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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