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A fictitious budget or a sensible plan in constrained circumstances? Zimbabwe’s 2014 budget

The national budget was finally presented on December 19. It was much delayed, provoking multiple rumours that the government had run out of money, that the missions to the International Finance Institutions had failed,  that the Chinese had refused to offer a bail out, and that confidence was so low that there was likely to be a run on the banks. In the end a $4.4bn budget was presented by Finance Minister, Patrick Chinamasa. The Source offered the highlights:

  • Economy to grow by 6.1 % in 2014.
  • Exports seen reaching $5 billion in 2014, from $4.43 bln this year.
  • Imports ballooning to $8.3 billion in 2014 from $7.6 bln this year.
  • Government to assume $1.35 billion Reserve Bank debt, to recapitalize central bank by $200 million.
  • Indigenisation laws to stay.
  • Royalties on gross diamond earnings up to 15pct .
  • Interbank market back, Afreximbank to provide guarantee.
  • Zim gets $1.6 billion Diaspora remittances annually.

Here is the full statement; all 262 pages of it!

The budget was greeted with derision in certain quarters. Yet in many ways the budget statement contained plenty of sensible proposals, not hugely different to those offered in previous years. Contrary to the arguments of some, the focus on the ‘informal sector’ is to be welcomed.

But the big questions were: was there enough money to back the proposals, and were the projections anywhere near accurate? The budget is based once again on assumptions about the growth of agriculture (9%) and mining (11%) in particular. Given the experience of the last year, when the agricultural sector shrunk, and mining did not grow as much as predicted, some argued that these figures were more wishful thinking than sound economic analysis.

In the agricultural sector, a number of sensible measures are proposed. The central one was the continued effort to ‘drought proof’ production, and substantial investment in irrigation was again identified as the priority. Timely provision of inputs was also again on the table. And there were other specific measures for particular commodities, such as wheat, dairy and so on where production has been languishing. There was help for the sugar sector too, with a hike in customs duty for imports to avoid further dumping of cheap sugar on the local market.

Overall, the agriculture policy focus was on A2 farms, with proposed investments in infrastructure and credit and finance instruments. This may be appropriate given the poor performance of the A2 farms to date, but given the need to get things moving fast, backing the winners in the A1 areas may have made more sense.

On land, there is again a commitment to push ahead with the registration and issuing of leases for A2 farms. This is important, but the issue of compensation has yet to be addressed, and there is no evidence of substantial financing for this coming from the Treasury.

The ongoing concern about ‘indigenisation’ policy is also addressed, with attempts to clarify what is proposed, with differences between natural resource based industries and others. While requirements for a 51% national ownership are not unusual, even in very progressive, fast-growing economies in Asia, such as Thailand and Indonesia, this particular policy in Zimbabwe has been plagued by controversy and confusion. This has arisen from the extreme politicization of the debate, and the way ‘indigenous’ has been defined in racial terms, combined with the rather aggressive stance of the previous minister responsible, Saviour Kasukwere. Now under the rather less flamboyant Francis Nhema, the rhetoric has been scaled down a peg or two. For example, just before the January 1 deadline, the government backtracked on the proposed ban on foreign ownership in certain sectors, with the minister assuring investors that they had reconsidered.

Nevertheless uncertainty prevails and, even though potential investors might be happy to contemplate a 49:51 split in ownership, the prospect of things changing due to political whim remains. And it is this that is perhaps the most unnerving, still preventing significant foreign investment in the Zimbabwean economy.

As Chinamasa commented in his statement “policy consistency, credibility, certainty and transparency are critical building blocks for confidence building” (p 89). Absolutely. And the sooner these become sacrosanct principles of Zimbabwean policymaking the better.

This post was written by Ian Scoones and originally appeared on Zimbabweland

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Why good numbers matter in Zimbabwe (part II)

This week’s blog follows on directly from last week, when I introduced the excellent new book, Poor Numbers, by Morten Jerven. This week we move from the general argument to the Zimbabwe case.

Let me offer three examples – each of which have been mentioned in this blog before – that complement Jerven’s cases, and contribute to the same bigger point that good numbers matter.

Agricultural output data: Zimbabwe’s agricultural data comes from a variety of sources, including annual crop surveys, market surveys and assessments of throughput at marketing depots. In the past, when the sector was dominated by a few large farms, it was relatively easy to get a picture of production each year. Output from the communal areas was assessed through state marketing channels through marketing boards for most of the agricultural commodities, especially maize (but also cotton, tobacco and beef). While statistics on cotton and tobacco remain reasonably good, as their marketing is channelled through few players, the production and marketing of maize and beef, by contrast, has changed dramatically since land reform.

Today there are diverse marketing channels, including much locally-focused marketing and little reliance on the old marketing board routes. And with many more farms across the country (around 150,000 new units in the A1 schemes alone), field-level monitoring by extension agents is nigh on impossible. For important crops such as the small grains (millets, sorghum), groundnuts, many oilseeds and beans, as well as smallstock, we know virtually nothing about total production and marketing.

The bottom line is that we don’t know how much food is produced and where, nor do we know how much is stored and marketed. Despite the attempts of Fewsnet, ZimVAC and others, the estimates are increasingly guesswork, especially as sampling frames and data collection protocols have not changed sufficiently to respond to the dramatically reconfigured agrarian structure.

Each year we get conflicting estimates of how dire the harvest is going to be, and the consequences this will have for food imports, and food aid. With such uncertainties, this becomes a critical area of political contestation: between government and the donors, and even between international agencies. Claiming a food ‘crisis’ may be the only way of securing international funds, as sustaining an ‘emergency’ has been essential to continued international engagement through ‘humanitarian’ aid. Such a response may well be justified; but it may be not. The problem is often we don’t know.

Migration data: Similar uncertainties centre population data and migration-related demography. While we know that migration, particularly to South Africa, has increased, we have absolutely no idea how many people have moved permanently there (or indeed to other destination countries, although the data for the UK, for example, is better). Large numbers are bandied around, which serve particular politically purposes; in South Africa (linked to xenophobic, anti-immigrant rhetoric) and in Zimbabwe and internationally (supporting the narrative that people are ‘fleeing’).

But the figures of course don’t take into account the long-term pattern of circular migration whereby people move temporarily, or indeed increasingly seasonally. If we were to believe the figures, there would be far fewer people in Zimbabwe than there seem to be. For example, the preliminary results for the 2012 census show that the population has increased by 1% over a decade and stands at nearly 13m. Even within the country we don’t know where people are living. There is an assumption that the urban areas are growing, as people flood to the cities. But is this the case? Debbie Potts doubts this data for sub-Saharan Africa generally, but until we get better locational census data that accounts for regular movement, we will not know.

Land ownership data: This is perhaps the most contested, and in the absence of a proper land audit, we cannot know. But when ‘surveys’ purport to present data that show that “40% of the land was seized by Mugabe and his cronies”, and these figures get reported in the international media as fact, we are in trouble. This most recent examples of this short-cut journalism and recycling of ‘facts’ are from the BBC (on the Hard Talk show with Patrick Chinamasa) and the UK Guardian (in a link put in by the paper in an otherwise good piece by Simukai Tinhu). The earlier land audits by Utete and Boka have shown categorically the problem of elite capture in the A2 sites, and our detailed province-specific work in Masvingo supports this. But the scale is nothing like that claimed.

This poverty of data leads to a poverty of understanding, and so a distortion of debate. We should not be ignoring the abuse of the land reform programme by some politically-military connected elites, and the ownership of multiple farms is clearly contrary to any regulation, but our focus should equally not be only on this issue, and the wider picture, based on realistic data, needs to be central. This is why, in terms of the GPA and in line with the now agreed constitutional commitments, a proper land ownership and use survey (an audit) is critical.

If you don’t know how much food is being produced, how many people are in the country or have left and who owns what land, then how can you begin to make plans for the future? As contributors to other headline statistics, including GDP, such figures may result in major distortions.

For example, in Zimbabwe, GDP figures have been used to show the dramatic decline, and then impressive recovery in the formal economy (see the shower of graphs in the most recent budget statement), yet, as I have argued before, even in the depths of the crisis in the late 2000s, economic activity was far higher than measured. The ‘real economy’ – informal, often based on barter exchanges, sometimes illegal, much of linked to cross-border trade – was thriving, despite the collapse in the core, formal economy. It had to: this is how people survived. If you believed the figures on the formal economy, where the numbers were collected, people would have been suffering far more than they did.

As the formal economy has recovered, this has been registered in the statistics, but the informal economy still exists, and indeed the 2000s saw a massive restructuring of economic activity, not only in the agricultural sector, but across the economy towards more small-scale, informally-based enterprises. This is not a bad thing, as it provides the basis for more inclusive, employment generating, broad based growth. But if it is not understood, measured and recorded, it does not feature in planning and crucially budget allocation discussions. ZIMSTAT has recently published the 2011/12 Poverty, Income Consumption and Expenditure survey, and in a future blog I will review its findings, and the degree to which it has been able to respond to the changed post-2000 context.

While it may seem that a focus on statistical services is a rather dry and dull subject, it is in fact essential. ZIMSTAT has a small ‘did you know?’ box on their website’s front page. It says: “The likely success of development policies in achieving their aims will be improved by the use of statistics”. They are right. Revitalising statistical services, and improving their capacity to carry out national-level, macro-census type work, as well as smaller, more focused surveys, complemented with qualitative insights, is vital.

If development is to be successful, a thorough-going and honest debate on the quality of data and how to improve it is essential. Jerven’s superb book discusses an important topic with clarity and honesty; and for donors thinking of investing in government capacities in Zimbabwe again, it is well worth a read.

This post was written by Ian Scoones and originally appeared on Zimbabweland

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An unbalanced economy: why mining should not dominate, and why agriculture needs support

Last week I reviewed some of the facts and figures in the recent 2013 budget statement. There are some definite bright spots, and the rebound since 2009 is impressive. But can Zimbabwe’s economy continue to grow sustainably and inclusively on the back of mineral revenues without a more balanced economy?

In his budget statement, Finance Minister Tendai Biti argues for moving beyond an ‘enclave economy’ towards what he calls a ‘cheetah economy’. Where is the investment for this transition going to come from? And what would such an economy look like?

Unfortunately, there is not much room for manoeuvre. The total budget committed for 2013 was only US$3.8bn, much of which was taken up by already committed salaries. Commitments to agriculture were only US$160m, ‘regrettably’ 6% below the Maputo Declaration target. Donor and multilateral support remains small in relation to overall need, and focused on welfare, humanitarian emergency and social services. As one commentator cruelly pointed out Zimbabwe’s total budget is much smaller than the turnover of Pick n’ Pay, a large South African retailer. So where is the strategic investment in a ‘cheetah economy’ going to come from?

One scenario is to rely on mineral revenues. But, as Cambridge Professor Haa-Joon Chang points out, this is risky. The current buoyancy of African economies is very contingent on high commodity prices and continued demand from the developed world, and perhaps especially China. A downturn elsewhere will see a sharp downturn in Africa. Even leaving aside the risks associated with the capture of mineral revenues by elites (the ‘resource curse’), reliance on even an array of minerals to finance the rebuilding of an economy may be foolhardy.

Another scenario would see agriculture more in the limelight. Rather than offering the paltry sums seen in the 2013 budget a much braver, more substantial agricultural rehabilitation initiative is required. This will inevitably require external support – including donors, multilateral banks, finance houses and the private sector – but it must be lead by government, and backed by the state. Agriculture has a different demand profile to minerals, and so different economic elasticities. It employs people in potentially larger numbers per unit of output, and the growth potentials are significant, given Zimbabwe’s comparative advantages. There remain outstanding issues of issuing leases and offering compensation, but planning for such a mission-style effort should start now.

The alternative will indeed be the take-over by Pick n’ Pay, and other elements of South Africa, Chinese, and Euro-American capital. You only have to go over the border to Zambia to see what a mineral led economy can offer. Growth, yes, but perhaps not more broad based development. This is not the sort of ‘middle income’ country that Zimbabwe wants to become. Instead it needs a firm national economic base, owned and controlled by Zimbabweans. Perhaps surprisingly for many (including Mr Biti I suspect), the land reform has provided just this platform for growth and recovery, if only the imagination, vision and of course finance are in place.

However it seems clear the Minister of Finance is currently backing the first, risky mineral-led scenario. The budget statement is replete with statements about the dramatic potentials of the mining sector. We have heard this since Cecil Rhodes, who ultimately was disappointed. And indeed in Minister Biti’s own words:

“The mining sector is a tiny enclave with little connectivity with the rest of the economy and, therefore, despite its high rentals, it has not been able to sustain growth or socio-economic development”.

He argues for a “major rethink” to allow forward, backward, spatial and other linkages with the rest of the economy, but does not reflect on the political economy of such a rethink. Mining capital is in Zimbabwe for a reason – minerals can be extracted and exported at a cheap price for profit. An enclave economy suits them just fine.

While Zimbabwe should not ignore its considerable mineral wealth, and it should tap it for maximum benefit, through appropriately balanced indigenisation policies, effective taxation and maximising local processing and value addition, it should also focus on its other sources of wealth: land and people, and give agriculture the boost it needs. The turn-around in tobacco, sugar and cotton, has shown the potential. In my view, agriculture following land reform can not only deliver growth, but pro-poor, inclusive growth if supported in the right way.

This post was written by Ian Scoones and originally appeared on Zimbabweland

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Growth in jeopardy? Reflections on Zimbabwe’s 2013 budget statement

Minister of Finance Tendai Biti recently presented the 2013 budget. It was, in his words, the most difficult yet. He revised growth projections downwards to only 4.4%, because of continued depression in the global economy and uncertainty about Zimbabwe’s economic and political prospects.

But there were some bright spots. The minister has presided over a remarkable period of recovery. Some basic graphs in his budget statement illustrate the point (copied below). Zimbabwe has grown faster than any other country in the region, and mining and agriculture have been the greatest contributors to growth. By 2010 mining contributed a massive 18% to overall economic output as measured by formal GDP indicators, and nearly 50% of export revenue.

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Growth in agriculture was stronger than expected in 2012, as both tobacco and cotton performed better than projections. Maize was however heavily affected by drought. The treasury expects a continued pattern of growth in the sector, around 5-6%.

But the success of agriculture has been overshadowed by the growth of mining, with annual growth rates of around 30%. Exports increased by a massive 230% in the period from 2009-2011. By the end of 2011, mineral exports accounted for 47% of total exports, made up of platinum (43%), gold (28%), and diamonds (20%) in particular.  Furthermore, the average share of mining to GDP has grown from an average of 10.2% in the 1990s to an average of 16.9% from 2009–2011 overtaking agriculture. Diamond output is expected to increase to 16.9 million carats in 2013, largely driven by enhanced production from the major diamond mining houses at Marange Diamond Fields. Platinum output is expected to rebound to 11.5 tons in 2013.

However, while growth has occurred at impressive levels since dollarization in 2009, it has not continued at such rates. Zimbabwe’s seemingly miraculous recovery from the dire doldrums of the late 2000s may have stalled, a concern raised in the budget. With continued investment uncertainty, and the prospects of yet more disruption during and following elections, question marks are raised about the robustness of the economy. While minerals and agriculture can continue to underpin some growth, the levels required for recovery to earlier levels are still not being achieved.

How can the economy be revived for the longer term? This will require investment, including by the state. The 2013 budget offered US$3.8bn in government expenditure. But this is a pathetically small amount in relation to needs, and much of it already accounted for in terms of salary obligations. Government taxation and revenue collection is improving, but the economic base remains small. Tendai Biti is in a bind. He is right when he says there is no more cash – not even to finance an election, let alone forge a recovery.

Next week, I will look at some future scenarios, making the case for a greater focus on agriculture, and avoiding an overly strong reliance on minerals, despite their allure.

This post was written by Ian Scoones and originally appeared on Zimbabweland

 

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