People need to be united for the economy to bloom

Western diplomats and security chiefs from the region said prospects of turning around the economy were bright and urged Zimbabweans to collectively work hard to achieve its potential. Speaking on the side-lines of the 34th Independence anniversary celebrations in Harare, United States of America Ambassador to Zimbabwe, Mr Bruce Wharton, said Zimbabwe has great potential to improve the economy. "This country (Zimbabwe) has enormous potential. If you look at the economy's performance between 2008 and 2009 for example, the economy grew by 28 percent in a few months. "This shows that the future of Zimbabwe can be very bright if all the stakeholders work hard," said Mr Wharton.

Mr Wharton, whose country intensified its economic sanctions regime on Thursday, added that US was committed to promoting development in Zimbabwe. "At independence some 34 years ago, my country made a commitment to support development projects in Zimbabwe and that commitment remains strong. I am here to re-express our commitment and solidarity with Zimbabwe," he said. Mr Wharton congratulated Zimbabwe for attaining independence on behalf of the US government. He, however, did not say how his professed hope for Zimbabwe's economic turnaround fitted into the economic sanctions regime his country intensified on Thursday, when it added one company and several Chinese nationals doing business in Zimbabwe to a travel and financial blacklist.

Ambassador Matthew Neuhaus of Australia concurred saying Zimbabwe was promising. "The economic future of Zimbabwe is very promising. You have a very well-educated young generation who are capable of working hard to take this country forward. "We have stood beside Zimbabwe through difficult times as well as better times and partnering in development assistance and investment.”We hope that this year we may see improvements in economic policy which allows us to do more," he said. DRC ambassador to Zimbabwe, who is also Dean of African diplomats, Ambassador Mwanananga Mwawampanga, hailed Zimbabwe for the achievements made after independence.

South Korean companies are keen to invest in Zimbabwe and strengthen the bilateral relations existing between the two countries, outgoing Seoul ambassador to Harare Mr Kwang-Chul Lew also said. The envoy paid a courtesy call on Vice President Joice Mujuru at her Munhumutapa Offices to bid her farewell. Mr Kwang said Zimbabwe's economy had great potential to become one the best on the continent. “The country has economic potential and we have a number of South Korean companies who want to come and invest in the country once the requirements are agreed on," he said. "It is my hope that we are going to strengthen economic relations that are beneficiary to the two countries." He said Zimbabwe's strength in mining and agriculture would take the country far. "Zimbabwe has four pillars of the economy which include mining, agriculture, manufacturing, trade and commerce and I don't know which one is going to make a big impact first but these pillars will take them far as far as the growth of the economy is concerned," Mr Kwang said.

The re-introduction of the Zimdollar needs commitment by the RBZ and the government

The main component in the successful reintroduction of the domestic currency in Zimbabwe is going to be a solid commitment by the Reserve Bank of Zimbabwe and the government in taking the crucial and necessary steps required to ensure that the new currency is going to be perceived as stable by the relevant stakeholders mainly industry, business, members of the public, the regional and international community. The most important price in any nation is the price of its national currency in relation to other currencies. The government, business and members of the general public need not avoid dialogue on the return of the Zimbabwe dollar into circulation. The revamping of the national currency is going to require sound macroeconomic policies, committed legislation in the financial sector, careful preparation and putting the right policies and processes in place.

 The revival of the Zimbabwe dollar is going to demand thorough planning with a detailed forecast which needs to include the cost of printing and minting the new cash currency. The final phase will be the production of the new currency and of course the all-important implementation. The benefits of the multicurrency financial system have come at a cost for Zimbabwe. The case for or against the multicurrency system is contentious and complex and requires delicate handling and implementation. The Reserve Bank, in effect, lost its influence on the conduct of monetary policy. In as much as the multicurrency system has brought inflationary stability on the one hand, it has also eliminated the possibility of financing the fiscal deficit with seignior age which compounds the current liquidity crisis because, without this possibility of public financing, the government will have to look for fall back sources of revenue. With the multicurrency system, the government has given up control of the money supply which regulates and restricts any stabilising response of fiscal policy to adverse extrinsic and intrinsic unpredictability.

Zimbabwe is currently facing a banking sector and liquidity crisis. The multicurrency system has imposed limitations on the Reserve Bank’s role as the lender of last resort to the banking sector which means local banks are already at a disadvantage and prone to internal and external shocks. Quantitative easing is a source for liquidity and, without a domestic currency. The Reserve Bank will have to look for alternative sources to respond to financial crises. The Zimbabwe economy has widely been opened to capital mobility, left vulnerable to shocks and government has its hands tied in terms of flexibility to respond to these shocks. The question to pose is - what can be done to address the emerging liquidity crises?  Dialogue on the return of the national currency is necessary. There is a lot of hard work that needs to be done such as formulating the right policy environment, attracting capital inflows, as well as restoration of agricultural production which used to feed the manufacturing sector with inputs. There is need to craft laws that promote foreign direct investment to ensure the resuscitation of the economy.

All those who have something to do with the economy should sit down and talk

ZCTU president George Nkiwane challenged the president to give way for dialogue with all concerned stakeholders as a way of averting a major economic disaster. The country’s largest labour representative body, the Zimbabwe Congress of Trade Unions (ZCTU), said President Robert Mugabe should enter into serious dialogue with other political parties as a way of addressing the current economic meltdown that has condemned the majority of Zimbabweans to perpetual poverty. MDC-T president Morgan Tsvangirai is on record challenging Mugabe to approach him for dialogue claiming that he had the keys to unlock the country’s economic crisis. “It is really necessary for dialogue to take place, but also we think that this dialogue should go beyond political engagement.

 All the stakeholders who have something to do with the Zimbabwean politics and the economy should be given a chance to engage and map the way forward,” Nkiwane said. “At the moment, things are really bad and we have to give dialogue a chance, but let us not limit it to the political leaders only.” The Government of National Unity between Zanu PF and the two MDC formations in 2009 was widely credited for bringing economic stability in the country after a period of hyper-inflation that relegated the majority of Zimbabweans into abject poverty. Nkiwane said constructive dialogue would not only be in the best interest of workers, but all Zimbabweans. “Companies are closing on a day-to-day basis while some are retrenching workers. So as a result, workers have been badly affected by the current situation and that is why we are saying that all those who have something to do with the economy should sit down and talk,” said Nkiwane.

The labour body said 1,3 million Zimbabweans were formally employed in 2012, but the number dropped to 1,2 million last year. The number of those formally employed, said the ZCTU, and further dropped after last year’s disputed elections. In November last year, retrenchment figures in Zimbabwe had reached 300 per week, said the ZCTU. It said the number of unemployed people in the country was likely to increase as more companies were likely to close down due to the current economic meltdown. Nkiwane bemoaned the lack of policy consistency in the country’s investment laws which he said was largely to blame for the lack of foreign direct investment and the high unemployment rate currently prevailing in the country.

Presently, the unemployment rate stands at 85%. The majority of Zimbabweans were now earning a living from the informal sector. The country’s indigenisation policy has been blamed for scaring away potential investors with analysts saying it lacked clarity and created uncertainty. “As long as we have the current order, we will continue to see companies closing down and the economic situation deteriorating. We need a paradigm shift because with the current policies in place, we cannot attract any investment, internal or external,” Nkiwane said. “We need to have policy consistency because as long as we do not have that, no investment is going to come.”

Can we really say that these Special Economic Zones (SEZs) are of benefit to our economy?

We have a number of social and economic problems. Our savings rates are low, a significant percentage of our best-educated and most skilled people are working outside the country because there are no suitable jobs for them here and we are competing in some areas for investment from those who want to be in Southern Africa, but we are not that worried about which country. Zimbabwe needs more businesses, more jobs, more exports and more investments to create these things. At the same time we have a number of social and economic policies and priorities: we protect workforces from gross exploitation; we want Zimbabwean businesses to be owned by Zimbabweans; we want our natural resources to be used by Zimbabweans. All these desires, pressures and problems make the concept of special economic zones very attractive, but only if they are the right sort of special zones. A wrong zone would be a huge retail centre on the edge of Harare paying low taxes and poor wages and shifting all the profits outside the country.

Zimbabwe can do this sort of thing on its own, or through existing laws. There is no need to destroy something we have, to make someone richer. On the other hand, we can imagine a major transnational bank waiting a central data-processing and transaction process centre somewhere in Southern Africa. A decent climate, an educated and English speaking workforce, adequate infrastructure and a good range of local business who can supply everything from canteen services to some esoteric technical support all make Zimbabwe an attractive possibility for that investor. But that investor might well want a guaranteed and fair tax rate for several years, exemption from indigenisation requirements for the core business, a guarantee that they can bring in at least a small number of staff, and some flexibility on labour matters.

Here there is no possibility of a local business being pushed out. The whole point is that it would be the regional outpost of an international business. There are no mineral or agricultural resources being exploited by the outsiders. Skilled Zimbabweans would be able to get a decent job at home instead of having to emigrate. Zimbabwean businesses could grow selling services and good to the investors. So long as there are some taxes, and a core of fairness retained in labour laws, such an investment would seem a sensible candidate for special treatment. Between these extremes are other businesses. Diamond cutting has been suggested. Zimbabwe has a lot of diamonds but few are sold internally. They have to be sold into a global market and that market has processing centres, a handful around the world.

Adding more, in Zimbabwe, would seem to require special treatment, perhaps not as much as a bank wanting a regional data centre, but more than others. So long as we think carefully, are open to good ideas, and keeping in mind the short term and long term benefits to the people, then we can draft some very sensible rules and regulations for special economic zones. We also need to remember that these zones can also be the crucible for experiment. The Chinese used these zones to test the ideas that developed into their economic miracle. Those that worked were allowed out of the zones into the general economy, while those that failed did little damage.

Economy’s future looks miserable

Zimbabwe’s deflation is predicted to stay as the government does not have enough fiscal space to expand expenditure and increase public spending power, analysts said. According to official statistics released, the country's annual inflation in March dropped to -0.91 percent, shedding 0.42 percent on February's -0.49 percent. This is the first time Zimbabwe recorded deflation after adopting multiple currencies in 2009. Analysts attributed the deflation to depressed aggregate demand in a poorly performing economy characterized by a biting liquidity crunch. Chairperson of the University of Zimbabwe's Economic Department Phineus Kadenge told Xinhua in an interview that deflation was likely to persist in the country for months because measures to correct the situation were normally medium to long term.

"I think it's going to take a while for us to increase economic activity that will ultimately boost national demand," Kadenge said, adding that some foreign banks had agreed to inject money into the economy, but the effect would take time to show. He said for as long as economic activity and demand remained suppressed, pressure on prices will remain very little leading to sustained deflation in the country. Zimbabwe's economy is currently reeling from depressed industrial output due to lack of lines of credit to finance production. This has seen the country relying heavily on imports to meet most of its needs, resulting in a huge trade deficit of around US$3 billion annually.

The government says economic growth slowed to 3.4 percent in 2013 from 10.6 percent in 2012. Finance Minister Patrick Chinamasa has set an ambitious growth target for 2014, or 6.1 percent, but few observers are as optimistic.  He added that Zimbabwe will make major policy changes in order to transform the economy which is fast declining due to lack of foreign direct investment, scarce capital for reviving crumbling industries and fears over the country’s controversial black empowerment programme. Chinamasa said the government is drafting a policy document that will transform the economy, which is also devastated by deflation. He said Zimbabwe will follow economic policies of countries like Mauritius, India and China that transformed their economies through establishing various economic zones while utilizing natural resources.

Independent economist Farai Zizhou said for as long as the liquidity crunch being experienced in the country persisted, no upward swing in inflation was expected. He singled out a weakening South African Rand against the U.S. dollar and the liquidity crunch as the two key issues driving deflation in Zimbabwe. The U.S. dollar is the currency of reference in Zimbabwe while the bulk of the country's imports come from South Africa. "Low aggregate demand being experienced in the country is a signal of low disposable income and if we are unable to find solutions especially with regards to the liquidity crunch, then we are likely to experience this kind of deflation for some time," he said. The economy remains under pressure with companies reportedly laying off workers or shutting down, unemployment and inflation rising while the government looks seemingly clueless on how to deal with such challenges.