HARARE – Government efforts to fix Zimbabwe’s broken economy must begin with facing up to reality and not just raising hopes, a leading economist Tony Hawkins says.
This comes as the authorities recently launched the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZimAsset) — an economic blueprint expected to guide the country up to 2018 — aimed at growing the economy by at least 7,3 percent and create at least two million jobs, among other targets.
Since President Robert Mugabe and his Zanu PF’s victory in the July 31 election, the prevailing liquidity crisis has worsened while hundreds of companies have closed shop with jobs lost in the process.
“Beyond the liquidity crisis, can Zimbabwe grow at over seven percent annually as in Zim-Asset?,” asked Hawkins during a presentation at an Institute of Chartered Accountants of Zimbabwe chief financial officers’ forum last week.
“For the record, the IMF puts our medium-term growth rate at four percent to 4,5 percent, while the World Bank’s long-term scenario for all developing countries is 4,8 percent,” said the University of Zimbabwe head of business school.
He added that while many Zimbabweans believe economic development is about access to finance, it was not entirely that.
“Going forward growth will be limited by a number of “binding constraints” that will make it extremely difficult to reach the ZimAsset target,” he said.
Hawkins said there was a whole spectrum of other factors to think of beyond the current liquidity crisis.
“While there is some truth in this, it is not the whole story. For the economy to grow at 7,3 percent annually, the ZimAsset target, Zimbabwe will need to invest 33 percent (or so) of GDP each year. Since 2009, the investment-GDP ratio has averaged 15 percent, less than half of the amount needed,” he said.
Hawkins noted that investment levels are pitifully low at half or less than those needed to achieve the seven percent growth.
“The fact is that the problems facing business extend well beyond liquidity. Firms as well as banks are on the whole undercapitalised, often operating with costly, obsolete plant and machinery.
“In industry, this capital is ‘dead’ in the sense that it cannot be used as collateral against which new funding can be raised,” he said.
Hawkins said Zimbabwe is a high consumption economy as people under-save and over-consume.
Household consumption has averaged 88 percent of GDP since 2009 and with government consuming 14 percent and not-for-profit bodies another five percent, consumption is 107 percent of GDP.
“There is need to reduce consumption’s share including foreign borrowing. We might get some 15 percent to 20 percent of GDP in foreign funding which will necessitate a switch of some 15 percent of GDP out of consumption into savings.”
He also highlighted that the country must also slow down its consumer spending growth.
“It is high time many in business factored that inconvenient reality into their calculations. If growth depends (heavily) on investment and investment depends (significantly) on savings, then consumption growth must slow substantially,” said Hawkins.
“Put another way around, if and it is a very big if — GDP grows at 7,3 percent for five years, and the share of consumption falls to around 75 percent from 88 percent, consumer spending would grow by only three percent a year, compared with 20 percent annually since 2009,” said Hawkins.
He pointed out that “of course, there is much more to growth than investment” adding that there were binding constraints that include poor electricity supply, savings which were eroded by excessive consumption, lack of balance of payments support and debt overhang among other challenges.
He added that unless and until the country has some major changes to the economic environment — abroad as well as at home — the problems will remain.