The fact that the 2013 budget did not allocate funds for the referendum and elections means that supplementary resources had to be quickly sought and that anomaly will be reflected in the mid-term fiscal policy review. Since the money is likely going to be borrowed, we are certainly on a trajectory to a budget deficit, if the revenue fundamentals remain as per budget’s status quo. Initially, the Finance Minister said elections were going to be bankrolled through the balance of special drawing rights left at the International Monetary Fund, but that was before the money was allocated for other purposes.
Tourist recession
Our political economy teaches us that each year when elections are held in Zimbabwe, the number of tourist arrivals falls significantly. Hypothetically, this means that the tourism sector will contract this year. Zimbabwe, which is the second fastest growing tourism economy in the world, will, however, be co-hosting an international tourism summit with Zambia around the same time.
The private sector’s main concern right now is how elections are going to impact the business environment. Business is also concerned that certain policies and pieces of legislation might be manipulated by the politicians.
Bad credit rating
The indigenisation law is one quick example of legislation that is vulnerable to abuse. If a large foreign-owned manufacturing company that is operating at say 10 percent capacity utilisation is indigenised today, where will the new indigenous owners get the funds to capitalize it to 100 percent, in these tight liquidity conditions? One company I know requires $1.2 billion to recapitalise to full capacity.
We cannot get that kind of money out of the country due to our bad international credit rating and our local sources have already been exhausted. If the loan to deposit ratio is already above 80 percent and given that our bank deposits, which are also ransitory in nature, are just below $5 billion, we can’t really expect indigenisation to achieve anything right now.
Average capacity utilisation in the manufacturing sector fell by a marginal 13 percent last year, which means that the indigenous folks who will be acquiring foreign firms will not only need money to acquire ownership but more money to recapitalise, with the tragedy being that the money is simply not there. The likely effect is that the indigenised firms’ performance will be compromised, in terms of production levels, employment and profitability. Therefore, if politicians become overenthusiastic and unreasonable, we may not have any manufacturing sector to talk about after elections.
Because we are in election year; foreign investors who want to invest in the country are just maintaining a wait-and-see attitude. Some foreign investors see this era as the wrong time to make serious investment decisions. Capital is the biggest coward ever and will not be ready to be associated with Zimbabwe at this point in time.
Campaigning funds
As the parties start to campaign, we shall fast move into an era where millions of dollars shall be spent. As a point of departure, the problem of youth unemployment will be ‘solved’ temporarily, as the youths will be employed by the political parties to campaign in exchange for goodies like party regalia, a few bucks, opaque beer, free meals, you name it.
Citizens’ speculation about the post-election era might also distort the economic order. For example, savers might start to withdraw their monies from the banks, being skeptical about the post-election era. Hypothetically, this would result in depressed bank deposits, less lending to productive sectors and an upward pressure on the lending rates. During times like these, people make decisions based on what they hear.
The economic matters related to elections should be managed in order to have an optimal economic solution.
Post published in: News