Manoeuvres by the ED administration to date have pointed to a significant effort aimed at altering the status quo of a crisis drenched economy to one with economic stability as the baseline and growth as a target. Emmerson Mnangagwa, a touted reformist, is out to prove himself amid heavy discounting emanating from his close to 4 decades association with the Mugabe administration under which Zimbabwe was decimated to an economically unstable and impoverished nation. Having tackled the legitimacy issue that dogged the “operation restore legacy” which removed Mugabe, through an election won by a whisker, Mnangagwa now faces an insurmountable task in turning around the economy, a test which his party under Mugabe perennially and dismally failed.
On the economic front, the country faces an acute cash shortage both in hard currency and local equivalent in the form of bond notes. This has resulted in lower nostro positions thus making it difficult to settle international obligations on behalf of local companies as well as individuals. The low level of nostros has thus constrained production, increased penalties & cost of capital, resulted in loss of business in areas such as reinsurance and delays in foreign portfolio settlement. Local money has also been scarce with the current level of bond notes in effective circulation sitting at 7%. Banks have adopted a cash rationing exercise in order to manage the crisis among other measures.
Other attendant problems include high levels of unemployment and spiking inflation. The former is a result of low productive capacity as companies continue to fall by the wayside and industries fail to retool amid funding constraints. Inflation in recent months has been driven by a shortage of cash and adverse exchange rates. Tackling these challenges is not a stroll in the park and some of the challenges are likely to remain with us for the longest time. Solving some of these challenges will entail clearing international debt, rebalancing the external trade position, rethinking both the monetary and fiscal policies among other issues.
As noted in an earlier note, solving problems of scarcity is a matter of priority and expeditious opportunity cost weighing. This theory holds that for every limited resource, choices ranking with priority have to be made. If extrapolated the opportunity cost should further look at other non economic costs such as political implications. In years past the Zim government has found this pill hard to take choosing short term political expediency in place of long term sacrifices and long run sustainable gains. This by far will be Mnangagwa’s true test of reformism, choosing a path of sustained recurrent overspending or trimming the budget to size and giving allowance for capital expenditure without risking his political stock among other such considerations.
This is one of the low hanging fruit but painful exercise as it entails dealing with the endogenous function of Zimbabwe’s economy, things within the country’s control. Appointing a technocrat in the mettle of Mthuli Ncube an acclaimed expert in the field of finance and economics as the Finance minister is yet another significant gesture by Mnangagwa and yet that too could not be enough. Before him were Finance ministers of repute such as Tendai Biti who did good during the GNU, Simba Makoni and Benard Chidzero before him. These were equally good, but only to the extend that they were allowed to manouvre by the appointing authority.
Ncube has highlighted through a few publications, his understanding of the Zim economic crisis stating the problems and how at a high level some of these can be solved. We share the same view in terms of the attendant problems and to some extend how some of these may be solved. It is good to have someone who understands clearly what problems they have and even better to have someone with the solutions to the problems they have. Mthuli should however learn fast to distinguish the practical realities of his offices from that of an accomplished academic so as to strike a balance between the political demands of his appointing authority and the demands of the populace dying for a new economic dispensation.
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