Anecdotal evidence, however, has supported the view that while the tempo of business activity undoubtedly picked up during the second half of last year, it has since subsided again.
Official confirmation that the economic upsurge had indeed faltered somewhat in the past six months is provided by figures in the mid-year fiscal policy review recently presented by the Minister of Finance Tendai Biti. Overall GDP growth for this year has been revised downwards from the original projection of 7% to 5,4% which, if achieved, would be slightly less than the revised estimate of 5,7% for 2009. Further, the minister cautioned that even this reduced figure could not be taken for granted as a ‘business as usual’ mentality would guarantee a further downward revision.
Of the revised growth rate projections for the 10 major sectors all but one of them, that for agriculture, have been lowered, most quite significantly. The latter sector is now projected to increase its contribution to GDP by 18,8% compared with the original projection of 10% mainly as a result of an over 67% rise in tobacco output supported by marginal increases in the volumes of maize and beef produced of 3% and 2%, respectively.
The only other sector now expected to experience more than a 5% rise in output in 2010 is mining where the volume of production has been revised moderately downwards from the 40% growth originally projected to a still very respectable 31%.
Highly disappointing are the 1,8% contraction now forecast for the output of the crucial utilities sector, electricity, gas and water; the only 1,5% growth anticipated from both construction and real estate; the 2% growth in finance and insurance; and the 3% rise in the contribution of transport and communications. The much trumpeted boom in tourism is now expected to turn out to be just a 3.5% increase while the manufacturing sector is seen as experiencing modest real growth this year of 4,5%.
Beyond the fiscal review’s noting of a revision in forecast average annual inflation from 5,1% to 4,5%, neither the mid-year fiscal review nor the just released mid-term monetary policy review give a likely inflation outcome by year end. The former notes, however, that “Inflationary pressures picked up during the first half of 2010.” The monthly CPI shows prices rising at an average annual 2,3% over this period. While moderate, there are signs of a progressive upward trend. Although the first two months of this year recorded negative price changes the succeeding four months have all shown strong positive price rises. The reasons given for this in the fiscal review are domestic wage increases, higher utility tariffs and the strengthening of the rand against the US dollar. Further domestic price increases are considered likely to threaten the competitiveness of local goods in both the home and export markets.
The statement avoids speculation on the implications for prices generally of reduced imports arising from a likely further deterioration in the current account position. The monetary policy statement cites a 47% rise in import payments in the first six months due “mainly to increased imports of consumer goods.” It notes increased resort to external credit lines which now constitute 30% of import funding.
While a weakening of the rand would probably help moderate the rate of local price rises it is also likely to add to overall increased import charges which would exceed the country’s capacity to settle promptly. A return to some form of selective rationing or even resort to quantitative import restrictions cannot be discounted.
Disappointing as the above reduced growth prospects may be, it is germane to recall that the prime cause of the restoration of real growth in 2009 was the replacement of the then almost totally worthless local dollar by comparatively stable foreign currencies. This was, however, a one-off event, indeed, one forced upon the country by its inability to go on printing ever-higher denomination banknotes in line with inflation.
Stimuli to carry the economy forward now need to be part of a coherent and consistent process that is the outcome of policy decisions. The minister cited eight objectives from Sterp II intended “to build a dynamic, stable and sustainable economy”. The major problem, however, is not in enunciating policies but in ensuring that the policies are implemented by elements within the GPA.
The mid-year review noted that only US$207 million had so far been provided to finance the US$810 million vote of credit. Little wonder then that the minister is unable to accede to demands for public sector pay increases. The government’s hopes that the private sector would assist development and increase employment have also been dashed by an outflow of foreign capital consequent upon the gazetting of indigenisation regulations and a lack of effective protection for property rights.
There is too a need for measures to forestall the adverse impact of an impending deterioration in the current account position on banks’ foreign assets, their scope for financial intermediation and an anticipated slowdown in import growth. Finally, steps need to be taken urgently to pave the way for eventual debt relief and access to donor funding.
These major financial hurdles are insuperable without substantial external assistance. The latter can be expected only in the event of what is considered externally a significant improvement in local policies. Until this issue is resolved the prospects of further, strong economic growth will remain problematic.— Tetrad Research.