Digging ourselves deep into a crisis.......

Our economy has been under severe stress and underperformance for a long time of which the brink to ultimate collapse is nigh. The introduction of the multicurrency system in 2009 relieved the economy from the 1997-2008 anaemia. A coda to the economic challenges the multicurrency regime brought to the fiscal management arena was effective planning and budgeting, something policy makers, industry and households could not envisage with the Zimbabwean dollar as legal tender.  The stability of a firmer currency base has worked well in many ways but the current cloud of oblivion cannot be averted by that alone. 

What happened to the agro-based economy…

The Zimbabwean economy has for long revolved around agriculture. At some point it was labelled the bread basket of southern Africa. Only after the post land reform period the sector has struggled to support its own local market, a situation that has led to the influx of food imports ranging from the basic mealie meal to potatoes, vegetables and even eggs. The little that has been produced locally has failed to meet demand whilst the farmers who have benefited from the land reform have not received adequate skills support. Programs like mechanisation have only benefited the politically connected who have even failed to pay back funds for such initiatives. Going through such government supported programs one could only imagine the accruals had it been transparent and effectively implemented. To this day, the country’s financial position is still groaning from debts emanating from these programs. Now there is even talk of protecting such debtors and passing the cost to the already castrated taxpayer, a scenario that can only be described as the worst case of corruption and disgust. 

The government has even made calls to the financial institutions to provide funds for the resuscitation of the agricultural sector but ownership complications which has seen the 99 year lease versus tittle deeds debate and a depressed liquidity position in most credit institutions not helping matters. There is also an issue of trust considering the fact that most of the new farmers have defaulted on many programs that have been afforded to them before. It is the government’s commitment to institute proper measures to avert default that can probably arrest some of these adverse issues.

Apart from technical issues like funding and skills, the country has also experienced a dry weather pattern in recent years. Mechanisation programs meant to promote initiatives like irrigation have flawed remarkably due to issues like patronage, corruption and ineptitude on the part of policy makers.

The national cattle herd has also depleted to low levels signalling the urgent need of a new impetus to the agricultural economy.

The new economy base...

The demise of the agricultural sector has shifted a lot of focus to mining as the last frontier of hope. Mining has become one area of pride in a gloomy economic state with a lot of boastful remarks from some policy makers on how the country is abundantly endowed with the mineral resource. After 2008 the year of the global financial crisis most nations took to commodities for a safe haven and discarded the financial instruments that had sent them crushing. This pushed up prices for the commodity prices. The rise in prices enriched commodity bearing countries and the effects inspired growth within Zimbabwe. The fairy-tale run coincided with the formation of the Unity government and ironically ended when the accord expired and opened its way to elections. Gold between 2009 and 2013 reached an all-time high of $2,000.00 an ounce with other metals such as platinum and diamonds flourishing in the international market contributing to growth within the Zimbabwean mining sector economy and a turnaround in fortunes for many mining companies. The rise of the mining sector inspired growth in other sectors like finance. 

2013 became a year of mixed fortunes with decisive elections which ensured a ZANU victory, the introduction of the ambitious ZIMASSET, full rollout of the indigenisation policy, and fall in international commodity prices which was perhaps not foreseen and prepared for. 

Due to the fragility of confidence in the Zimbabwean economy, or lack of it, the financial sector has suffered from a domino effect with most banks closing shop. The surviving ones have rescaled their operations with the credit market being the worst hit. Due to problems in primary sectors like agriculture and mining, liquidity challenges have worsened tearing the financial system apart. The effects of Zimbabwe’s shrinking economy which has seen growth prospects cut and deflationary symptoms creeping, is taking a toll on  government revenue. Instead of dealing with causes the government has gone further to devise new ways of milking businesses and households through tax. The mining sector has seen royalties reviewed upwards and this has extended to duty on a number of essential imports by businesses and individuals.   

…and then

Many moons ago there has been a number of deals signed with China and Russia but nothing tangible has materialised to this day. China is facing its own domestic problems. Industrial output in the Asian giant has registered a decline and the situation has not been all rosy with its stock market which has lost close to a quarter of its value this year alone.   Russia is not spared either. The Kremlin has suffered a wave of Western sanctions as a result of its alleged involvement in the Ukrainian crisis. This, coupled with its other domestic and international commitments has placed a heavy cloud of doubt on the implementation of the two nation’s Zimbabwean projects.  Aliko Dangote has been in the country expressing keen interest to invest in the country but implementation of deals is what the country desperately seeks. There is need for the country to focus on agricultural investment as well, as it is one sector that can raise economic hopes but experiences of the past where property rights are trampled upon will never make this task easy. All in all emphasis on technology is important to make the economy a well-oiled machine.

Financial Market Collapse in Zimbabwe

The local economy in Zimbabwe has been affected by a financial market that is not functional and that has led to the collapse of many firms as the financial intermediary has been lacking in its execution of its duties. There are a number of factors that have led to the collapse of the financial market in Zimbabwe and these problems have not only affected Zimbabwe but most of the developing countries in the world. Financial markets are of bigger importance to the economy of countries as they are there to facilitate the efficient allocation of resources which will spur development further. Dysfunctionality of the financial market will spell the doom of an economy as resources will be allocated inappropriately and this will lead to an imbalance within the economy thereby crashing the supporting systems of economic sectors or factors.

The main challenge in most developing economies has been a clash between Economics and Politics as populist political economic strategies have been used to woo voters but at the same time hurting the market and the economy. Political statements and policies tend to please the masses at rallies which will be on a shallow basis without getting deeper into the aspects of the whole issue. On the ground the sentiments will have a huge knock on the businesses, the economy and investor confidence. Populist political statements and policies are to an extent retrogressive to economic development as they are hard to implement with most of them failing to take off ground or leading to recessionary pressures in most developing countries. The famous ESAP policy formulated and implemented in the early 90’s degenerated to an epic disaster in Zimbabwe and now we await the full implementation of the Indigenisation and Empowerment Act together with the ZIMASSET which in the meantime have not boded well with the economy.

Still on the issue of policies and politics, there is no clear interpretation of these policies by the ministers who would have enacted the policies and thus leaving everything in a conundrum. The discord created by the misinterpretation of the policies leads to more challenges in the implementation process. Currently the ministry of Indigenisation and Empowerment has gone through 3 ministers in less than 8 years bringing inconsistencies and differing ways in which to implement the whole process. Each minister who came on board had his own explanation and execution of the policy with the President also echoing different sentiments which in all confused investors and the general public. Inconsistencies also within the policies lead to misunderstanding and instability in the market. Investors require an environment that does not change time and again which disturbs any future planning and forecasting as it will bring about instability and losses within business ventures. Government policies should be able to create a sound environment for efficient economic progress.

The streaming of information to all stakeholders is a big challenge in Zimbabwe as there is too much information asymmetry which affects viability and efficiency of financial markets. Information has to be available to everyone to avoid any disadvantages in trade and also for raising awareness to all locals. Proper channels of communication should be followed by all parties concerned in order to reach all targeted recipients of information. The Zimbabwe Stock Exchange (ZSE) was in February 2015 involved in an error of communication and information availability as it suspended the Meikles Group from trade on the national bourse and later on re-listed after a High Court ruling in favour of the Meikles Group. If the stock exchange is failing in relaying information to its participants first, then what about the general public, this in itself discredits the bourse and causes much concern on its efficiency and of the financial market at large. Lack of transparency in most of the dealings also leads to the lack of information availability as most of the details will be concealed and kept under wraps.

The lack of financial instruments has led to a less or next to none innovative financial market and this in turn strains ways with which to keep funds circulating within the economy and also does not attract foreign funds that might be interested in financial products. The local market used to have bonds, derivatives, credit guarantees and other financial instruments that kept the market liquid and provide both short to long term funding in the market. These products are no longer in existence, with only local government bonds being in circulation and mostly being offered to top companies as foreigners cannot take them up due to the debt overhang that the country has. Lack of financial products makes the market rigid as there is no diversity within the market.

Collateral is one of the 5C’s of credit and is a critical issue in Zimbabwe as the property rights lack protection and are not flexible enough to cover other forms of movable and immovable property which may be used as collateral in a developing country. Most Zimbabweans keep their wealth in the form of livestock such as cattle which is not properly registered in Zimbabwe and that does not stand fit as security for a bank loan or on any credit facility. The government and the private sector should come together and be able to set up ways with which to register cattle, keep check of any movements’ in order to protect the lender and instil confidence in the lender. The laws should be able to conform to the standards of the country and be able to be flexible enough to cater for the differing scenarios within an environment. The then TN Bank wanted to set up a cattle bank which was a noble idea that would have pioneered the use of cattle as collateral as it would have been registered but lacked support from the stakeholders. The country also carried out a land reform programme that availed land to the general public but since early 2000 up until this year 2015 most benefactors do not have title deeds, land leases or the 99 year leases that authenticate that they the owners of the land. Property registration lacks in a big way in the country with those that were availed 99 year leases are also failing to access loans from financial institutions, with government financial institutions also not accepting the papers. Authentication and education of such important documents by the government should be made in a very intrinsic way that instils confidence in the whole market about the legal documents. Commercial courts should be availed to deal with businesses cases especially on property rights matters rather than placing a heavy load to the general courts with all kinds of cases at once. 

Government debt of $10 billion dollars has had a huge effect on the economy and viability of the financial markets as foreign capital or funding for the markets cannot be attracted due to the country’s credit risk rating. Private companies are failing to lend from foreign financial institutions as the funds attract a high cost of lending. Lack of funding, a high debt has now led to an illiquidity challenge that is crippling all sectors, low income level earners now form the core of the employed percentage in the country and this has severely affected the savings function. Low liquidity levels have now made the banking institutions channel funds to risk free assets that keep their funds safe and depend mainly on service charges for their income.

The death of most industrial companies in the country which were the mass employers of the country has seen an up rise of small to medium enterprise (SME) which has led to sustainability of most families. This emerging sector is not accounted for by the economy in formal terms as it is still regarded as an informal sector. The informal sector term deprives these enterprises from things such as loans, training, advisory services among others but also deprive the government of the much needed revenue. Microfinances which are supposed to form a support base for the SME’s have failed in that regard as they have also focused on giving out short term loans mainly to government employees which is a risk free arrangement. Besides not offering loans, their loans are at a huge cost which in turn will make running the business a hard act to do. Structures were in place to help nurture SME’s have crumbled as rhetoric has taken centre stage with little to no action taking place. There have been mooted plans to have a SME’s bourse to operate separately from the main bourse, so as to help organise easy ways to raise funding for these enterprises. The idea is a great one as we would be taking cue on the NASDAQ in America but with the current economic situation it’s not feasible as most counters on the ZSE are trading below 10 cents per share with some trading below a cent and these are big companies which is a cause of concern. Also the lack of the supporting structures for SME’s will lead a biased listing.