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Zim Asset a failure: Numbers do not lie

By Tendai Kwari

“In pursuit of a new trajectory of accelerated economic growth and wealth creation, my government has formulated a new plan known as the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset): October 2013-December 2018.

Tendai Kwari
Tendai Kwari

Zim Asset was crafted to achieve sustainable development and social equity anchored on indigenization, empowerment and employment creation which will be largely propelled by the judicious exploitation of the country’s abundant human and natural resources”, signed Robert Gabriel Mugabe, President of the Republic of Zimbabwe. The Office of the President and Cabinet will monitor and evaluate the implementation, monitoring and evaluation of the Plan (Zim Asset. pg 6 -11).

Facts and figures are indicating that Zim Asset, going towards the end of its third term before 2018, is going to be a failure. Numbers do not lie. The following is a compilation of data from various sources which will reflect that Zim Asset needs a quick and acute resuscitation to have any chance of credibility.

Employment: A new labour force survey in Zimbabwe suggests that the informal sector is huge. As formal employment slides and retrenchments mounting, there is no chance of the government fulfilling its manifesto pledge of creating 2.2 million jobs. According to a Zimstat report, 94.5% of the 6.3 million defined as employed are working in the informal sector. The size of the informal sector is much greater than the widely used World Bank estimate of around 60%. The African Development Bank (AfDB, 2015) puts at more than 80.0% of workers employed in the informal sector.

However, The Economist Intelligence Unit [EIU] pointed out that it is not just the size of the informal sector that is concerning but the extent and speed of its growth. The Zimstat concurred that the vast majority of workers still in formal employment are still earning less than the officially estimated total consumption poverty line for a family; which is estimated at US$508 a month for a family of five people.

Job Creation: The ruling party Zim Asset promised to create 2.2 million jobs by 2018. The Zimstat noted that since 2011 the total workforce has been growing by some 270,000 people a year, and over the five year period (2014-2018) of Zim Asset development plan, about 1,35 million jobseekers will come into the labour market. For the target of 2.2 million jobs to be met, the government would have to find work for all the currently unemployed workers (800 000) as well as the intake of new job seekers.  As a result, unemployment and underemployment – especially in the informal sector will get much worse, and with it the socio-political climate will continue to deteriorate.

On the high rate of unemployment, Zim Asset blames the low production in key sectors. The nexus of economic stabilisation without increased production in key sectors has not helped the situation as unemployment remains high above 50%, thereby requiring Government to implement policies that must turnaround the fortunes of the key productive agricultural, mining, manufacturing and tourism sectors in the near future (Zim Asset, pg 24).

Manufacturing: Manufacturing capacity utilisation has fallen to 39.6% in 2013, according to the 2014 manufacturing sector survey published by the Confederation of Zimbabwe Industries (CZI, 8 October 2014). The main reasons for the sector’s problems, according to CZI, are weak domestic demand, working-capital constraints and completion from imports. Deteriorating infrastructure, power shortages, water shortages and inefficient transport networks has exacerbated the problems.

The AfDB concurs with CZI by pointing out that production in the manufacturing sector is expected to decline further due to import competition and the financial problems of firms. Manufacturing sector activity continues to be weighed down by outdated plants and machinery, cheap imports, the high cost of production and liquidity constraints. Capacity utilisation has shed 3.3 percentage points, from 39.6% in 2013 to 36.3% in 2014. Erratic power supplies, lack of capital, higher input costs, obsolete machinery and dilapidated infrastructure have all constrained capacity utilisation.

According to the Chief Regional Economist  of Africa Development Bank (AfDB), the manufacturing sector saw a drop in activity between 2011 and 2014: at least 4 610 companies closed down, resulting in a loss of 55 443 jobs (2015 Budget Statement). Another key determinant of success for the manufacturing sector is the issue of access to credit. Firms are struggling to get long-term and cheaper funds that are commensurate with production.

Economic Growth: Economic growth slowed to around 3% in 2014, and only a marginal improvement is expected for 2015 and 2016, with persistent de-industrialisation and a growing informal economy. According to the Chamber of Mines, the mining sector continues to operate below capacity amid a host of challenges, including depressed metal prices, lower capital and Foreign Direct Investment (FDI) flows, high cost structures, sub-optimal royalties and power shortages (Afdb. 2015).

The International Monetary Fund (IMF: April 21, 2015) in a Press Release No.15/175 stated that Zimbabwe’s economic prospects remain difficult. Growth has slowed and is expected to weaken further in 2015. On the contrary, Zim Asset (pg 27) points out that “the economy is projected to grow by an average of 7.3%. It is expected to grow by 3.4% in 2013 and 6.2% in 2014 and continue on an upward growth trajectory to 9.9%. However, Zim Asset states that “the country is projected to be a growth leader in Sub-Saharan Africa towards 2020.””

On the 17 April 2015, the minister of Finance & Economic Development Patrick Chinamasa wrote A Letter of Intent to Ms. Christine Lagarde, Managing Director – IMF. In the Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding, under the sub-topic Policies for the Remainder of the Year, Chinamasa acknowledged the declining economy of Zimbabwe.

He wrote, [I quote]:

 · The current economic situation remains difficult, but Government policies continue to focus on improving the country’s growth prospects and capacity to repay: Growth continues to slow down reflecting low business and investment confidence, scarce liquidity, and the substantial decline in international prices for our major exports. Risks are tilted to the downside. Over the medium term, we expect that the timely and full implementation of our economic blue print, ZIM ASSET, would accelerate growth substantially.

· The external position remains precarious with low levels of international reserves, a large current account deficit and growing external arrears. The large current account deficit is mainly financed by short- and long-term loans to the private sector, which has continued to access international credit and has remained current on its payments. Nevertheless, we have succeeded in reversing the trend by slightly improving reserve coverage and reducing the accumulation of external arrears.

· Inflation continues to be quite low, reflecting the depreciation of the South Africa rand and weak domestic demand.

Fiscal Policy: Fiscal developments for the ten months to October 2014 show that cumulative revenue collections remained 7% below target. Revenue shortfalls are mainly due to company closures and job losses. The AfDB further noted that Government expenditures, including loan repayments, for the ten months to October 2014 were higher than targeted due to additional employment costs and higher loan repayments. Employment costs, excluding loan repayments, amounted to 80% of total expenditures. They were higher than budgeted as public wages and salaries were increased by the civil service salary review, implemented from April 2014. The expenditure mix remains highly unsustainable, with current expenditures constituting about 90% of total expenditures.

Agriculture: The agricultural sector was allocated 4 percent of the total budget in the 2014 National Budget. The AfDB noted that the targets set in the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset, 2013-2018) will be difficult to achieve without additional funds to invest in the agricultural sector in addition to funds provided for in the budget.

The agricultural sector, being the backbone of the economy underpinning economic growth, food security and poverty eradication, continues to experience severe systematic challenges within its entire value chain ranging from lack of agricultural financing to lack of affordable inputs (Zim Asset, pg 20).

Economic and Political governance: Starting a business in Zimbabwe is a highly costly and time-consuming exercise. According to the World Bank report, Doing Business 2015; Zimbabwe stands at 180 in the ranking of 189 economies on the ease of starting a business. It takes 90 days and costs 114.6% of income per capita. Comparatively, in South Africa it only takes 19 days to start a business and costs only 0.3% of per capita income (AfDB. 2015).

While a number of ministries and government departments are responsible for infrastructure development in the country, the high percentage of recurrent expenditure limits infrastructure development. Lack of a comprehensive institutional framework for infrastructure development is also a concern. There is no clear legislative framework to enhance the role of the private sector in the financing and management of infrastructure projects through public-private partnerships (PPPs).

Public sector management, institutions and reform: The right to private property is an important part of Zimbabwe’s Bill of Rights in the new constitution; it is guaranteed and protected. There have, however, been media reports on farm evictions targeting white-owned farms during the course of the year 2014. This negatively affects the incentive for businesses to invest in the country.

The utilities and infrastructure sector has also not been spared, as roads, civil aviation and railway networks across the country have not seen major improvements and modernisation due to shortage of capital and long term investment opportunities. In the urban areas, capacity challenges exacerbated by the corruption of erstwhile councillors also affected the efficient operation of councils resulting in poor water and sewage reticulation systems (Zim Asset, pg 23).

Constitution: Though the new constitution was adopted in May 2013, by December 2014 many pieces of legislation had not been amended accordingly. In the 2014 Freedom in the World ratings by Freedom House, the country is rated as not free, with an overall freedom rating of 5.5 (1.0=best, 7.0=worst). The 2014 ratings are a slight improvement from the 2013 rating of 6.0.

Human Development: The budget allocation to the health sector declined from 10% in 2013 to 8% in 2014. Food insecurity among households across the country remains high due to the combined effect of recurrent droughts, occasional floods and high unemployment. The 2014 rural livelihoods assessment report published by the Zimbabwe Vulnerability Assessment Committee (ZimVAC) stated that a third of Zimbabwe’s children are stunted due to malnutrition. It also indicated that 6% of the rural population – some 565 000 people – will be in desperate need of food assistance in the first quarter of 2015.

Zimbabwe’s HIV prevalence rate increased to 15.0% in 2013, from 14.3% in 2012. This increase can be attributed to the rising poverty and unemployment levels. However, Zim Asset (pg 21) has noted that the health delivery system continues to be adversely affected by sporadic outbreaks of epidemics such as typhoid and dysentery, increased maternal mortality, shortage of funds to produce essential drugs and equipment and to rehabilitate dilapidated infrastructure.

The last paragraph, on the foreword of the Zim Asset document, written just above the signature of the President of the Republic of Zimbabwe, Robert Gabriel Mugabe reads, “The Office of the  President and Cabinet will play a leading and coordinating role as overseer of the implementation process to ensure attainment of set targets of the Plan. Our guiding Vision is “Towards an Empowered Society and a Growing Economy”. ”

Meanwhile, the electorate, the long suffering masses and citizens of Zimbabwe are waiting in anticipation, especially for the promised 2.2 million jobs.

You can follow Tendai Kwari on twitter @tendaikwari