Zimbabwes present economy Essay Example for Free

Zimbabwes present economy Essay Introduction: Zimbabwe is facing a huge economic crisis that is worsening living standards by the day and a decline in industrial growth. Unemployment is now one of the highest in the world, running at 50% against an annual population growth of 3%, mainly because of inadequate sustainable job creation activities in the market. The rampant unemployment has given rise to the worsening abject poverty, rising crime levels, falling quality of life and standards of living, as well as general delinquency. Close to 65% of the population is considered poor according to the latest poverty assessment. The country is facing near bankruptcy. The problem is Governments huge borrowings where much of the money is used for recurrent expenditures to meet the day to day running of Ministries. Very little is for capital investments. Since the attainment of independence in 1980, Zimbabwe has produced a number of Annual Budgets that were supposedly implemented together with the national economic plans such as the following: Zimbabwe Conference on Reconstruction and Development (ZIMCORD), On the Road to Socialism, Transitional National Development Plan (TNDP) that came in volumes I and II; Economic Structural Adjustment Programme (ESAP) 1991-1995, Zimbabwe Programme on Economic and Social Transformation (ZIMPREST) 1998-2000, Millennium Economic Recovery Programme (MERP) 2000-2002, Ten Point Plan and more recently the National Economic Revival Programme (NERP) February 2003. The focus of all these policies was to bring about economic development and improved quality of life for Zimbabweans. Regrettably, none of these economic policy documents together with the accompanying annual budgets have succeeded in producing real positive tangible results especially in the area of poverty reduction. A number of factors accoun t for this hence the rampant poverty that has rocked the country today. An analysis of the various economic recovery and reform programmes is done summarily done below with more emphasis and time given to the most recent one NERP. Economic Structural Adjustment Programme (ESAP) In October 1990, the Zimbabwe government succumbed to Western donor pressure and grudgingly agreed to implement the five-year Economic Structural Adjustment Programme (ESAP) as a response to the economic crisis which had been afflicting the country since the 1980s. The measures introduced were: Removal of price controls; Removal of wage controls; Reduction of government expenditure; A 40 per cent devaluation of the Zimbabwean dollar; Removal of subsidies on basic consumer goods; Liberalising the foreign currency allocation system; Removal of protection of non-productive import substituting industries and increased profit remittance abroad; and A radical restructuring of the various parastatals and other public enterprises. ESAPs prime mandate was to shift the style of economic management from a setup where state intervention was perverse towards a framework where market forces had more influence. Economic liberalization was expected to accommodate major fiscal reforms, aimed at trimming the budget deficit from 10% of Gross Domestic Product (GDP) to 5%, increasing national output by 5% over the reform period, as well as reduction of inflation from over 17% to 10% by 1995. The major achievement made by ESAP was domestic deregulation, trade liberalization, foreign currency liberalization, and foreign direct investment liberalization (among other areas of deregulation). The major  challenge during the period was the issue of huge fiscal deficits that averaged 10 percent of GDP. Though inflation was an issue, it was still within manageable levels. Zimbabwe Program for Social and Economic Transformation (ZIMPREST) Beyond ESAPs phase, the Program for Social and Economic Transformation was implemented from 1998 to 2000, with focus on consolidating the gains of economic liberalization. ZIMPREST still pressed forward with economic stabilization, aiming to reduce the budget deficit from 10% of GDP to 5% and inflation to single digit levels. The major constraint ZIMPREST encountered was the fact that donors did not provide any funding, nor did budgetary provisions take note of its funding. The economy as a result subdued, and savings and investments tumbled from 18% of GDP in 1996 to 9% and 13% respectively in 1999. Millennium Economic Recovery Program (MERP) In the year 2000, the Millennium Economic Recovery Program (MERP) was launched, with a thrust towards restoring macro economic stability and therefore restore a vibrant economic growth and ridding the economy of inflation. Fiscal reforms and monetary policy measures would foster to restore price stability, while the domestic debt portfolio was to be massively restructured and industry sector revived. The program never took off due to lack of coherence on whether the economy should continue on liberalism or perhaps pursue a compromise, which places less emphasis on markets. At most MERP was marked with major policy reversals with initial and subsequent commitments to adjust the exchange rate for example remaining on ice, and the local unit maintaining a peg of Z$55 to the US$, despite widening inflation differentials with trading partner counties. It is also the time when the government reversed market economics, culminating in the institution of price controls in the third quarter of 2001. The failure to implement MERP marked the turning point on steeper falls in business confidence in Zimbabwes economic history, with business failure  rising significantly. The economy took a steeper downward trajectory in the period. Since then economic events have not helped either to build or sustain business confidence. The performance of most sectors was largely influenced by the aforementioned economic terrain; where neither ESAP nor ZIMPREST have been able to tame macro economic instability and MERP went on to accommodate it. All productive sectors have maintained a negative growth trend since the year 2000, save for estate, finance and insurance. The performance of these sectors hence mirror the persistent decline in national output. Since there is a strong correlation between agriculture and manufacturing, the ESAP era had a strong growth for all sectors, yet the ZIMPREST and MERP depict basically an erratic and downward trend. National Economic Revival Programme (NERP This is the most recent of the economic reforms and was launched in February of 2003. This was a brainchild of consultations with social partners namely Government, Business and Labour under the Tripartite Negotiating Forum (TNF). NERP was formulated with the principal objectives of: Increasing the output across the productive sectors as a way of reducing shortages and curbing the black market; Increasing employment generation through sector specific measures and Improving exporter viability and the supply of foreign currency through an Export Support Scheme. Under NERP, sector specific measures were formulated which are: agriculture, manufacturing, small and medium enterprises (SMEs), mining, tourism and services sectors. Under agriculture, the following measures are being implemented:- Offering viable producer prices timeously Entering into contract farming to ensure adequate supply of strategic crops for exports, local consumption and seeds; Putting in place a Dairy Development Facility; Providing adequate resources to enable the productive use of the land, since the latter is a basic economic resource which must be exploited efficiently and effectively and Introducing duty free exemptions on imported agricultural equipment not locally available, amongst others. Under manufacturing, the policy thrust will be to reverse de-industrialisation and increase capacity utilisation in the manufacturing sector through:- Reviewing the countrys Industrial Development Strategy; Resuscitating the business linkages programme; Introducing technology linkages programmes between manufacturing industries and institutions of higher learning and research and Availing financial support to distressed companies Under Small and Medium Enterprises (SMEs), the Government acknowledges that an integrated policy and strategy for the development of small and medium enterprises (SMEs) is critical for generating employment, stimulating growth and contributing to foreign exchange generation and has thus instituted the following :- Developing the enabling and regulatory environment; Investment promotion in SMEs; Improving access to markets and finance; Providing technology and infrastructure support and Undertaking entrepreneurship, management and skills development programmes In the mining sector, the measures include:- Allowing the small scale mining sector to benefit from the productive and export sector facilities where they access at 15 and 5 percent respectively; Putting in place incentives for projects that encourage value addition of exported minerals and metals in order to increase foreign currency generation and employment opportunities and Implementing a revised and consolidated fiscal regime for the sector. Under Tourism, in order for Zimbabwe to regain its reputation as a leading tourist destination, the following will be done:- Launching a public relations campaign; Intensifying marketing activities and broadening tourist source markets to realise diversification; Encouraging investment in tourism infrastructure (such as shopping malls, agro and eco-tourism development zones) and Promoting the cultural industry to realise its income potential through cultural tourism. Under the services sector, the following will be implemented amongst others:- Enhancing marketing of agricultural commodities by establishing an Agricultural Marketing Authority; and Recapitalisation of key public transport enterprises in order to improve urban transport. In addition, the Government through the Tripartite Negotiating Forum signed a Prices and Incomes Stabilisation Protocol on 30 January 2003 whose fundamental objectives are to:- Enhance viability of companies as well as sustain production; Guarantee the availability of products on the market at affordable prices; and Deal effectively with problems arising from the regime of price controls. Further, Government instituted the following measures to ensure that savers and borrowers mutually benefit from the following interest rate policy:- Narrow the current high spreads between deposits and lending rates in line with international best practices; Reviewing upwards deposit interest rates on consumption and speculative activities; and Reviewing the proliferation of service charges levied on depositors by banks. The link to the 2003 National Budget hinges upon: Development of a Macroeconomic Consistency Framework which ensures consistency between policy implementation and performance of the four sectors of the economy; A supplementary budget to accommodate additional expenditures occasioned by  the financial implications of NERP; and Development of a Medium Term Expenditure Framework to ensure the improvement of the macroeconomic environment, for the period 2003 to 2005. Assessment of the National Economic Revival Program: The best tool to asses NERP is the Strengths, Weaknesses, Opportunities and Threats model which is outlined below: NERP Strengths: Some of the strength of NERP are as follows: It is about immediate measures to revive the economy, which gives it some urgency and focus; It draws heavily from deliberations of the TNF and was in fact sanctioned by it. This implies a high level of consensus on the policy measures contained therein; It specifically derogates responsibility to specific bodies or parties. It is therefore easy to check who has to what by looking at the implementation matrix. It is part of a comprehensive set of protocols focussing on specific areas; and It had a clear time frame. NERP Weaknesses NERP suffers from the following weaknesses: Its implementation is based on the TNF principles of trust and goodwill. Without these, it founders; Slippages in one area affect the rest; Lack of harmony and consistency of government policy creates unwarranted policy conflicts that undermine its implementation; Deteriorating political conditions and in particular increased polarisation of the Zimbabwean society undermine its implementation and therefore success; it comes after the budget: in the context of already inadequate resources, it falls on its face. It contains high expansionary measures (for instance on land), which are inflationary (yet in its own analysis it decried the fact that money supply growth reached 150% by December 2002); It lacks measures to deal with hyperinflation. No sterilisation measures are included; It is about everything, and yet it is a short term programme; there is no prioritisation of issues; It is based on representative democracy; constituencies may not be aware of what they have been bound to or may not be able to implement their obligations; It is impeded by a general lack of political will; and It has no time horizon. NERP Opportunities The opportunities to it include: What needs to be done is collectively determined and known; Given the right environment, the stakeholders are committed to implementing it; Flexible framework of the TNF based on the win-win principle; and It allows for self and collective responsibility and evaluation. NERP Threats The key threats to NERP include: Policy conflicts (stabilisation versus expansion); lack of adequate implementation capacity; Overcrowded agenda and lack of prioritisation; Unrealistic expectations; sometimes seen as a quick-fix magic; Lack of resources and continued resort to domestic borrowing; Slippages in implementation; the programme is already behind schedule; In formalisation of the economy; Political expediency may result in policy inconsistencies; Continued political polarisation; Stakeholder mistrust and misunderstanding; and Lack of political will. Conclusion: However, a combination of near-total disregard by government for all those components of the programme which were at variance with intensive state control of all major facets of the economy, or which were in conflict with failed ideologies, and two years of severe drought, saw the first three years of ESAP as an economic non-event. By 1993 government had little alternative but to implement much of that which it had up until then disregarded, although it did so reluctantly and half-heartedly. Nevertheless, belatedly ESAP began to yield positive results and therefore it was used as the basis for the next programme, intended to be implemented from 1996 the Zimbabwe Programme of Economic and Social Transformation (ZIMPREST). But governments lack of enthusiasm was such that although the programme was to be embarked upon in 1996, it was only released to the population in general and to investors, financiers, commerce and industry in particular in 1998 and never meaningfully introduced. So in 2000 government announced its Millennium Economic Recovery Programme (MERP). As with ZIMPREST, that programme proved to be only plentiful words and glossy papers but devoid of any substantive implementation and it was soon cast away into oblivion. In its stead, government announced a new programme the National Economic Recovery Programme (NERP) in February. However, with virtually the only exception being an exchange rate adjustment or export support exchange rate (both being euphemisms for devaluation), NERP was as shallow in its application as had been ESAP, ZIMPREST and MERP. The economy has continued to decline to an ever greater extent, with many believing, erroneously, that it is now beyond redemption. Not only has government shown remarkably consistency in its failure to implement any of its formal economic development or recovery programmes other than with the greatest of superficiality, but it has shown equally great consistency in devising and implementing actions diametrically opposite to those envisaged by the various programmes and plans that it had so proudly placed before Zimbabweans. In so doing, it has brought the  economy to its knees. Inflation has reached an astronomic level of more than 364,5% for the year to June with that months inflation at 21,1%, an all-time record. Never has there been such a high proportion of the population without employment. Never has there been so many suffering and facing malnutrition, if not severe starvation, at incomes far below the poverty datum line, as is now the case. Never has Zimbabwe been as short of foreign exchange, with consequential devastating shortages of fuel, energy, basic foodstuffs, industrial raw materials, agricultural and mining imports, medications, and much else. Agriculture has been virtually destroyed, the mining industrys operations heavily reduced, tourism emaciated, and the manufacturing and distributive sectors battling to survive. And never has government incurred deficits of the scale that are now the order of the day. So great are those deficits that government must now present a supplementary budget to parliament as the national budget tabled in November 2002 and the fiscal out-turn to date have no commonality. As has become a regularity, the spending of almost all ministries is way in excess of the votes approved by parliament. Compounding the problems created by governments profligacy has been the differential in governmental revenues received as against those envisaged in the national budget. With a withering economy, it is inevitable that taxation receipts must fall and with limited foreign exchange the extent of imports diminishes with a corresponding reduction in inflows of Customs duties and import taxes. But another significant non-receipt is that in contrast to expectations in the 2001, 2002, and 2003 national budgets, government has had very little by way of proceeds from the intended privatisation of state enterprises. The intention to divest itself of all but the most critically strategic businesses owned by government has been one of the major elements of ESAP,  ZIMPREST, MERP and NERP. While government repeatedly failed to pursue many of the elements of those programmes, nevertheless it did effect some privatisations between 1998 and 2002, and with some considerable success. Effectively and successfully, the Jewel Bank, Dairiboard, Rainbow Tourism Group, Cotton Company of Zimbabwe, and Zimbabwe Reinsurance Corporation were privatised. Not only did government realise significant amounts from the sale of its investments but the privatised enterprises rapidly demonstrated substantial growth and enhanced efficiency of operations. The privatisation programme has clearly ground to an ignominious halt and contrary to detaching itself from commercial and other economic production enterprise; government is increasing its involvement through some of its parastatals. Enterprises such as the National Oil Company of Zimbabwe, Zimbabwe Electricity Supply Authority, National Railways of Zimbabwe, Cold Storage Company, Air Zimbabwe, Zimbabwe Broadcasting Corporation, the GMB, and many others have become an ever-heavy millstone around the neck of the fiscus. Evidently, therefore, the inclusion of privatisation in NERP is yet another hollow economic plan of government one devoid of substance. Pity, therefore, the poor officials in the Ministry of Finance and Economic Development required to formulate the supplementary budget. They have to find ways of exacting the funds needed by government but have great difficulty in finding any way of doing so within a derelict economy without further catastrophically afflicting that economy and without extorting yet more from a desperately impoverished population. Under the current programme (NERP), the government was supposed to have explored models of land tenure systems vis a vis property rights by March 2003. It was supposed to have reviewed maximum A2 farm sizes and rationalised and consolidated land allocation in line with an audit by the Land Task force the same month. Instead, it threw away the report without disclosing its findings to the public and setup another audit team which is still working on its audit. The government is supposed to have reviewed and topped up input schemes, finance and extension services and facilitated the setting up of commodity associations by the same month. It should have introduced a Dairy Development Programme to revive dairy farms by March 2003 and transformed Agribank into a Land Bank as well as the disbanded Agricultural Marketing Authority. Other tasks that should have been carried out by March included the review of the Industrial Review Strategy to address de-industrialisation, low capacity utilisation, increased exports and empowerment and, a review of the gold support scheme. International public relations companies should have been hired to counter negative publicity. Several measures to boost foreign currency should have been implemented in February 2003. These included an export support scheme, a review of the 50:50 export proceeds surrender every quarter, the introduction of an export revolving fund and incentives to attract remittances from non-resident Zimbabweans. A credible external payments arrears repayment programme should also have been put in place in February. The government should have put in place trigger mechanisms to adjust the prices of fuel, and tariffs for coal and electricity by February. It should also have concluded and signed the Kadoma Declaration (this focuses on addressing the mismatch between policy design and implementation) by February. As things stand, it is still groping in the dark, calling on the nation to remain steadfast Rambai makashinga Economic policy reform in Zimbabwe has not resulted in improved socio-economic welfare for the populace. Consequently, economic decline has resulted in widespread political discontent and disaffection with the present regime. As political tensions have reached a political impasse, there are concerns that Zimbabwes economy is on the brink of total collapse. As the Kadoma Declaration observes, without the assistance of  development partners, it is difficult to revive the economy. While the rest of the world may not need Zimbabwe, Zimbabwe certainly needs the rest of the world.