GNU’s first half report at a glance

Operating environment
The adoption of multi-currencies in January brought about stability and predictability in the local economy. Business confidence as expressed by the expectations of consumers and business executives also recouped remarkably during the review period.
However, a strong rand and an upsurge in crude oil prices to levels above US$60 a barrel in May abruptly put an end to the deflationary trend the country had enjoyed since December last year as the country is still dependent heavily on imports of manufactured food products from South Africa.
During the period, Prime Minister Morgan Tsvangirai embarked on a diplomatic tour of the United States and Europe to mend ties, severed nearly a decade ago. The mission, however, produced mixed results as some countries maintained a hostile foreign policy towards Zimbabwe while only a few extended an olive leaf.
Revenue performance
Revenue increased from US$4 million in February to nearly US$100 million by June 30 due to a modest supply response to the multi-currency system. Despite the persistence of low disposable incomes, Value Added Tax performed above expectations and surpassed corporate tax and Pay as You Earn as the leading tax head.
This was largely a result of the accelerated remittance periods introduced in January.
Corporate tax was subdued by the poor performance of key industries, namely agriculture, manufacturing and mining industries. Low plant capacity utilisation and depressed productivity as a result of power-related reductions in machine hours stoked up costs and affected profitability.
Several companies could not access lines of credit and other credit arrangements as targeted sanctions and concerns over property rights kept the country risk high.
Enduring negative perceptions about Zimbabwe, most of which are closely related to the persistence of economic sanctions and international mistrust of the inclusive government, also continued to hamper prospects of securing balance of payments support from multilateral institutions during the period under review.
Needing around US$8-10 billion to implement the Short Term Emergency Recovery Programme (STERP), and unable to secure any budgetary support, the government has had to shelve most of the programmes  it had committed itself to, but still could not avoid a budget deficit of over US$2 billion, which constitutes over 50 percent of the country’s gross domestic product.
As a result, the government had no choice but to defer civil servants salaries and maintain the US$100 allowances for another quarter.
Public institutions
State-owned water, transport and power utilities and other public quasi-government institutions continued to face challenges during the period.
The University of Zimbabwe has not been able to open this year due to water, sanitation and high staff turnover problems.
Air Zimbabwe has had to pull out of traditional routes such as Kenya, Tanzania and the United Arab Emirates; the National Railways of Zimbabwe, too, has failed to get onto the rail again, while ZESA has failed to keep power supply flowing to due falling generation capacity and staggering debts.
The country’s inter-city highways and approach roads are in a state of disrepair, water supply has dissipated to a trickle and a host of other challenges still stand in the way of a successful economic turnaround programme.
Outlook
Inflation conditions in the country are expected to continue to deteriorate as result of an appreciating rand and rising oil prices. This may trigger severe cost overruns, which may result in a supplementary budget.
Persistent challenges in terms of securing lines of credit will continue to affect the ability of local companies to recapitalise and increase capacity utilisation to the targets the inclusive government set out in STERP. This has adverse implications for the ambitious growth target of four percent the fiscal authorities have set for the year.
The unrelenting global financial crisis is also expected to continue to have a long depressing effect on Zimbabwe’s major traditional markets and affect Zimbabwe’s export performance.
Presented by order of the inclusive government:
Performance criteria
Article 3 (a) of the Global Political Agreement (GPA) clearly sets the criteria for judging the performance of the inclusive government.
It states: “The parties agree to give authority to the restoration of economic stability and growth in Zimbabwe. The government will lead the process of developing and implementing an economic recovery strategy and plan. To that end, the parties are committed to working together on a full and comprehensive economic programme to resuscitate Zimbabwe’s economy, which will urgently address the issue of production, food security, poverty and unemployment and the challenges of high inflation, interest rates and the exchange rate.”
Essentially, the success or failure of the inclusive government will be reflected in its ability to stimulate economic and industrial growth, restore monetary stability, including bringing the Zimbabwe dollar back into circulation.
This will be marked as well by the institutional and democratic reforms and constitutional chan-ges required to make Zimbabwe a progressive democratic state.
According to President Robert Mugabe, the head of state and government, the inclusive government faces serious technical capacity limitations as it has brought in some “extraneous elements,” which he thinks cannot rise up to the assignment as stated in Article 3 (a) of the GPA.
But Prime Minister  Tsvangirai, who chairs a council of ministers, says he, together with officials from his party, are still “on a learning curve” and should be given more time to settle.
“The process is irreversible”, “me and (Pres-ident) Mugabe will succeed or fail together,” the premier remarked recently.
Deputy PM, Arthur Mutambara, on the other hand, has a vision to “run the country like a business,” which suggests a shift to scientific planning, accounting and progress review.
Whichever way they may choose to look at things, the great news for the parties to the GPA and the inclusive government at large is that the nation is fully behind them and expects them to deliver on Article 3 (a) of the agreement to which, they appended their signatures and swore allegiance.
A survey conducted by the independent Mass Public Opinion Institute in Zimbabwe’s 10 political and administrative pro-vinces in March shows that about 80 percent of the people polled want the inclusive government to run for five years on optimism that the government will fulfill their hopes and aspirations as a nation.
Inherited reforms
Contrary to belief, the fragile stability that the country currently enjoys has little to do with the reforms that the inclusive government has initiated.
It must be remembered that the inclusive government assumed office riding on the crest of the monetary stabilisation reforms that the central bank had initiated at the beginning of the third quarter of last year.
The multi-currency reforms, which started off sectoral with the introduction of a few Foreign Currency Licensed Shops and Warehouses partly to incentivise imports of fast moving consumer goods which had disappeared from shelves and partly to stabilise prices, were widened in scope in January when the use of foreign currency was approved for every other sector of the economy.
The reforms, which were laid out in the national budget presented by the then acting minister of Finance Patrick Chinamasa on January 30 2009, were further consolidated by the monetary policy that ensued.
Although the general citizenry criticised and resisted the multi-currency system when it was first introduced arguing that, except for street money vendors, only a few of them earned foreign currency at the time, typically, they are more likely than not to react with greater ire if foreign currency was to be withdrawn today.
Well-placed government officials say, the government decided to phase in the multi-currency system gradually simply because its coffers were too thin to finance the civil service wage bill in foreign currency and still maintain national and foreign payments.
The plan according to the sources had been mooted in July 2008 soon after Giesecke and Dev-rient, a Germany supplier of bank note paper, security inks and machinery spare parts, unilaterally cut supplies to Zimbabwe in compliance with European Union sanctions-motivated decree by the German government.
But when the dilemma reached a breaking point, the government had no choice but to deploy vouchers in lieu of cash, redeemable at deliberately lagged intervals to allow inflows of revenue from the Zimbabwe Revenue Authority to build enough balances at banks.
This happened way before Finance Minister Tendai Biti officially assumed duty on Feb-ruary 13.
In fact, Minister Biti, is actually on record saying before he could get keys to his office, he was greeted by a civil service wage bill of US$40 million and a mount of vouchers that Chinamasa and his team had printed to facilitate payment.
The challenge however, was that the payment had to be made against incoming revenue as the government only had about US$4 million in its account!
The currency reforms took away the foreign exchange risk, which had driven speculative investments and dealing in the first three quarters of the year, and systematically stabilised prices.
The moment the stabilisation measure was imp-lemented, it did not take long for the economy to adjust back to micro and macro-economic fundamentals, which conventionally dictate economic activities at both micro and macro-economic levels.
But prosecuted from a monetary front, economist Simon Munongo argues, the reforms did not fundamentally alter the situation in key productive sectors of the economy as these would require broader fiscal interventions.
“The stability we are currently experiencing is superficial,” Munongo sa-ys.
“Real stability will only be achieved when we have addressed challenges on the supply-side of the economy. We need to address issues such as capacity utilisation in the agricultural, manufacturing, mining, tourism and other pillar sectors of the economy.
“This is where we are encountering problems because our private sector is under-capitalised and our banks do not have the funds to lend to the companies that are struggling to recover. The longer we take to address these challenges, the more we are vulnerable to external macroeconomic fluctuations.”
Already, exogenous factors such as an oil price and frequent exchange rate swings between the South Africa rand and the United States dollar, two of Zimbabwe’s most important multiple currencies, threaten to break the overly fragile stability the country has enjoyed since the year began.
Firstly, the stability is not based on a firm productive or macroeconomic foundation to have an enduring life. This is why it has only supported the recovery of non-productive sectors of the economy such as tourism, telecommunications and retail, the latter of which have turned themselves into unofficial distribution agents of regional producers, particularly those from South Africa.
Secondly, the import dependence itself poses an ominous threat to the recovery of local producers as the landed costs of some finished goods from South African firms, a majority of which are low-cost producers, are many times below the cost of raw materials for some local industries.
If the multiple currencies the country has adopted were to be withdrawn today, unequivocally, the hell, madness and maelstrom of last year would hit the economy again in a day or two and take the country to a new bottom that it has never tasted before in the entire economic history of the country.
This is the problem that the monetary reforms have tried to half-solve by creating a stable and predictable operating environment necessary for long-term economic rec-overy through stabilisation programmes such as STERP.
STERP
Outlining the vision, reforms, programmes and projects of the inclusive government over the 11 months from February to December this year, STERP is the only framework macroeconomic blueprint that the new government has so far proffered. The original plan was to have a successor medium to long term plan as from January 2010.
The sad story about this short-term economic plan is that the government, as the International Monetary Fund has noted in its Article 4 Consultat-ions report, does not have the “capacity to implement its own programme.”
According to Finance Minister Biti, the government needs approximately US$8-10 million to implement STERP thro-ugh two or more 100-day action plans, and grow by more than four percent, thus reverse a downtrend of seven years.
But, if the truth be told, it is not clear whether the inclusive government is coming or going because, as expected, STERP has already fallen into the trappings of a business as usual mode, a pitfall that hamstrung earlier economic plans such as ZIMPREST and the National Economic Development Priority Programme.
Launched in mid-May amid pomp and fanfare and covering the period April 29 to August 6, the first 100-day action plan, which lays out the vision and time-bound targets and commitments of the inclusive government in implementing STERP, has already fallen behind schedule.
Yet, it now has less than two months to run before it expires. Logically, the nation can forget about the much-touted medium-term successor economic plan initially expected in December for now.
It may seem a harsh criticism to say, STERP and its first 100-day plan were bound to fail from the very day they were conceived in thought, but the reason is plain. The document set its targets based on expectations or unbound promises of balance of payments support  (BOP) from unknown altruists or benefactors who now appear to have vanished mysteriously.
In pronouncing the preamble for the initial action plan during its official launch on May 13, Deputy PM Mutambara, admitted that without the necessary financial backing, the package of implementation tools was just like a beautiful dream about home by a soldier at the war front.
“Resources equal results,” Mutambara said. “This action plan represents the thinking, the planning and the strategising. But all this represents only two percent of the work to be done. It is implementation that cou-nts and it’s what constitutes 98 percent of the assignment. So, today, we are here to celebrate two percent victory.”
The most absurd thing about the 100-day action plan is that it sets as an action plan the process of mobilising funds for the implementation of the action plan itself.
The plan organised 31 line ministries into five clusters, namely Economic; Rights and Interests, Infrastructure, Social and Security.
Constituted of 11 ministries including, economic planning, finance, agriculture, mines, touri-sm and six others, the economic cluster has been tasked to develop turnaround strategies for key utilities, mobilise lines of credit for the private sector, attract foreign direct investment, secure BOP support and mobilise finance to meet the budgetary requirements of the other four clusters.
Specific targets for the cluster include raising money to finance STERP, mobilising resources and lines of credit for winter wheat production by April 30, mobilising fertilizers for winter wheat by May; facilitating the provision of other inputs for the 2009/10 agricultural season by June 1.
Others include carrying out a land audit by August 6, completing a reline of ZISCO’s blast furnace number 4 in 90 days and reviewing the framework for mining rights and finalizing the Mines and Minerals Amendment Act to facilitate the collection of rentals and royalties by the end of the 100 days.
The largest financing requirements have been made by the infrastructure cluster, which comprises ministries of public works, transport and infrastructure development, energy and power development, water resources, development and manpower development and four others, which are critical for economic recovery.
Public works minister and chair of the infrastructure cluster, Theresa Makone, said the Ministry of Energy and Power Development alone ne-eds about US$32,2 million to rehabilitate ZESA’s three generators at the Hwange Power Station; upgrade the power transmission and distribution network; increase power importation; increase par-affin supplies to service stations and boost fuel deliveries by rail and pipeline to 90 percent.
It would also cost the cluster about US$32,5 million to repair the country’s major trunk roads, including potholing-filling, she added, and more than US$234 million to bring major water projects on stream, including the Bubi-Lupane Dam, the Gwai-Shangani project and the Matabeleland Zambezi water project.
But without the necessary funding, it may take more than 100 days to implement the first 100-day action plan.