eBusiness Weekly
Golden Sibanda
Most challenges besetting the economy are a result of negative output gap (low production), forcing the country to rely on exports that require foreign currency, which is not sufficiently available.
Zimbabwe has four key productive sectors namely agriculture, manufacturing, mining and tourism, excluding infrastructure, services and finance, which anchor the domestic economy, but is saddled by a negative output gap.
Some analysts believe the collapse of agricultural productivity after the land reform to resettle landless black majority was the tipping point, which has also seen Zimbabwe battle frequent food insecurity.
Negative output gap refers to Zimbabwe’s under performance in terms of economic production, meaning the domestic economy is performing below what ordinarily should be its potential production capacity.
This has constrained economic growth, job creation, foreign currency generation, infrastructure development, low inflation, food security and provision of standard and education health services among others.
Such a scenario has caused Zimbabwe to be heavily dependent on imports, with the dependency ratio estimated at 45 percent, which has promoted calls for the country to increase its productivity to save on scarce forex.
Presenting the 2020 Monetary Policy Statement Reserve Bank of Zimbabwe RBZ) governor Dr John Mangudya, said production in Zimbabwe has been inconsistent since the country gained independence in 1980.
“If you plot a graft, you find that out of those many years, 40 years, almost 15 years of those we were below zero percent and over the other years, 16 or thereabouts, we were above 1 percent,” Dr Mangudya said.
The central bank chief said Zimbabwe had registered negative economic growth for longer period than it has registered growth.
“So the output gap is potential of the country against the real or actual growth.”
“We are saying our potential is greater than real or actual output realised in this country. The gap is 3 to 5 percent continuously and is what is causing the challenges because we do not have production to sustain consumption.”
Dr Mangudya said there was need to plan for unforeseen eventualities like drought and avoid spending scarce foreign currency resources on goods that the country should ordinarily be able to produce internally.
The central bank chief said Zimbabwe should not be importing agricultural produce such as maize, wheat, potatoes and even small items like carrots considering it is one of the most dammed countries on the continent.
“That is why we are advocating for import substitution strategies so that we do not import things we can produce here.
We are producing wheat sufficient for three months, and for nine months we import yet we have dams full of water.”
One thing that concerns economists and policymakers about ups and downs of economic growth (commonly called the business cycle) is how close current output is to an economy’s long-term potential output.
They are interested not only in whether economy is growing or declining, but also in whether it is above or below its potential.
Economic analyst John Robertson said Zimbabwe was facing production crisis, essentially the root of its current challenges, following collapse of agriculture, which as then followed by gradual decline of the manufacturing sector.
He said after collapse of agriculture, canning firms, dairy producers and milling firms and tobacco farming soon after the land reform had a negative knock on impact on the economy, resulting in loss of jobs.
“Hundreds of thousands of jobs were lost and of course many millions of dollars in tax could no longer be paid because the companies were no longer profitable so you can see it’s a very complex relationship between these things,” he said.
Robertson said the Government needed to fix wrong issues around the land reform and also give farmers security of tenure so that they can borrow funding to drive farm production against their land titles.
