Looking into 2020 Zimbabwe: Annus hollibus

Baba Nyenyedzi

Baba Nyenyedzi

In the absence of data on economic activity, researchers have had to be inventive. One wonderful study of economic activity in cities and countries is luminosity. That is, the density and extend of lights in the city from out of space. Economic activity would see more luminacy while stalled activity would show darkness. Harare would be more lit than Bulawayo and Borrowdale than Chitungwiza. Imagine Zimbabwe compared to its neighbours over the last five years. That is the tragedy of Zimbabwe.

Zimbabwe is operating on five hours a day of electricity. That’s, when it is available between mid night and the early hours of the morning.

Generation of electricity in Zimbabwe contributes 2.5% to GDP. In layman language, as long as the turbines are turning, the economy grows. This is direct impact to production. The secondary impact to the rest of industry and services, particularly agriculture goes without saying. An estimated indirect impact on other industries is between 5–8% of GDP.

Fuel shortages are crippling and the economy can no longer afford $1bn USD a year on fuel. The money is simply not there.

In analysing the key components of the economy- 2020 looks bleak and challenging on many fronts. The UN has come out and estimated that half the population requires food assistance. The worst outside a war zone.

The economy is expected to contract further as the depression widens. The key economic indicator is the hyperinflation scourge. Government continues to bury its head in the sand and support a local currency without any anchor to keep it steady. The question becomes whether or not the Zim dollar will collapse in the year ahead. In our estimations hyperinflation proper — will begin in March or there about when inflation is estimated to be above 50% a month.

We often forget that we begun the year at an exchange rate of 1:3 and will begin 2020 at 1:23. That’s a 667% depreciation. The worst in the world. That’s how much revenues from across the board have fallen. $100 at the beggining of the year is now $15. From tax revenue to salaries everything has shrunk. Nothing has kept up with the depreciation. Yet, the fundamentals require a further depreciation of currency. As our domestic savings dwindle to naught and money is leaving the country in trade surpluses, investment suffers.

In a lot of respect, Zimbabwe has turned back the hand of time and seems stuck in mid 18th century Europe. More poignantly, Sweden, which lagged behind while the rest of Europe industrialised. The church in Sweden came out strong against the oppressive regime. Herein a snippet of the essay that rallied a revolt and change in government;

In 1763 Anders Chydenius, a young priest from Österbotten in Finland (then part of Sweden), sat down to write his contribution to an essay contest. The question he would answer was the most important in Sweden at the time: “Why do so many people leave Sweden?” Emigration had increased and was seen as a big problem. The common interpretation was that people were lazy and greedy, and instead of assuming responsibility and working hard, they were tempted by promises of an easier life abroad.

Chydenius’s response was the opposite. There is nothing wrong with emigration, he wrote. The problem is the oppressive and corrupt system that makes it impossible for people to stay in Sweden and build a good life there. In detailing all the abuses, regulations, and taxes that destroyed opportunity, Chydenius outlined a radical laissez-faire critique of the Swedish government. He showed that privileges, license requirements, and trade prohibitions protected a small lazy aristocracy and stopped hard-working people from making their own luck. High taxes confiscated whatever they managed to create; a corrupt justice system made it impossible for them to win against the powerful; and restrictions on the press made it illegal for them to complain about it. “Fatherland without freedom and merit is a big word with little meaning,” he pointed out.”

Can Zimbabwe make it?

The short economic answer is No. There is a lot of false bravado and meaningless policy fraught with lack of understanding the underlying problems. For example, the export led growth model driven by a weak currency. Zimbabwean Exports are approximately 15 to 20% of the economy. In other words, government policy woefully jeopardizes the economic activity of 80% of the country.

Zimbabwe is a domestic led economy. Even at our best, the country only attracted $480m in FDI. Yet domestic deposits, after the 2008 obliteration rose to more than $2bn (M1- notes and coins) during the dollar era. There was growth and stability.

The RBZ is carrying exchange rate losses of at least $45bn ZWL. This is more than the total money supply in the country. At some point these losses will have to be monetized. As the exchange rate continues to depreciate, these losses will continue to rise.

Corruption is more than a legalistic process. There is looting which is incomparable to massive inefficiency losses. For example, within one year of the coup. Government borrowings doubled. The ED government borrowed and spent in a year, what Mugabe had borrowed in five years. government corruption results in greater misallocation of resources, patronage subsidies and decreased productivity.

Another tough year awaits Zimbabwe. Zanu PF believes it can go it alone but evidence suggests otherwise. In 2008, after the runoff, Mugabe was installed as President and the economic wheels just stopped moving. While the negotiations of the GNU were going on slowly, it was probably the economic standstill that moved Zanu PF. however, the complexion of Zanu PF has drastically changed and there is no opposing voice in the centre of power. Admittedly, the coterie in power has been in power for a short period and hell bent to maintain their positions for a time to come.

The ideas of a National Transitional Authority (NTA) will not work because it draws its mandate from an unelected elite and is woefully ignorant of what the economy requires. What investment or bail out can ensue with a governing authority with a short mandate of ceasefire? What happens after the NTA?

The only solution is a UN assisted elections and presence of UN/AU peacekeepers. Thats the only way to cure the original coup sin committed two years ago. A legitimate government will institute the necessary political and institutional reforms when it understands the threat of losing power. The people must regain the power they lost 40 years ago.

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