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World economies

June 19, 2017

ZIMBABWE has enormous economic potential with minerals, gold, agriculture, and tourism being its main foreign exports.

Historically, agriculture and the manufacturing sector were the major drivers of the economy. The manufacturing sector contributed 20pc to GDP on average between 1980-2000, but its share in GDP has declined to around 10pc.

The demise of the manufacturing sector over the years can be attributed to costly public utilities, frequent power outages, outdated machinery and technology and expensive logistics.

Mining industry remains a key driver as it contributes about 10pc to GDP and 60pc of exports, mostly in the raw form.

Tourism is also an important industry but is on the decline since the land reforms programme in 2000.

After a decade of contraction from 1998-2008, the economy recorded real growth of more than 10pc per-year in the period 2010-13 but then it slowed to roughly 3pc in 2014 due to poor harvests, low diamond revenues, and decreased investment.

Lower mineral prices, infrastructure and regulatory deficiencies, a poor investment climate, a large public and external debt burden, and extremely high government wage expenses hampered the country’s economic performance in 2015.

2016 was characterised by a continuous political and economic crisis. FDIs continued on a free fall and GDP more than halved to 0.5pc in 2016 from 1.1pc in 2015 as the country continued experiencing economics crisis.

The high cost of production eroded economic competitiveness and is feared to stagnate between 2017-18.

According to the World Bank, Zimbabwe’s economy is projected to grow by 2.5pc in 2017 but it is constrained by macro-economic imbalances. The Bank expected the economy to grow by 3.4pc in both 2018 and 2019.

The IMF has revised upward its 2017 growth forecast to 2pc from the earlier projection of 2.5pc contraction but the economic situation is increasingly fragile. The poor performance of government revenues against a background of high recurrent expenditure led to a large fiscal deficit.

The fiscal deficit for 2016 is estimated at 7.3pc of GDP. The IMF warns that excessive government spending, if continued, could exacerbate the cash scarcity, further jeopardise the health of the external and financial sectors.

The government is hopeful that in 2017, the economy is set to turn around from the slowdown mode to modest growth led by key sectors of mining and agriculture, benefitting from the anticipated normal to above normal rainfall.

The overall GDP growth is, therefore, projected at 3.7pc in 2017.

Ghana

GHANA is a middle income economy and possesses industrial minerals, hydrocarbons and precious metals.

It is the second-largest producer of high quality cocoa globally, the world’s seventh-largest producer of gold and the ninth-largest producer of diamonds.

Its stock exchange is the fifth-largest in Africa and third-largest in the Sub-Saharan Africa.

It is a market-based emerging economy. ‘Ghana Vision 2020’ targets to be the first African country to become a developed one during 2020-29 and a newly industrialised country during 2030-39.

Recently, it has seen a growth of over 700pc between 2000-2012. The country still faces numerous challenges including poverty, poor infrastructure, and unemployment.

Since 2013, the economy has suffered a growing public deficit, high inflation, and a weakening currency that forced the government to seek an IMF bailout. The growth slowed from 3.9pc in 2014 to 3.7pc in 2015.

Lower prices for cocoa and oil, a shutdown at oil and gas fields and economic uncertainty generated by large budget overruns all played a part in the subdued performance.

Key economic concerns faced by the government included lack of reliable electricity and the high debt burden. In 2016, the real GDP growth further slowed for the fifth consecutive year to 3.3pc due to tightened monetary and fiscal policies, among other factors.

According to the Focus Economist panelists, the growth in 2016 was the weakest in decades. The World Bank, on the other hand, reviewed its economic performance during 2016 as mixed.

The GDP growth was slightly higher at 3.6pc. However, after making solid progress on fiscal consolidation in bringing the fiscal deficit down from 10.2pc of GDP in 2014 to 6.3pc in 2015, the 2016 target was missed by a wide margin and the deficit widened to 9pc of GDP.

Looking ahead, growth is expected to pick up this year as the FocusEconomics Consensus Forecast panelists expect the economy to expand 5.9pc and 6.1pc in 2018. The IMF projects growth to recover to 7.1pc and 8pc in 2017 and 2018, assuming restoration of energy supply on coming on stream of new hydrocarbon wells.

The IMF also expects a solid rebound on the back of increased hydrocarbons output from new fields, the clearing of blockages in the production and transfer pipeline and higher energy prices.

The government’s projection of 6.3pc in 2017 is lower but it is targeting for a potentially higher growth for 2018.

Near term prospects appear good. Oil production is expected to increase on completion of repairs in the Jubilee field while Ten Field reaches its full capacity. The non-oil growth sectors are also expected to remain robust.

However, some economists have warned that Ghana’s economy still faces big obstacles to growth. Substantial downside risks are high and requires the government to build credibility in prudent fiscal management.

Published in Dawn, The Business and Finance Weekly, June 19th, 2017