Zimbabwe’s economy has continued facing challenges 3 months after the July 2018 elections. Foreign currency and cash shortages continue amid the rising black market. Panic buying amongst the country’s residents has resulted in the shortages of other commodities like cooking oil with retails having to limit customers on the number of purchases on other basic goods. Amid such challenges, this article looks at what researchers say are the economic solution for Zimbabwe.
University of Zimbabwe Lecturer Professor Tony Hawkins in his “Zimbabwe: Business Outlook 2018/19” offers what he has deemed ESAP two and re-engagement as solutions for the southern African nation.
On Economic Structural Adjustment Programme (ESAP) two, Hawkins suggests a reform agenda which assumes a paradigm shift from a “bloated and inefficient public sector” to a free market investment and export-led growth and an end to consumption-led growth fuelled by government borrowing and spending. The reform agenda also includes currency devaluation at least by 50 percent, which is a deliberate downward adjustment of the value of the Zimbabwean currency. Other reforms include the abolition of subsidies, public sector retrenchment and a shift in government spending from employment to social spending and capital spending. The Professor also suggests parastatal reforms including privatization, reversal of tariff hikes and Statutory Instrument 64 and Reserve Bank of Zimbabwe (RBZ) to return to traditional, normal central bank functions.
On re-engagement, Professor Hawkins gives a multistage process which includes the clearing of $2 billion in arrears owed to the World Bank, the Africa Development Bank and other international lenders and then to negotiate another deal similar to ESAP, which includes cutting down government expenditure and also working on privatization. Another re-engagement will be political negotiations with the United States of America. An American policy does not allow US citizens seating on international funders boards to vote for Zimbabwe to get financial assistance.
“It may be possible to find sufficient votes to override a negative US vote,” Hawkins says “This is unlikely because very few US allies such as the EU, Australia, Canada, India, etc, would seek to pick a fight with Washington over a small country which does not matter to them.”
A United Kingdom-based research fellow, Ian Scoones in his blog, says there is a need to engage the informal sector as well as the rural dwellers who live on agriculture. The researcher, who has published on Zimbabwe’s rural areas adds that a focus on supporting the informal and the agrarian economy and the linkages beyond is vital to any way forward. Scoones also says where he parts with Hawkins’s analysis on Zimbabwe’s economy is “his (Hawkins) disparaging rejection of the importance of the rural economy.
“Like so many conventional economists, he (Hawkins) focuses on the urban, industrial sector, forgetting that this is dependent on a wider economic system that remains substantially small-scale, informal and rural. The distinctions between ‘formal’ and ‘informal’ economies in Zimbabwe are irrelevant today: most of the economy is ‘informal’, and that’s where livelihoods are made,” Scoones says.
“Simply wishing an industrial revival without a core agrarian productive base supporting the mass of the population is foolish, especially in Zimbabwe’s context, as a small economy operating in a highly competitive global environment.”
A financial information service, Fitch Solution in its Africa Monitor analysis on Zimbabwe the current system will not permit an economic recovery for the country and believes that there are three viable options for the country.
One of the options is to re-dollarise, which entails scrapping bond notes. This would eliminate variations in values of the e-dollars, cash and the bond notes. The second option would be re-introducing a domestic currency and the third one would be joining the South Africa Rand monetary union.
The Zimbabwean government has introduced measures to curb the economic challenges which include privatization of state-owned enterprises, clearing $2 billion owed to international financial institutions and introducing the 2cents per dollar transactions taxes.