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Zimbabwe: Is Zimbabwe Broke or Broken? DinarDailyUpdates?bg=330099&fg=FFFFFF&anim=1

Zimbabwe: Is Zimbabwe Broke or Broken?

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Zimbabwe: Is Zimbabwe Broke or Broken? Empty Zimbabwe: Is Zimbabwe Broke or Broken?

Post by RamblerNash Tue May 24, 2016 4:28 am

Zimbabwe: Is Zimbabwe Broke or Broken?

19 May 2016

Zimbabwe: Is Zimbabwe Broke or Broken? 00290543:44fe27032fb055ab52653e3d0a9dab0e:arc614x376:w285:us1
Photo: Jeffrey Moyo/IPS
Vendors sell vegetables in Harare.

By Phillimon Mhlanga

ZIMBABWE'S economic crisis is worsening, and government is beginning to feel the pinch as much as the governed.

The State, now the bellwether of the country's economic health, has been scrounging for monthly salaries to pay civil servants.

Is the country, once a breadbasket in southern African, broke or broken?

Economists and analysts are divided, but many agree the situation is cause for grave concern.

While others agree that Zimbabwe is now broke, Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya, insists it is not broke, but has been damaged by errant entrepreneurs and rouge dealers.

Mangudya said Zimbabwe had been ruined by charlatans mercilessly milking its economy.

"What I believe is that Zimbabwe is not broke but damaged by people who abuse (its) resources," said Mangudya.

"People are taking the money out of the country. It's leaking outside the country. The money is going out either through wire transfer or cash. I am concerned with the misuse of foreign exchange. We need to promote the use of plastic money," he argued.

Industrialist, Busisa Moyo, disagrees.

"Zimbabwe is a broken economy that requires mending, healing and a new soul," said Moyo, the Confederation of Zimbabwe Industries (CZI) president.

Moyo, the chief executive of United Refineries, a fast moving consumer goods manufacturer, said there was apprehension over current measures since the hyperinflationary period that ended with adoption of a multiple currency system in 2009 had "left a trail of destruction and in its wake -- collapsed industries and institutions that could not operate in that environment".

He was referring to the planned introduction of bond notes by the RBZ, which many view as the return of the Zimbabwe dollar through the backdoor.

Reflecting on the hyperinflationary period, Moyo said there was a "loss of skills, corporate governance and ethical behaviour that had been embedded in our way of life from the family to the corporate board room. (There was) nauseating levels of corruption and rent seeking behaviours that still continue the agenda of economic turnaround."

Economist, Godfrey Kanyenze, said it was difficult to categorise the country as broke.

"(But) it is in paralysis, in stasis, logjam as a result of a predatory state," he said.

"The presidential system where power is centralised in the Presidency promotes clientelism, cronyism and creates a dependency syndrome, and hence the dominant culture of consumption," said Kanyenze.

John Robertson, an economic consultant, disagreed, saying Zimbabwe was "certainly broke".

"The economy is certainly battered and bent, but all the damage can be fixed. Unfortunately, the nature of the damage can be largely described as the result of government interference," said Robertson.

Robertson said government had for years imposed many regulations and controls designed to place its officials in positions of authority that allowed them to demand submissive obedience from the business sector.

"This has turned the country into a hostile environment for new businesses and a very discouraging place that has stopped most existing businesses from growing," said Robertson.

Robertson said it was the amazing levels of ingenuity that had allowed millions of Zimbabweans to survive through a now-largely informal economy.

"They are determined never to become formal because that would place them directly under government's licensing and permit requirements. But that means they have to remain small, unobtrusive and ready to disappear if anyone becomes too interested in what they are doing," he observed.

"Most people will struggle for a few dollars a day, most will have difficulty paying school fees, paying rent, paying for transport services, paying for electricity or water."

Accordingly, Robertson said, many Zimbabweans were hungry, living in "very poor conditions and completely distrustful of the authorities who constantly claim to be looking after their interests".

He added: "The answers are simple. We need policies that will help the people. What we have are policies that enable just the people at the top to help themselves to anything they want. With their authority to reject claims that the rest of the population has civil rights or property rights, they can now demonstrate that it is not their job to serve the people because, clearly, the people are content to spend their lives serving them. I suspect that the people are now making other plans."

Since January 2009, Zimbabwe has used foreign currencies after ditching its own currency to deal with hyperinflation.

This led to an economic rebound which had been anchored by mining and agriculture, with mining emerging as the most dynamic sector, replacing agriculture in pre-crisis Zimbabwe.

The boom in the crucial mining sector has, however, sputtered, having borne the brunt of low commodity prices at the international market which tanked, cutting the value of local mines.

Farms are no longer as productive as they used to be.

When government declared all agricultural land to be the property of the State, Robertson said: "It cancelled the collateral value of billions of dollars-worth of the previously totally acceptable properties that were used to secure most of the bank lending."

"Now, most of the land lies vacant, most of the factories cannot get the inputs they need unless they import them, most of the investors lack the confidence needed to invest, most of the banks are too nervous to lend to people who might not be able to repay the loans, most of the taxes paid have gone down and most of the people cannot find employment. And we all have to import most of what we need."

Gross domestic product (GDP) growth had averaged 10 percent during the period between 2009 and 2012, but the country experienced a sharper than expected slow down with the new era coming to a shabby end.

GDP had declined to an estimated 4,5 percent in 2013, 3,8 percent in 2014, and 1,5 percent in 2015, reflecting the liquidity shortages in the economy. The slowdown has raised fears of a possible economic depression.

The general price level remained low, with year on year inflation having started at -1,3 percent in January 2015.

It reached -3,3 percent in October 2015, before decelerating slightly to -2,5 percent in December 2015.

This reflected weak aggregate demand, tight liquidity and the depreciation of the South African rand currency against the United States dollar.

Annual headline inflation averaged -2,4 percent for the period January and November 2015.

Zimbabwe is currently grappling with a liquidity crisis caused by largely inadequate supply of foreign currency in the economy.

Zimbabweans have preferred trading using the greenback.

The US dollar today dominates, with 95 percent of all transactions done using the American currency.

But those precious US dollars are running out, a situation which has sparked panic.

This growing shortage of foreign notes prompted the central bank to unveil fresh currency measures to ease the cash crisis. These include limiting withdrawals to US$1 000 per day and the introduction of bond notes, rated at par with the US dollar.

The idea to re-introduce a loathed local currency in the form of bond notes triggered a public outcry.

And the central bank chief spent the whole of last week trying to clarify his plan to introduce domestic notes which he said would be backed by a US$200 million African Export Import Bank (Afreximbank) bond facility, in a bid to ease cash shortages that have hit the economy.

Mangudya highlighted that he could not directly inject the US$200 million into the economy due to the problem of externalisation, which "is now a cause for concern to the RBZ".

The central bank chief remains of the view that Zimbabwe is not broke, but damaged by its people who have taken billions out of the country.

The financial haemorrhage from capital flight, Mangudya said was exacerbated by the openness of the economy, which is susceptible to regional disruptive arbitrage activities.

This position, he added was further worsened by the use of foreign exchange or reserve currency, mainly the US dollar, as the domestic currency, which is on high demand across the region as well as the challenging macroeconomic environment.

"In 2009, when we dollarised, we thought we had arrived, but it is estimated that Zimbabwe has lost US$3 billion through illicit financial flows (IFFs) in seven years, translating to an annual average of US$500 million."

Fighting IFFs and corruption is a national collective responsibility. Good ethics and trust are the critical weapons that are needed to win the war.

Moyo told the Financial Gazette that the country had failed to tightly manage the US dollar under a multiple currency regime.

"(When we) dollarised in early 2009, this brought stability, but was not managed correctly," said Moyo.

For full story visit www.fingaz.co.zw

"In fact the economy had dollarised by 2005, when a vibrant black market emerged through the use of the dollar in business decision making. The authorities tinkered around with periphery type interventions... The dollarisation was a mere confirmation of what economic players were already doing, that is shunning the Zimbabwe dollar," he said.

Moyo added: "The lack of a formal agreement with the United States, World Bank and other supporting financial institutions on dollarisation means the dollars in our economy were generated from organic economic activity and there was no injection of dollars into the economy furthermore. There is no balance of payments support for government to exercise any form of sound monetary control, let alone expand economy."

He said that re-engagement with the international community after years of isolation was of paramount importance and needed to be done sooner than later and with greater speed.

"Seven years later, we are still debating, as a country, whether we should re-engage or not. Our humble view is that that choice was made many years ago when the public lost faith in the Zimbabwe dollar. Engage we must, and (we must) regularise our debt position so that we access support."

He urged government to push deep cutting reforms without fear because "what will happen without economic reforms is far worse that what will happen with reforms".

"Top among these is creating fiscal space by cutting the salaries and wage bill, among the parastatals and commercialising and privatising all non-key parastatals and qausi-government institutions or shutting some down. (There is need to) genuinely expose and deal with graft and corruption at all levels, creating policies that are foreign direct investments (FDIs) friendly by overhauling and repealing certain laws that impede FDI, restoring agriculture value chains though bankable land title, scrapping the non-genetically modified organism (GMO) policy stance as the country is already consuming 50 percent GMO content products through imports.

"This requires the will to reform from government, the legislature, private sector and civic society because reforms will be painful, but they must be done and boldness will be required."

The International Monetary Fund resident representative, Christian Beddies, said Zimbabwe was broke as "economic and financial conditions in the country remain difficult".

Beddies said: "There is slow growth, rising unemployment, informalisation of the economy, a precarious external position and very low levels of international reserves, inadequate external flows and tight liquidity, debt distress, low commodity prices, an appreciating US dollar, and subdued external inflows, as well as domestic investment.

"The situation is worsened by the El Niño-induced drought, erratic power supply, fiscal challenges and policy implementation in a difficult political environment worsens the situation."

Beddes added: "The fragile state of affairs increases the urgency of a broad-based policy response to raise growth and manage vulnerabilities. There is need to use headwinds as momentum for change. There is need for a three pronged approach to raise Zimbabwe's growth-structural reforms, fiscal reforms and financial sector policies."

He said dialogue in this whole process is key; government has to set priorities, explain goals and implement good policies.

"Good governance is also key to success," he said.

Government needs to win back public and investor confidence to mend the broken country and recovery from its bankruptcy.

Confidence in the country's financial institutions, which had somewhat recovered after the country ditched its currency in favour of a multiple currency regime, is starting to wane: Banks have introduced withdrawal limits as they try to control cash consumption, as a liquidity crunch, worsened by an ever growing trade deficit, worsens.

Unemployment has stubbornly reached more than 95 percent, creating political uncertainty in an economy fraught with widespread company closures.

The indigenisation campaign, under which Indigenisation Minister, Patrick Zhuwao, had sought to close foreign-owned banks that failed to comply with a law compelling them to cede controlling shareholding to blacks, worsened the cash crisis.

President Robert Mugabe had to intervene to calm markets, but this intervention may have been too little too late.

The damage had already been done.

http://allafrica.com/stories/201605190365.html
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Zimbabwe: Is Zimbabwe Broke or Broken? Empty Re: Zimbabwe: Is Zimbabwe Broke or Broken?

Post by Kevind53 Tue May 24, 2016 10:22 am

The answer is Yes. It is broke and broken. Absent major reforms it will continue down that path.

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