Economists predict difficult year

BY KUDZAI KUWAZA

THE year 2021 could be turbulent for the Zimbabwean economy given the surge of Covid-19 infections and the hike in tariffs likely to further drive up price increases, analysts say. Despite the positive chord struck by the stabilising of the exchange rate through the foreign currency auction system introduced by the Reserve Bank of Zimbabwe, strong headwinds remain on the horizon in 2021.

The year 2021 will likely be subdued with economic growth reaching nowhere near the 7,4% mark projected by Finance minister Mthuli Ncube in the 2021 national budget, according to economist Prosper Chitambara.

“I expect the year 2021 to be subdued and I expect the economy to grow by between 1% and 2%,” Chitambara said.

He added the performance of the economy this year would be predicated on how the government responds to the surge in Covid-19 infections.

“The success of the economy will depend on how robust the government’s response will be to the Covid-19 pandemic and its ability to stem the fallout resulting from it,” Chitambara pointed out.

Former Employers’ Confederation of Zimbabwe executive director and labour market analyst John Mufukare said the optimism created by stabilising the exchange rate last year was under threat in the New Year from the hike in tariffs by the government.

“Towards the end of 2020, it looked like things were turning for the better with the stabilisation of the Zimbabwe dollar. But looking at 2021, it is difficult. The government has given with the right hand in terms of stabilising the local currency but has taken with the left hand with the increase of the price of fuel, electricity, toll gates and other tariffs,” Mufukare said.

He said the increase in the price of fuel could trigger a wave of price increases which could stoke inflation which stood at just over 400% for November last year and inhibit economic growth in 2021.

However, economic analyst Godfrey Kanyenze said good rains could revive the agricultural sector which is the backbone of the country’s economy.

“We want to thank the Lord for opening the heavens. As you know, agriculture is the backbone of our economy and good rains will help us have good harvests after consecutive droughts. The rains will not only help in terms of food security, but increase water levels for the supply of electricity. The rains could be a game changer in 2021,” Kanyenze said.

He, however, said despite the boost brought about by the good rains, challenges still remain. This, he said, includes the impact of the Covid-19 pandemic, the obstacles to “ease of doing business” in the country and corruption.

The performance of the economy has got off to a false start at the beginning of 2021 according to CEO Africa Roundtable chairman and economist Oswell Binha.

“The Zimbabwe economy continues to suffer from endemic structural problems, all as a consequence of a dearth of confidence and trust particularly on public policy, processes and public institutions. While the government has attempted to invest efforts in attracting back this lost trust, legacy issues compound the negative effects of these structural challenges. The year 2021 has had a false start,” he said.

Binha said the tightening of restrictions by the government to curb the surge in Covid-19 infections would have a devastating impact on the country’s fragile economy.

“The phase two of the pandemic has ripple effects on the economy as a whole and the net effect is the wholesome breakdown in macroeconomic activities. The measures which have been announced and being implemented assume that the defined essential services work in isolation from the entirety of the economy. It is a wrong assumption. Our economic structure has simple but integrated value chains which neatly feed into each other. Social services, agriculture and mining, among other essential services, depend on both upstream and downstream linkages to fully operate. These linkages are clearly outside the bracket of the so-called essential services,” Binha pointed out.

“Industry will, again, be forced to deal with a plethora of labour issues over and above the costs of compliance to new requirements for the reduction of the prevalence of Covid-19. A fiscal budget dedicated to Covid- 19 testing, prevention and treatment will certainly be beyond the current allocations. In summary, the economy will budge due to the impact of Covid-19 and indeed accompanying adjustments by economic players to the recently announced fiscal and monetary policy instruments.’’

*This story first appeared in Weekly Digest, an AMH publication

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