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BizDay Zimbabwe

Economy still mired in old challenges

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Same script, different cast!This is the prediction by most economists about the year 2014, which they said is likely to be plagued by the same problems that bedeviled the country last year.
Finance Minister Patrick Chinamasa has projected the economy to grow by 6,1 percent this year, and by a further 6,5 percent in 2015.
He believes recovery in the mining, construction and agricultural sectors would underpin projected growth.
But economists say the country is still grappling with liquidity problems and that Zimbabwe was still regarded as a very high-risk investment destination. The country is still unable to service its foreign and domestic debts.
The World Bank and the International Monetary Fund have indicated that they will not extend any financial assistance to Zimbabwe under the highly Indebted Poor Country (HIPC) facility unless the country clears its arrears in excess of US$6,1 billion.

The Bretton Woods institutions say Zimbabwe remains in debt distress and will need a comprehensive arrears clearance framework with the international community to extricate itself from its current woes.
Major challenges that will spill into 2014 include liquidity challenges, inconsistent power and water supplies, unstable health system, poor service delivery and infrastructure.
The other challenges include companies failing to re-open, decreasing companies’ capacity utilisation due to increased expenses, companies failing to pay salaries, increasing exports and failure to secure lines of credit.
Economist Brains Muchemwa said the major challenge government faces was how to reverse corporate bankruptcies as companies would continue to shut down.
“Government should come up with policies on how to reverse company closures as the unemployment rate will continue to rise increasing poverty levels,” he said.

Muchemwa said mining was Zimbabwe’s only hope for meaningful investment in the country, adding that the manufacturing sector was no longer competitive against sector players in other countries.
“We also need to guard against being ripped off in the mining sector as far as investment and partnerships in this sector are concerned…Investment in mining is not an overnight event; it is long term. Once work and ideal policies in that regard are put in place, investment can be expected either next year or in 2016,” he said.

Obtaining loans to revive businesses would still be a major challenge this year due to the high risk of default and the high cost of money.
Chinamasa said while it was normal for economies that emerge from hyper-inflation to experience a few years of strong growth followed by a slowdown, it was quite evident that the country needed to put in place confidence building measures to deal with the challenges at hand before the economy slides into a crisis.

“Business confidence remains low and Zimbabwe’s country risk premium is still high. The result is a lack of investment and financial inflows required to drive future growth. Zimbabwe’s persistent current account deficit continues to be a strain on the country’s liquidity as more funds flow out to pay for imports than are generated by exports,” he said.
He said the huge import bill had been a source of liquidity destruction.

Chinamasa admitted government was battling to put the country firmly on a recovery path.
“The Zimbabwe government is facing challenges in the prioritisation, focussing and management of government expenditure and as a result is likely to fail to influence the economy towards sustainable growth,” Chinamasa said.

Economists say challenges outweigh opportunities in 2014. They said Zimbabwe needed more money coming in than going out. The Ministry of Finance estimates that Zimbabwe needs US$45 billion in investment just to get back to where it was in 1997.

Zimbabwe’s per capita Gross Domestic Product (GDP) is US$600, the third lowest in the world. The average wage is US$253 a month — and that’s for the about 25 percent of the population who are employed.
According to the 2013 World Bank Doing Business Report, Zimbabwe still remains one of the most difficult places to do business.
Zimbabwe’s global rankings on the ease of doing business dropped last year to 170 out of 185 countries, according to the World Bank.
The country was in 2012 ranked 168. According to the economic report titled Doing Business 2013, Zimbabwe has the worst ranking in comparison to other countries in the region such as South Africa, Swaziland and Botswana which were ranked 39, 41 and 132 respectively. The report on doing business provides an aggregate ranking on the ease of doing business based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size businesses through their life cycle.

The rankings are calculated based on considerations on starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, taxation, trading across borders, enforcing contracts and resolving insolvency.On the ease of starting a business, Zimbabwe was ranked 143, getting electricity 157, protecting investors 128, trading across the borders 134, resolving insolvency 169 and enforcing contracts 111.
The report also measures the ease of starting a business in an economy by recording all procedures officially required or commonly done in practice by an entrepreneur to start up and formally operate an industrial or commercial business.

The report also considers the time and cost required to complete these procedures. It also records the paid-in minimum capital that companies must deposit before registration.
According to the report, starting a business in Zimbabwe requires nine procedures, takes 90 days, costs 107 percent of income per capita and requires paid-in minimum capital of 0,0 percent of income per capita.
The country is also one of the worst in terms of dealing with construction permits, ranking 170 in this area.

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