New Finance Minister Faces Challenges

Perhaps after Mr. Obama’s job, the second most challenging role is that of the new Zimbabwean Minister of Finance, Tendai Biti. 2008 was one of the most challenging for the Zimbabwean economy, and indeed the global economy. The sharp increase in inflation against a background of acute shortages of goods and services, poor harvests and the attendant severe food shortages and the deteriorating delivery of public services such as water, electricity, sanitation and health imposed phenomenal hardships on the population. Needless to say, in order to decisively achieve economic turnaround, which regrettably would in the short and medium term be painful, cohesion and unity of purpose among the three political parties, and among institutions of government and business, as well as labor, o-operating partners and other stakeholders will be necessary if the country is ever to rebound. The 2009 Budget, presented to parliament at the end of the last fiscal year, seeks to respond to the various challenges facing the country.

The 2009 Budget particularly focuses on:

• Inflation reduction;

• Food security and productivity in agriculture;

• Water management;

• Guaranteed fuel and electricity supply;

• Improved delivery of health and education services;

• Infrastructure rehabilitation in transport (roads, railways and airports);

• improved telecommunication systems;

• Efficiency of public enterprises;

• stimulating the productive sectors, notably agriculture, manufacturing, mining, tourism and construction among others;

• Provision of housing, including for those in the public sector; and

• Social protection.

As Zimbabweans have learned, the success of the budget rests entirely on continued macroeconomic stability. The farm invasions of 2000, dealt a hard blow to output and GDP contracted by a sharp 40% in the following year, and manufacturing performed well below its capacity. Inflation has made the Zimbabwe dollar obsolete; hence the budget is denominated using a basket of stable currencies.

Global Meltdown

Global output now marked down by the IMF is forecast to remain subdued in 2009, with the United States anticipating rebound in 2010. Developing countries are also feeling the adverse effects of global financial crisis, with revenues from their raw material and semi-processed exports threatened by depressed demand and, hence, falling prices. Similarly, tourism as well as external financing sources, such as portfolio and direct investment, lines of credit, grants and migrant remittances are expected to suffer from this financial crisis and global slowdown. Reflecting this, economic growth in Sub-Saharan Africa is estimated to fall below 5% in 2009, in part reflecting the positive spin offs from sustained robust macro-economic policies which will maintain inflation at low levels averaging 10% across most of Sub-Saharan Africa.

Domestic Realities

According to the Minister of Finance, the ‘poor performance of [the] agricultural sector had its core roots in the 2007/2008 agricultural season that began with too much rain during December 2007 and January 2008’. The incessant rains, unfortunately, came to an abrupt end in January 2008 and were followed by a long dry spell. The absence of adequate irrigation facilities, together with intermittent and unreliable power supply compounded the situation.

Our farmers are beset with a number of challenges. These include inadequate supply of such inputs as fuel, seed, fertilizer, as well as chemicals. Where such inputs are available in the open market, they are being sold in foreign currency. Farm labor has also become a challenge, with workers now demanding their wages in either foreign currency or basic goods. Facilities meant to assist farmers, such as the Agricultural Sector Productive Enhancement Facility (ASPEF), can no longer cope with farmers’ financing requirements under the current hyper-inflationary environment. Farmers are, therefore, facing serious constraints in raising working capital, more-so given that suppliers are now quoting their goods in foreign currency.

Mining is second to agriculture as a pillar to anchor the Zimbabwean economy both as an employer and foreign currency earner, with potential to contribute around a third of total export earnings. This sector continues to experience decline in capacity utilization and production volumes despite last year’s generally buoyant mineral prices. In the case of gold, decline in output is notwithstanding firm prices recorded over the past three or four years, resulting in other countries’ gold producers expanding operations and production. Major challenges behind this include the foreign exchange pricing arrangements, coupled with frequent power outages, scarcity of foreign currency to import critical spare parts, fuel, and skills flight.

Furthermore, the impact of the current global financial crisis is also beginning to affect the sector through depressed demand and hence low prices for minerals such as copper, aluminum, nickel, lead, zinc, ferrochrome and platinum group metals. Companies are therefore being forced to defer investment for expansion as well as new exploration projects, with some scaling down operations, or closing down altogether. Most of our major mines have, therefore, been put on care and maintenance. Closure and suspension of mining operations, the Minister added, is a waste of installed investment capital, which if not reversed can only seriously undermine our turnaround efforts.

The challenges undermining agricultural and mining production during 2008 made the situation facing the manufacturing companies even more difficult, with capacity utilization in the sector declining further. Consequently, manufacturing contribution to Gross Domestic Product (GDP), total formal employment and the economy’s export performance remain significantly lower than the existing capacity and potential. This is notwithstanding vast opportunities for value addition in the agro-industry, particularly in canning, fruit and vegetable processing, furniture manufacturing and textile, among others. Key challenges to be overcome in restoring and realizing the potential of our industrial base and capacity include addressing, in a holistic manner, such issues as inflation, as well as guaranteed supply of such essential services as electricity and water.

The education sector has also not been spared from the current environment. While some teachers have left the country in search for better working conditions, not all those who remain have been reporting for duty, owing to deteriorating conditions of service and the challenges on public transport mentioned above. The above has also affected a number of education programs, especially examinations marking, with a huge backlog going back as far as June 2008.