Zimbabwe - Dry the beloved country - CNBC Africa

Zimbabwe - Dry the beloved country

Southern Africa

by Trust Matsilele 0

President Mugabe has presided over the country's demise for 35 years now.

They say people always find money for beer, but in Zimbabwe they are struggling.

Delta Corporation, the country’s biggest beer producer, has an annual target of 1.2 million hectolitres of alcohol; but it makes less than half that, a mere 40,000 hectolitres per month, a source within the company revealed. The reason; people don’t have money to buy.

(READ MORE: Zimbabwe still high risk but high reward market)

The challenges Delta Corporation faces are a sign of an overall malaise in Zimbabwe’s economy built on agriculture, a sector that has shrunk since the land invasions of 2000. Delta also relies on agriculture for its inputs.

At its peak in 1997, the agriculture sector employed more than 500,000 people, contributing 30% of the gross domestic product (GDP), but that has declined. The sector now contributes 15-18% of the GDP, over 40% of national export earnings, and 60% of raw materials to agro-based industries.

Since 2000, production of maize has declined 79%, wheat by 90%, soya beans 66%, citrus 50%, fresh produce 61%, dairy 59%, beef 67%, coffee 92%, tea 40%, according to reports.

A World Bank report says the Southern African country’s output declined by more than 45% between 1999 and 2008.

This is the tale of Africa’s former breadbasket that used to supply everything from soap, shoes and cooking oil to maize, milk and beer to its neighbors. Now Zimbabwe relies on imports, making it one of Africa’s most expensive countries.

The Confederation of Zimbabwe Industries (CZI) says the manufacturing sector has struggled and was not helped by the hyperinflation that peaked at an official figure of 231 million percent in 2008.

In early 2009, Zimbabwe started to experience positive policy change that saw the coalition government introducing the use of multi-currencies, creating benefits such as buoyant commodity prices and accelerating financial inflows.

In 2015, the country’s recovery relies on mining – with platinum and discoveries of diamonds in the east. The Sustainable Energy for All Rapid Assessment and Gap Analysis 2012 report says GDP grew by 20.1% from 2009 to 2011, with mining leading the way.

As the country turns 35 in April, the honeymoon, which came with dollarization, is over. The GDP growth, which averaged over 9% between 2009 and 2012, is set to average lesser than 3% or lower between 2013 and 2016.

“The Zim Asset economic revival strategy – heavy public investment funded offshore – is high risk because it depends on rapid export growth in a sluggish world economy. Especially now that there is mounting global evidence that export-led growth is no longer a viable strategy,” says CZI.

Godfrey Kanyenze, a senior economist at the Labour and Economic Development Research Institute of Zimbabwe, says the ruling party, Zanu-PF, is reluctant to reform.

Zimbabwe has overcome sanctions, war and unrest. Maybe the economic challenges will not be a Herculean task for the country. Only time will tell.

“Zimbabwe is highly dependent on minerals and agriculture exports but with the fall in commodity prices and bad weather conditions, the country is facing challenges in the 2015/2016 fiscal year,” he warns.

Kanyenze adds that industries are finding it hard to be competitive due to the use of a stronger currency, as Zimbabwean manufacturers have to compete with suppliers using weaker currencies like the South African rand.

“The liquidity situation has worsened and companies are closing down. Eighty four percent of all jobs are in the informal economy, making it almost impossible for the government to generate any revenue through taxes. Non-performing loans are at 16 percent which is over three times the safe limit threshold.” 

Between 2011 and 2014, around 4,610 companies closed down, costing more than 55,000 jobs, according to research presented by Kanyenze to parliament.

He warns the situation was widening the trade imbalance with 92% of the country’s budget going towards consumption, leaving only 8% for capital expenditure. In a nutshell, Kanyenze says, the country is facing a serious structural regression.

(READ MOREPost-election outlook for Zimbabwe bleak)

Economic development specialist, Maxwell Saungweme, agrees with Kanyenze and says that corruption, bad economic policies, power cuts, policy contradictions, lack of property rights and high government expenditures detracts from the small economic gains between 2009 and 2013.

“Zimbabwe’s economic fortunes will remain supressed as the government of today seems clueless of the correct policy regime required to resuscitate the manufacturing sector and to lure back foreign investors,” says Saungweme.

“We still remain a country without clarity over indigenization laws and property rights. Investors cannot put their money where they know locals can wake up one day and seize the companies or claim more than half of the ownership. We also have a lot of policy contradictions in government. On day you hear the Minister of Finance going around with a begging bowl for foreign aid, at the same time other ministers are calling for increased seizures of farms from the few remaining white farmers. We just have the wrong team in government that can’t rescue the economy.”

President Robert Mugabe is currently on a state visit to South Africa for the first time in 21 years.

*This article was first published in Forbes Africa April 2015 issue.

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