Wednesday, 26 September 2018


Equity Axis News
Harare – Watching Zimbabwe’s new finance minister Mthuli Ncube work over a 14 minutes presentation at the Zimbabwe Investor Forum, a meeting between Zimbabwe’s government and select US investors which was organized and hosted by Exotix on the sidelines of the ongoing UN General Assembly in the US, left a lot to be desired about the sincerity of the envisaged economic turnaround, the premature investor reengagement effort and particularly the minister’s minimal understanding of Zimbabwe’s economy and its recent performance. Mthuli must have missed a lot on the economic front while he was away and his aides are doing him no good.

In his investor engagement presentation in Washington the Minister gave a grossly wrong, overstated statistic on the ZSE’s cumulative return since March 2009 of 2000% whose variance to the actual 600% return cannot be easily reconciled. Likewise the minister demonstrated that he does not know that minerals contribute at least 85% (2018) to total exports; instead he thinks the contribution is 60%. Mthuli does not know that tobacco has just reached a record all time high, which he wrongly pegged at a 40 year high, even as he assumes the production level was 25 million tonnes and not the correct record tonnage achieved of 250 million. In the same presentation he highlighted that he was happy with Zimbabwe’s inflation which he says is at 4% and has gone up last week to 6%, all at variance with the official figures.

Barely a few days back, while being interviewed by Bloomberg news, Mthuli had impressed Wall Street and the rest of the world with his unparalled display of economic knowledge and well researched understanding of the global and African economies leveraging on his research background at Quantum and his experience at the AfDB. In that respective interview, he looked very composed and demonstrated clear knowledge of how global financial markets functions, which he surely does. He grinned at the mention of stochastic volatility. Responding to questions, he zoomed in on Africa, touching on the effects of trade war between US and China, impact of firming commodity prices and that of tightening US monetary policy among other European economies, on Africa. He even gave a compelling prognosis of the economic challenges Zimbabwe’s presently faces on Bloomberg.

But barely a few days later and when it mattered most during the investor interface with Exotix, Mthuli was a huge let down, giving an uncompelling, half true power-point presentation on Zimbabwe’s economy overview, performance, prospects and investment opportunities. The minister stumbled on facts erred on judgment and gave an overly ambitious Zimbabwe economic outlook whose underlying drivers were too exogenous and thus highly unlikely to behave in his desired manner. Mthuli glossed on the crisis at hand, that of forex shortage, out of hand inflation, poor infrastructure and the less competitive local industry from a regional spectrum. He ignored the discounting effect of these latter factors and others on the expected return of investment he promised to investors.

Specifically, Mthuli mentioned that Zimbabwe will be one of the world’s fastest growing economies from 2019 onwards which growth he expects to average about 6% per annum. While this can be achieved, the prevailing fiscal framework cannot sustain or even give impetus to such a growth rate save for other macro excesses. In a contradictory twist, Mthuli escalated his case by ambitiously stating and siding with the President’s dream of achieving a middle income economy by 2030 where Zimbabwe will have achieved a GDP per capital of $3500 which he reiterated was going to be achieved.

Two things arise from this misguided ambition. Firstly it phenomenally alters and varies with the minister’s own previously communicated envisaged average growth rate of 6% per annum by a factor of almost 100%, as it demands a higher growth rate of 11% per annum. These varying figures were all being thrown around to serious potential investors, on the same event. To achieve the desired GDP per capita, Zimbabwe will have to consistently grow at a constant average growth rate of 11% every year over the next 12 years conservatively assuming a stable populace of 16 million. This variable, is however likely to also increase, which means the rate of growth will have to even be quicker than 11% to achieve the desired specific middle income status. All this does not mean Zimbabwe has no potential to grow at such faster rates, it simply does, but only under the right macroeconomic conditions which allows for fresh capital injection and fiscal space to support own growth through capital spend. For example, an FDI inflow of $2 billion could easily push the per annum economic growth rate to over 10%, but the present environment is not as accommodative to capital inflows of such magnitude.

There is no present momentum in the economy to fundamentally support the envisaged growth (A) of 6%, save for the double barrelled internal funding of growth through TBs issuance whose effects are clearly counteractive. If it is agreed that the quasi fiscal operations have to be trimmed it follows that the economy cannot continue to grow at the current rate. If the operations are to be maintained, the resultant growth will have to be subjected to a huge discount in line with inflation and parallel exchange rates. So we can conclude that the growth present or otherwise sustained under the prevailing circumstance is largely cosmetic although some pockets of growth have been formed in some sectors while others falling in the export sector have been able to turn some real dollars, which is sustainable. Generally the opportunity cost of pursuing such activities, has in our view, been largely relatively higher. This leads us to a real phenomenon that of sorting the macro mess before entertaining any real growth, organic or otherwise. To achieve this status it may take more than a few years and maybe even half of the timeline targeted to achieve the middle income status that is half of 12 years.

Maybe we have taken it all just too quick, maybe we need to do a proper re-evaluation of the present status and future potential even as our principals give themselves time to seek further appreciation of the economy and its facts so that we properly sell our case, the real case of Zimbabwe. Maybe we need to give it more time to stitch the patches that we can, within our endogenous economic function, so as to make us more attractive to potential investors. In this redemption journey it is imperative to be sincere with ourselves, to be realistic in our faith and always indulge in empirical study.


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