Zimbabwe outlook gets grimmer and grimmer

Alan Peat THE LATEST quarterly report (April-June) on Zimbabwe from the Standard BankÕs economics division makes for grim reading. Following the allegations of vote rigging and voter intimidation in the March presidential election, Zimbabwe was suspended from the Commonwealth and the US and EU imposed smart sanctions on the government. Added to that, the economy is expected to shrink further (mainly due to disruptions in the agricultural sector) and the famine continues to bite. Looking at economic activity, the bankÕs report said: "Zimbabwe is battling its fourth year of economic recession, coupled with an acute shortage of foreign currency. The economy remains severely depressed as a result of these deepening foreign exchange shortages; escalating costs of production; rising inflation; and subdued investor confidence, it added. Said the report: "Major declines are expected this year in manufacturing (-10%); agriculture (-13.5%); mining and quarrying (-5%); distribution, hotels and restaurants (-11%); and construction (-5%). "The only sector at odds with this trend is finance and insurance, which is expected to grow by 1.5% this year." Agriculture is ZimbabweÕs big export money earner, but itÕs a sector with serious troubles of its own. Tobacco generates about 25% of the countryÕs total export earnings, but production has seriously declined from 236 000 tons in 2000 to an estimated 165 000 tons in 2002. Meantime, the drought this year has caused a sharp fall in maize production, and the resultant famine has seen the government declaring a state of disaster. The World Food Aid Programme has started delivering food. However, this is not adequate and the government has to import food despite the foreign exchange shortage. According to the Standard report, the mining industry is also in a financial quandary. "Gold output continues to fall on the back of rising production costs and lack of foreign exchange to import inputs," it said. "Only platinum mining has managed to grow Ð but this only because of a fiscal agreement with the government allowing it to bank its earnings offshore." Although the shortage of foreign exchange remains a major constraint on imports, the bank expects imports to grow by 2.5% in 2002 - largely reflecting food and fuel imports. Meantime, inflation jumped from 114% in April to 122.5% in May Ð and the Standard expects inflationary pressures to remain high for the rest of the year.