Zimbabwes present economy Essay Example for Free

Zimbabwes present providence EssayIntroductionZimbabwe is facing a long scotch crisis that is worsening living standards by the daylight and a decline in industrial growth. Un fight is now one of the highest in the world, running at 50% against an annual population growth of 3%, mainly because of in adequate to(predicate) sustainable job creation activities in the market.The rampant unemployment has disposed rise to the worsening abject poverty, rising crime levels, f aloneing quality of intent and standards of living, as well as general delinquency. Close to 65% of the population is considered poor according to the latest poverty assessment. The country is facing near bankruptcy. The line is Governments huge borrowings where much of the money is used for recurrent expenditures to meet the day to day running of Ministries. Very little is for capital investments.Since the attainment of independence in 1980, Zimbabwe has produced a number of Annual Budgets that were suppo sedly fulfilled together with the national economic plans such as the following Zimbabwe Conference on Reconstruction and outgrowth (ZIMCORD), On the Road to well-disposedism, Transitional National Development Plan (TNDP) that came in volumes I and II economic Structural Adjustment political platformme (ESAP) 1991-1995, Zimbabwe Programme on Economic and Social Transformation (ZIMPREST) 1998-2000, Millennium Economic Recovery Programme (MERP) 2000-2002, Ten Point Plan and more recently the National Economic revitalization Programme (NERP) February 2003. The focus of all these policies was to bring about economic development and improve quality of life for Zimbabweans. Regrettably, none of these economic policy documents together with the accompany annual budgets have succeeded in producing real positively charged tangible results especially in the area of poverty reduction. A number of factors account for this hence the rampant poverty that has rocked the country today.An a nalysis of the various economic recovery and reform architectural plans is done summarily done below with more emphasis and time given to the most recent one NERP.Economic Structural Adjustment Programme (ESAP)In October 1990, the Zimbabwe organisation succumbed to Western donor pressure and grudgingly agreed to implement the five-year Economic Structural Adjustment Programme (ESAP) as a response to the economic crisis which had been afflicting the country since the 1980s. The measures introduced wereRemoval of price controlsRemoval of wage controlsReduction of brass expenditureA 40 per cent devaluation of the Zimbabwean dollarRemoval of subsidies on basic consumer goodsLiberalising the immaterial currency allocation systemRemoval of bulwark of non-productive import substituting industries and increased profit remittance abroad andA radical restructuring of the various parastatals and other common enterprises.ESAPs prime mandate was to shift the musical mode of economic mana gement from a setup where state intervention was perverse towards a framework where market forces had more influence. Economic liberalization was expected to hold back major fiscal reforms, aimed at trimming the budget deficit from 10% of Gross Domestic Product (gross domestic product) to 5%, increasing national output by 5% over the reform period, as well as reduction of inflation from over 17% to 10% by 1995. The major achievement make by ESAP was domestic deregulation, trade liberalization, foreign currency liberalization, and foreign direct investment liberalization (among other areas of deregulation). The majorchallenge during the period was the issue of huge fiscal deficits that averaged 10 percent of GDP. Though inflation was an issue, it was still within manageable levels.Zimbabwe Program for Social and Economic Transformation (ZIMPREST)Beyond ESAPs phase, the Program for Social and Economic Transformation was implemented from 1998 to 2000, with focus on consolidating the g ains of economic liberalization. ZIMPREST still pressed forward with economic stabilization, aiming to reduce the budget deficit from 10% of GDP to 5% and inflation to single digit levels. The major constraint ZIMPREST encountered was the fact that donors did not provide any funding, nor did budgetary provisions take note of its funding. The economy as a result subdued, and savings and investments tumbled from 18% of GDP in 1996 to 9% and 13% respectively in 1999.Millennium Economic Recovery Program (MERP)In the year 2000, the Millennium Economic Recovery Program (MERP) was launched, with a thrust towards restoring macro economic stability and thus restore a vivacious economic growth and ridding the economy of inflation. Fiscal reforms and monetary policy measures would foster to restore price stability, while the domestic debt portfolio was to be massively restructured and industriousness area revived. The program never took off due to lack of coherence on whether the economy sh ould continue on liberalism or perhaps pursue a compromise, which places slight emphasis on markets. At most MERP was marked with major policy reversals with initial and subsequent commitments to coiffure the exchange dictate for example remaining on ice, and the local unit maintaining a peg of Z$55 to the US$, despite widening inflation differentials with trading partner counties. It is also the time when the government reversed market economics, culminating in the institution of price controls in the third quarter of 2001.The failure to implement MERP marked the turning point on vertical falls in business confidence in Zimbabwes economic history, with business failurerising fundamentally. The economy took a steeper downward trajectory in the period. Since then economic events have not helped either to build or sustain business confidence.The performance of most sectors was largely influenced by the aforementioned economic terrain where neither ESAP nor ZIMPREST have been able to tame macro economic instability and MERP went on to accommodate it. All productive sectors have maintained a blackball growth trend since the year 2000, save for estate, finance and insurance. The performance of these sectors hence mirror the persistent decline in national output. Since thither is a healthy correlation between agriculture and manufacturing, the ESAP era had a strong growth for all sectors, yet the ZIMPREST and MERP depict basically an erratic and downward trend.National Economic Revival Programme (NERPThis is the most recent of the economic reforms and was launched in February of 2003. This was a brainchild of consultations with social partners namely Government, Business and Labour under the Tripartite Negotiating assemblage (tumor necrosis factor). NERP was explicate with the principal objectives ofIncreasing the output across the productive sectors as a way of reducing shortages and curbing the black marketIncreasing employment generation through sector sp ecific measures andImproving exportinger viability and the supply of foreign currency through an Export Support Scheme.Under NERP, sector specific measures were spring upd which are agriculture, manufacturing, small and medium enterprises (SMEs), mining, tourism and services sectors.Under agriculture, the following measures are being implemented-Offering viable producer prices timeouslyEntering into switch off far-offming to ensure adequate supply of strategic crops for exports, local consumption and seedsPutting in place a Dairy Development FacilityProviding adequate resources to enable the productive use of the land, since the latter is a basic economic resource which must be exploited efficiently and effectively andIntroducing duty reposition exemptions on imported artless equipment not locally available, amongst others.Under manufacturing, the policy thrust will be to reverse de-industrialisation and increase susceptibility utilisation in the manufacturing sector through -Reviewing the countrys Industrial Development StrategyResuscitating the business linkages programmeIntroducing applied science linkages programmes between manufacturing industries and institutions of higher learning and research andAvailing financial foul to upturned companiesUnder Small and Medium Enterprises (SMEs), the Government acknowledges that an integrated policy and strategy for the development of small and medium enterprises (SMEs) is critical for generating employment, stimulating growth and contributing to foreign exchange generation and has thus instituted the following -Developing the enabling and regulatory environmentInvestment promotion in SMEsImproving access to markets and financeProviding technology and infrastructure support andUndertaking entrepreneurship, management and skills development programmesIn the mining sector, the measures include-Allowing the small scale mining sector to benefit from the productive and export sector facilities where they access at 15 and 5 percent respectivelyPutting in place incentives for projects that encourage value addition of exported minerals and metals in assign to increase foreign currency generation and employment opportunities andImplementing a revised and consolidated fiscal regime for the sector.Under Tourism, in suppose for Zimbabwe to regain its temper as a leading tourist destination, the following will be done-Launching a existence relations campaignIntensifying merchandise activities and broadening tourist source markets to determine diversificationEncouraging investment in tourism infrastructure (such as shopping malls, agro and eco-tourism development zones) andPromoting the cultural industry to realise its income potential through cultural tourism.Under the services sector, the following will be implemented amongst others-Enhancing marketing of agricultural commodities by establishing an Agricultural merchandising Authority andRecapitalisation of key public transport enterprises in order to improve urban transport.In addition, the Government through the Tripartite Negotiating Forum signed a Prices and Incomes Stabilisation Protocol on 30 January 2003 whose fundamental objectives are to-Enhance viability of companies as well as sustain productionGuarantee the availability of products on the market at affordable prices andDeal effectively with problems arising from the regime of price controls.Further, Government instituted the following measures to ensure that savers and borrowers mutually benefit from the following interest rate policy-Narrow the current high spreads between deposits and lending place in line with international best practicesReviewing upwards deposit interest rates on consumption and speculative activities andReviewing the proliferation of service charges levied on depositors by banks.The link to the 2003 National Budget hinges uponDevelopment of a Macroeconomic Consistency Framework which ensures concurrence between policy instruction e xecution and performance of the four sectors of the economyA supplementary budget to accommodate additional expenditures occasioned bythe financial implications of NERP andDevelopment of a Medium Term Expenditure Framework to ensure the improvement of the macroeconomic environment, for the period 2003 to 2005.Assessment of the National Economic Revival ProgramThe best motherfucker to asses NERP is the Strengths, Weaknesses, Opportunities and Threats model which is outlined belowNERP StrengthsSome of the strength of NERP are as followsIt is about immediate measures to revive the economy, which gives it some urgency and focusIt draws heavily from deliberations of the TNF and was in fact sanctioned by it. This implies a high level of consensus on the policy measures contained on that pointinIt specifically derogates responsibility to specific bodies or parties. It is therefore easy to check who has to what by looking at the implementation matrix.It is part of a comprehensive set of p rotocols focussing on specific areas andIt had a lightheaded time frame.NERP WeaknessesNERP suffers from the following weaknessesIts implementation is based on the TNF principles of trust and goodwill.Without these, it foundersSlippages in one area affect the restLack of harmony and consistence of government policy creates unwarranted policy conflicts that undermine its implementationDeteriorating political conditions and in particular increased polarisation of the Zimbabwean society undermine its implementation and therefore success it comes after the budget in the context of already inadequate resources, it falls on its face.It contains high expansionary measures (for instance on land), which are inflationary (yet in its own analysis it decried the fact that money supply growth reached 150% by December 2002)It lacks measures to deal with hyperinflation. No sterilisation measures are includeIt is about everything, and yet it is a short term programme there is no prioritisation of issuesIt is based on representative democracy constituencies whitethorn not be aware of what they have been bound to or may not be able to implement their obligationsIt is impeded by a general lack of political will andIt has no time horizon.NERP OpportunitiesThe opportunities to it includeWhat needs to be done is collectively determined and knownGiven the right environment, the stakeholders are committed to implementing it conciliative framework of the TNF based on the win-win principle andIt allows for self and collective responsibility and evaluation.NERP ThreatsThe key threats to NERP includePolicy conflicts (stabilisation versus expansion) lack of adequate implementation capacityOvercrowded agenda and lack of prioritisationUnrealistic expectations sometimes seen as a quick-fix magicLack of resources and continued resort to domestic borrowingSlippages in implementation the programme is already behind scheduleIn formalisation of the economyPolitical expediency may result in poli cy inconsistenciesContinued political polarisationStakeholder mistrust and misunderstanding andLack of political will.ConclusionHowever, a combination of near-total disregard by government for all those components of the programme which were at variance with intense state control of all major facets of the economy, or which were in conflict with failed ideologies, and two years of severe drought, saw the first three years of ESAP as an economic non-event. By 1993 government had little alternative but to implement much of that which it had up until then disregarded, although it did so reluctantly and half-heartedly.Nevertheless, belatedly ESAP began to yield positive results and therefore it was used as the basis for the next programme, intended to be implemented from 1996 the Zimbabwe Programme of Economic and Social Transformation (ZIMPREST).But governments lack of rapture was such that although the programme was to be embarked upon in 1996, it was only released to the populatio n in general and to investors, financiers, commerce and industry in particular in 1998 and never meaningfully introduced. So in 2000 government announced its Millennium Economic Recovery Programme (MERP). As with ZIMPREST, that programme proved to be only plentiful row and glossy papers but devoid of any substantive implementation and it was soon cast away into oblivion.In its stead, government announced a bare-assed programme the National Economic Recovery Programme (NERP) in February. However, with virtually the only exception being an exchange rate adjustment or export support exchange rate (both being euphemisms for devaluation), NERP was as shallow in its application as had been ESAP, ZIMPREST and MERP. The economy has continued to decline to an ever greater extent, with some believing, erroneously, that it is now beyond redemption.Not only has government shown remarkably consistency in its failure to implement any of its formal economic development or recovery programmes other than with the greatest of superficiality, but it has shown equally great consistency in devising and implementing actions diametrically opposite to those envisaged by the various programmes and plans that it had so proudly placed before Zimbabweans. In so doing, it has brought theeconomy to its knees. Inflation has reached an astronomic level of more than 364,5% for the year to June with that months inflation at 21,1%, an all-time record.Never has there been such a high proportion of the population without employment. Never has there been so many suffering and facing malnutrition, if not severe starvation, at incomes far below the poverty datum line, as is now the case. Never has Zimbabwe been as short of foreign exchange, with consequential devastating shortages of fuel, energy, basic foodstuffs, industrial raw materials, agricultural and mining imports, medications, and much else.Agriculture has been virtually destroyed, the mining industrys operations heavily reduced, touri sm emaciated, and the manufacturing and distributive sectors battling to survive. And never has government incurred deficits of the scale that are now the order of the day.So great are those deficits that government must now present a supplementary budget to parliament as the national budget tabled in November 2002 and the fiscal out-turn to date have no commonality. As has become a regularity, the spending of almost all ministries is way in excess of the votes approved by parliament.Compounding the problems created by governments profligacy has been the differential in governmental revenues received as against those envisaged in the national budget. With a withering economy, it is inevitable that taxation advantage must fall and with limited foreign exchange the extent of imports diminishes with a corresponding reduction in inflows of Customs duties and import taxes. But another significant non-receipt is that in contrast to expectations in the 2001, 2002, and 2003 national budget s, government has had very little by way of proceeds from the intended privatisation of state enterprises.The intention to divest itself of all but the most critically strategic businesses owned by government has been one of the major elements of ESAP,ZIMPREST, MERP and NERP. While government repeatedly failed to pursue many of the elements of those programmes, as yet it did effect some privatisations between 1998 and 2002, and with some considerable success.Effectively and successfully, the Jewel Bank, Dairiboard, Rainbow Tourism Group, Cotton connection of Zimbabwe, and Zimbabwe Reinsurance Corporation were privatised. Not only did government realise significant amounts from the sale of its investments but the privatised enterprises rapidly demonstrated substantial growth and enhanced efficiency of operations. The privatisation programme has clearly ground to an ignominious halt and reverse to detaching itself from commercial and other economic production enterprise government is increasing its involvement through some of its parastatals.Enterprises such as the National Oil Company of Zimbabwe, Zimbabwe Electricity Supply Authority, National Railways of Zimbabwe, Cold Storage Company, Air Zimbabwe, Zimbabwe Broadcasting Corporation, the GMB, and many others have become an ever-heavy millstone around the neck of the fiscus.Evidently, therefore, the inclusion of privatisation in NERP is yet another hollow economic plan of government one devoid of substance. Pity, therefore, the poor officials in the Ministry of Finance and Economic Development required to formulate the supplementary budget. They have to find ways of exacting the funds needed by government but have great difficulty in finding any way of doing so within a derelict economy without further catastrophically afflicting that economy and without extorting yet more from a desperately devoid population.Under the current programme (NERP), the government was supposed to have explored models of land tenure systems vis a vis property rights by blemish 2003. It was supposed to have reviewed uttermost A2 farm sizes and rationalised and consolidated land allocation in line with an audit by the Land Task force the same month. Instead, it threw away the report without disclosing its findings to the public and setup another audit team which is still working on its audit.The government is supposed to have reviewed and topped up input schemes, finance and acknowledgment services and facilitated the setting up of commodity associations by the same month. It should have introduced a Dairy Development Programme to revive dairy farms by March 2003 and transformed Agribank into a Land Bank as well as the disbanded Agricultural Marketing Authority.Other tasks that should have been carried out by March include the review of the Industrial Review Strategy to address de-industrialisation, low capacity utilisation, increased exports and empowerment and, a review of the gold support scheme. Int ernational public relations companies should have been hired to counter negative publicity.Several measures to boost foreign currency should have been implemented in February 2003. These included an export support scheme, a review of the 5050 export proceeds surrender every quarter, the introduction of an export revolving fund and incentives to attract remittances from non-resident Zimbabweans. A credible away payments arrears repayment programme should also have been put in place in February.The government should have put in place trigger mechanisms to adjust the prices of fuel, and tariffs for coal and electricity by February. It should also have concluded and signed the Kadoma Declaration (this focuses on addressing the mismatch between policy design and implementation) by February.As things stand, it is still groping in the dark, calling on the nation to remain steadfast Rambai makashingaEconomic policy reform in Zimbabwe has not resulted in improved socio-economic welfare for the populace. Consequently, economic decline has resulted in widespread political discontent and disaffection with the present regime. As political tensions have reached a political impasse, there are concerns that Zimbabwes economy is on the brink of total collapse. As the Kadoma Declaration observes, without the assistance ofdevelopment partners, it is difficult to revive the economy. While the rest of the world may not need Zimbabwe, Zimbabwe certainly needs the rest of the world.