2010 Budget: its the politics, stupid

tollgate2HARARE Zimbabwes economy may have turned a corner but full recovery could be clouded by political disputes between President Robert Mugabe and Prime Minister Morgan Tsvangirai, holding back badly needed foreign investment and donor support, analysts said. (Pictured: A ZIMRA tollgate

Presenting his 2010 national budget statement to Parliament last Wednesday Finance Minister Tendai Biti said Zimbabwes economy would grow this year, the first time in a decade, and again in 2010 mainly powered by better performances in the mining sector, agriculture and manufacturing.

The countrys gross domestic product has shrunk by a cumulative 40 percent since 2000 when Mugabes war veterans violently seized white-owned commercial farms, instantly decimating agriculture, the backbone of the economy.

Economic analysts said while Biti projected the economy would grow next year by 7 percent, this was not enough to generate badly needed jobs but that a higher growth rate was unlikely without an end to the political friction between Mugabes Zanu (PF) party and Tsvangirais MDC-T.

So long as the twilight political situation remains like that they (government) will not get on top of the situation, Tony Hawkins, a professor of business studies at the University of Zimbabwe said.

Outstanding issues

Mugabe and Tsvangirai formed a power-sharing government in February but the political deal has been fraught with pitfalls and analysts say without resolving the outstanding issues emanating from last years global political agreement, foreign investors and donors would hold on to their purses.

Negotiators from the two parties are involved in another round of talks after a South African Development Community organ on defence and security summit in Mozambique directed that the parties resolve outstanding issues within a month, a timeline that is unlikely to be met.

ZANU PF wants the MDC to call off travel and financial restrictions imposed on Mugabes inner circle and to stop what the party says are hostile broadcasts from pirate radio stations.

The MDC says the appointments of Mugabe loyalists Attorney General Johannes Tomana and central bank governor Gideon Gono should be reversed and wants its deputy agriculture minister nominee Roy Bennett and its quota of five provincial governors to be immediately appointed.

If the outstanding political issues are resolved it would give greater impetus to investors to seriously consider putting in the sort of investment that would result in a big leap in economic growth,” Eldred Masunungure, a political commentator said.

Foreign investment

Zimbabwes economy needs to grow by an average 15 percent for the next five years to generate employment but without foreign investment, this could be a big ask.

Many foreign investors are eager to set shop in Zimbabwe but this is unlikely to materialise any time soon especially after the global economic crisis last year that saw foreign funds take flight from risky emerging markets. Zimbabwe is unlikely to be an attractive destination for a time to come, analysts said.

Biti said he had received expenditure bids of $12 billion but had to cap this at $1.44 billion because there was little revenues being generated.

This has highlighted the dire need for foreign donor funding, especially for capital expenditure like construction of roads, dams and provision of water, which are all catalysts for growth but have suffered due to lack of funding.

The Finance Minister said donors had availed some $300 million for the 2010 budget, but that money would be handled by donors and go directly to identified projects, in a clear sign that the international community lacks confidence in the inclusive government.

Economic analysts said there was potential for bigger investment in the mining sector, given the mineral deposits in the country, but that was unlikely to happen anytime soon as investors are fretting over a nationalisation law that forces foreign-owned companies to sell majority shareholding to blacks.

Self-evidently, our economy is still mired in a fragile status quo. A situation that has not been helped by an unpredictable political environment characterised by attrition, disharmony of messaging and the total absence of a unifying national vision, Biti said

The uncertainty and the inconsistency of message and the continuous attrition inside the inclusive government remain major eye-sores in the countrys anatomy.

Property rights

Investors want to see an end to land invasions, which have cast doubt over Harares commitment to upholding the sanctity of property rights. Biti set aside $31 million for a land audit meant to take stock of Mugabes often violent and chaotic land reform, which has resulted in some senior ZANU PF officials grabbing more than one farm.

The finance minister said agriculture production would rise by 10 percent next year but output would need to rise sharply to produce enough input for the manufacturing sector, where capacity had fallen to as low as four percent last year.

Zimbabwe has suffered food shortages since 2003, largely blamed on the land seizures, which Mugabe defends as necessary to redress colonial land imbalances.

Biti said the southern African country could produce as much as 2 million tonnes of the staple maize with increased government help targeting poor rural farmers while tobacco output would also rise significantly.

The treasury plans to collect $120 million a month next year, up from $90 million, with tax contribution from businesses expected to rise after a cut in corporate tax.

The minister is quite pessimistic (on growth target) because with the increase in tax revenues you would expect higher growth, Hawkins said.

But as politicians haggle over how to share executive power, the majority, whom Biti called the submerged and drowning poor will continue to struggle, hoping for jobs to better their lives.

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