Whats the big idea for economic growth?

Poor performance in agriculture deprived the manufacturing sector of inputs. Low capacity utilisation led to low productivity and the loss of most jobs in formal industry.

One observer reports that Zimbabwe’s famous brands such as the Mazoe drink, available in supermarkets in Windhoek, Namibia, are manufactured in South Africa, adding that the only product from Zimbabwe seen in foreign supermarkets is Tanganda’s Silver tea. On the other hand, the main visible local products in our own shops are fruit juices and canned foods: many are produced by firms that appear to be short-lived.

Many firms are in the position of Mutare Board and Paper Mills, where machinery seen on ZBC news in May looks like relics from the early 1900s. Manufacturing and commerce were hit hard by the continuing shortage of electricity, with frequent more or less planned ‘load shedding’. However, access to energy improved somewhat as, after dollarisation, fuel vouchers were phased out in May and customers could buy petrol and diesel for cash anywhere.

By May 2009, industrial capacity utilization had climbed to 20% from lower than 10%, though revival was not as quick as some had hoped. In November CZI said factory output doubled in the first six months of the year and capacity utilisation had climbed to 32.3% Early predictions had suggested it would reach 60% by the end of 2009. The climb continued but more slowly than had been hoped. The increase to 60% now seems unlikely to be reached in 2010.

Whats the plan?

Government policy was summed up by Deputy PM Mutambara at a conference on ‘public-private partnerships’ in June:

The State (both national and local institutions) does not have enough money, technology and human capital to deliver all the required infrastructure and services on its own. This can only be achieved through Public Private Partnerships. Ownership of the means and factors of production is not as important as allowing the same means and factors to deliver services and outcomes that will lead to shared economic growth and job creation.

But he was not recorded as having any ideas on how private firms, especially the big corporations, can be brought to serve the public interest. He did say that there was no plan for wholesale privatisation, but added: “There would be parastatals that require reforms, where there is general agreement the public will know. Due to a forex shortage and the world recession, industry is still faced with high costs, well above the regional average and cannot sell abroad profitably. Zimbabwe pays a premium for its petroleum products which again reduces competitiveness. This will not change until the economic revival is funded by western donors.

Retail sales grew throughout 2009, especially the food sector, but this is at the expense of manufacturing which cannot access capital to pay for raw materials and other strategic inputs. The use of foreign currency (dollarisation) meant that companies had the hard currencies needed to import raw materials.

However, manufacturing still struggles to re-equip and re-capitalise in order to compete against foreign imports. Investment capital remained scarce and investors were discouraged by Zanu (PF)’s talk of indigenisation. It is almost impossible for companies to maintain adequate cash flow. In June there were still often no cheque books and credit cards.

SADC certification allows neighbouring countries duty free access to the Zimbabwean market which is further punishing local industry. Some businesses, mainly importers of finished goods, are reported to be forging SADC Certificates of Origin for Asian products.

Biggest strain

One of the biggest constraints on growth is supply of electricity. According to the World Bank report, the transmission infrastructure was in a poor state of repair and requires huge investment to rehabilitate and reinforce the network to an acceptable level. The cost for transmission emergency rehabilitation amounts to US$561 million. Besides this ZESA Holdings is saddled with a US$428 million debt which it is battling to settle. The power utility’s cash woes are compounded by “unrealistic” tariffs over the years in comparison to the viable rates levied by other utilities in the region.

Cash problems at ZESA Holdings also mean the country faces uncertainty over future supply of power, considering that the power utility has a daunting task to raise US$385 million for emergency power needs. ZESA Holdings’ external debt stands at US$317 million while its internal debt is at US$111 million.

The general downturn in the economy and lack of access to financing have also contributed to ZESA’s huge financial distress. “ZESA’s trade creditor arrears from power imports are about US$98 million, of which US$69 million is over-due by more than 128 days. ZESA’s external debt arrears stand at about US$317 million (domestic arrears at about US$111 million),” said the World Bank.

Hopes faded

2010 was the year when the hopes that were so strong early in 2009, when the inclusive government looked as if it was going somewhere, faded. Mineral production figures are perhaps the country’s best-kept secret even from government. This is worrying, because at every step, the unanswered question is: How much of this does the ZANU/military junta control? What’s their financial cut?

The first systematic figures in a decade were published recently in the local press quoting Finance Minister.Biti’s mid-term budget statement for 2010, attributed to Ministry of Mines/Chamber of Mines

Table 1: mineral production, 2005-9


(I had to assume that the figures for coal and nickel are in thousands of tonnes to make any sense of the few trade figures we have, but with Bindura Nickel still shut down, the nickel figure might be in tonnes.)

Copper has dropped right out of sight.

Who gets the gold?

Official gold production remains low, though by November 2009 it had already exceeded the total for the whole of 2008 as more mines re-opened. Some modest increase seems to have continued in 2010. The mysterious exports of specialised ‘paper’ products to South Africa in October 2009 are a transparent effort to cover up something, but what? Since Zimbabwe lost its place on the London Metal Exchange as a gold producer, some outlet must be found. One remembers that Fidelity Printers used to be the licensed gold exporters for the Reserve Bank.

By October 2010, low confidence in currencies world-wide had forced the gold price to a new peak, over $1300/ounce. This should be good news for gold producers, but we still don’t know how much Zimbabwe is producing, or who is making that potential profit from it: actual miners? not likely; legitimate enterprises (with the royalties going to the people’s government)? – expressed like that, it sounds laughable; the junta? Quite likely, if it is being mined at all; smart international black marketeers? Maybe the most likely.

I have seen no clear figures of platinum production for the year. This is another mineral high on Mugabe’s list for ‘indigenous’ control. Having a high value for small bulk, it is very convenient for his purposes. Nickel and nickel ores still figure prominently in such export figures as are available. Commodity prices have begun to recover on the international market, with the price of platinum moved from US$870/oz in November 2008 to about US$1,450/oz in November 2009, then, after a drop, to greater heights by October 2010

Discussion of the proposed Indigenisation Bill has discouraged new foreign investment, especially in mining, as shown by the poor performance of mining companies on the Zimbabwe Stock Exchange. However, Mwana Africa has obtained a loan to refurbish the Bindura nickel smelter and now hopes to raise funds to reopen The Freda Rebecca gold mine.

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