forecast being the expected Medium Term Policy from the Economic Planning and Investment Promotion Ministry.
One of the debates doing rounds in both finance and economic corridors has been whether it is the right time to launch another economic paper.
Six months have hardly passed since the Treasury boss launched the three-year Macro-economic Policy and Budget Framework (2010-2012), also referred to as STERP II.
A look at its major objectives during its launch included: sustaining macro-economic stabilisation and consolidating STERP, support for rapid growth and employment creation, encouraging public and private investment and restoring international relations.
A look at how the Government has fared in achieving the stated objectives will give testimony to whether we require another economic paper following the past launch of Economic Structural Adjustment Programme, and MERP supported by a litany of monetary and fiscal policy.
These had failed dismally to fine-tune the economy to a desired direction, which required the miracle of dollarisation to stabilise the economy.
This specific article’s focus will be on the reservations-cum-forecasts for the expected MTP document. Therefore, readers should take this as a pre-analysis of the upcoming economicblueprint.
The 2010 to 2015 timeframe is too long to focus an economic policy on.
If reports doing the rounds are anything to go by, MTP is said to argue that US$11 billion is what is needed to achieve a 15 percent Gross Domestic Product growth over the stated time period.
Prime Minister Morgan Tsvangirai stated this last year when he pointed that about US$8 billion is needed to reboot the Zimbabwean economy to start functioning in a normal way.
I believe when he said this he was not looking at a time horizon of five years. Over such a long time period, US$11 billion would not be enough to change the face of our rock-bottom economy, a sign of inconsistency on how the authorities expect the economy to grow.
The MTP should be a policy expected to operate within the ambit of the inclusive Government, we don’t expect the inclusive Government to last that long unless it is turned into a Government of national unity.
This will leave the whole document as a statement of intention, which cannot honestly put meaningful projections to its major highlights.
What are the chances of the economy remaining dollarised for the next five years? If this inclusive Government is to be remembered for good reasons, one area it has to dilligently address is that of a stable currency.
Absence of the local currency has led to continuous liquidity crunch in the economy in spite of it bringing macro-economic stability.
In 1990, the average salary in Zimbabwe was Z$1 450, and currently it is pegged at US$170.
There is no room for significant increase in the income levels of Zimbabwean residents in the next five years due to both a distressed industrial base and bleeding balance of payment account, which led to forex shortages.
Reports are also suggesting that about US$4,5 billion is expected to come from foreign direct investment, which is more than 40 percent of the required US$11 billion.
What measures is MTP going to put in place to attract such a staggering figure? Are economic sanctions to be retracted in the given time period or is the Indigenous Act claimed to be scaring away investors going to be retracted?
Are financial institutions to be compelled to pay attractive interest rates in order to attract depositors? How do the policymakers expect to empower the local populace while at the same time desperately hunting for FDI?
The Finance Ministry in its last Budget statement targeted $800 million as vote of credit to balance the Budget but had only managed to raise less than 1 percent of that envisaged figure.
Six months have already passed which leaves the ministry with no option but to revise the whole statement.
It should be noted that the whole Government only managed to raise about US$2,9 million of the targeted US$800million which leaves a great lesson to the merchants of FDI rhetoric that it would not be a catwalk to attract the revered FDI.
It does take a lot of both political and economic sacrifice to attract even a US$1 billion in FDI, let us guard against money illusion.
If the MTP is to gain respect, it has to be premised on international economic developments, as the adoption of foreign currency implies that we can no longer utilise an exchange rate to determine our balance of trade.
Movements of our major trading partners’ currencies against major currency become more relevant than ever before. A strong rand will pose a threat to our domestic inflation since most commodities which we seem to be importing in US dollars become relatively more expensive.
It is the duty of such policy papers to decide on the currency mix to adopt in the future and whether it is feasible to continue utilising five different currencies in the long run.
Is the current scenario where everyone is a custodian of his currency advisable? If not so, then how can the new RBZ board induce lost confidence to the banking community?
Time to waffle should be over by now and let’s have concrete papers in place with realistic targets.
It is clearly stated in Minister Biti’s statements that central to achieving the economic objectives will be the uninterrupted supply of such key enablers as electricity, water, coal, and the rail network.
Such utilities are still posing the same problems which means achievement of 15 percent growth as outlined in the MTP document will remain a pipe dream.
If the three-year economic policy came out of the Finance Ministry, what is the rationale of having the MTP document hailing from the Economic Planning and Investment Promotion Ministry?
I believe the three-year framework was meant to lay a foundation for the MTP. The risk of allowing different departments to come up with economic papers lies in it creating infinite policy papers which will ultimately contradict each other if not found themselves competing.
What strategies are being put in place to attract back the skilled labour force which had left the country in search of greener pastures?
When the soccer World Cup in South Africa ends, most of the Zimbabwean engineers would be forced to come back home due to seasonal unemployment.
In these stated five years, we also need to know how the education system is to be returned to its former glory days.
These are definitely the factors which will impact on the economic recovery of Zimbabwe.
For the past three years, the nation seems to have been enjoying throwing away statistics without a well-thought-out research.
No single individual can authoritatively put across the unemployment figure of Zimbabwe, the tonnage of cotton produced last season or even the overall capacity utilisation levels currently obtaining in the economy.
Therefore, how can we plan and measure our progress when we don’t know where we are as a people?
This is a call to the Central Statistical Office to put its house in order and not continue blaming lack of funds. Remember, even universities are running without funds.
What amount is the MTP putting aside for constitutional matters? There is a danger that if you allow donations to build the Constitution, who are you to blame if sponsors are to manipulate the constitution-making process? Naturally it will be unfathomable to bite the hand that feeds you.
On average, it is our belief that about US$200 million is required for the whole process up to the referendum, this is almost as good as a general election to choose lawmakers or the Head of State.
Are resources meant for economic projects not to be crowded out due to the need for a constitution?
It is the Constitution which attracts FDI through the way it discusses the issues to do with property rights, separation of powers (political risk) and even the cultural dimensions.
Our capacity to raise enough funds for the constitution-making process should act as a precursor to our abilities to attract funds for different projects as will be outlined in the forthcoming MTP to come out any time soon.
It’s bye for now
Christopher Takunda Mugaga.
Head of Research
Econometer Global Capital
takunomics2009@yahoo.com
+263 912 340 353, +263 916 266 062
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