HARARE, June 23 (The Source) – You know election season is around the corner when political parties start making promises they cannot keep.
The big promise of the 2013 election was Zanu-PF’s discredited claim that it would create 2.2 million jobs and “unlock” $1.8 trillion in new money from its empowerment policy. Needless to say, just a year ahead of fresh elections, the economy is in fact bleeding jobs faster than ever and the banks are empty.
Now the MDC-T, the country’s main opposition party, is joining the big promise club.
Tapiwa Mashakada, shadow finance minister for the MDC-T, was quoted recently as saying that an MDC-T government would create a $100 billion economy within a quarter year of taking power in 2018.
“Our economic vision is the creation of a $100 billion economy within the first 100 days on the back of investment and renewal and confidence that will result in the review of the indigenisation policy,” Mashakada said.
This was not the first time the MDC-T has spoken about creating a $100 billion economy. At different times, the party has however given differing timelines on when this would be achieved.
In a speech on a new party policy to his party’s congress in April 2011, MDC-T leader Morgan Tsvangirai promised annual growth of 10 percent: “Under this new programme, we envision a $100 billion economy by 2030.”
But in its 2013 economic policy, JUICE, the MDC-T projects annual growth of 8%, and a “$100 billion first world economy by 2040”.
At a rally in Gweru early June, Tsvangirai said a $100 billion economy would be built within five years.
The $100 billion dream is not new. Mashakada himself was part of a group of ministers under the GNU that attended a CEO’s meeting in Nyanga, 2011, where a vision of reaching a $100 billion economy in 2030 was discussed.
The promise of a $100 billion economy is obviously enticing for a voter base that has known only economic decline under Zanu-PF. However, like most election promises, it does not pass the barest credibility and math checks.
One hopes that the first task of the technocrats that MDC-T has reportedly hired to draw up a new blueprint is to put together a plan that actually passes credibility tests.
Economists use “the rule of 70” to estimate the number of years it takes for any variable to double. The rule is that for an economy to double in size, it needs to grow by 10 percent every year for seven years. So, growing Zimbabwe’s $14 billion economy to $100 billion within five years is by this measure a mathematical impossibility. It can’t.
If Mashakada is to be believed, the economy will grow over 600 percent in just over three months. Zimbabwe would need annual growth of 48 percent to reach $100 billion in five years, and some 22 percent per year to get to that size in a decade.
For perspective; the fastest growing economy in Africa, Ethiopia, averaged growth rates of over 10 percent in the decade to 2015, growing its economy from $12 billion to over $61 billion over the period. Ethiopia – population 100 million – is forecast to grow 8.3 percent in 2017, according to World Bank.
To provide further context, African economic growth is projected at 2.6 percent in 2017, with aggregate growth rising to 3.2 percent in 2018 and 3.5 percent in 2019. The average economic growth rate globally is about 2.7 percent at the moment. Hot growth giants such as India and China are growing at around seven percent per year.
And all the while, according to MDC-T, Zimbabwe will be motoring ahead, all on its own, with close to 50 percent annual growth?
It is a moot point to even debate how MDC-T plans to achieve this miracle growth. However, it is important to examine what we know so far of their plans.
According to Mashakada, the MDC-T will achieve this mainly through foreign investment, public sector reform, and infrastructure.
The party is right that economic growth will need massive infrastructure investment. Currently, only four percent of the budget is going into infrastructure.
So, how much does Zimbabwe need for infrastructure?
According to AfDB data, Zimbabwe needs $2 billion per year to fix its infrastructure. A total of $14 billion is needed. In 2013, a senior World Bank official said Zimbabwe needed over $33 billion for infrastructure over 20 years.
It is a big bill. How would it be funded?
Mashakada says MDC-T would use its “international goodwill” to float infrastructure Eurobonds in deep capital markets”.
However, the MDC-T policy makers will need to look at the carnage elsewhere in Africa, where countries that floated Eurobonds are defaulting and running to the IMF for help.
The Eurobond was in fashion when commodity prices, which made them an attraction, were booming. Now that commodities are in trouble, investors have lost their appetite for risk. Yields are rising, exchange rates weaker, meaning countries have to pay more to service debts.
Ghana has had to approach the IMF for help and Mozambique this year became the first country to default on the bonds. Zambia had a hugely successful Eurobond float in 2012 – bids were over 15 times the offer – but low copper prices have left them in trouble.
Zimbabwe’s credit rating makes the Eurobond route improbable, even with “goodwill”.
Using a sovereign credit risk model based on budget deficits, foreign reserves, non-performing bank loans and political instability to calculate default probabilities, Bloomberg recently flagged four countries as risky African Eurobond issuers: Senegal, Tunisia, Ghana and Zambia.
How would Zimbabwe, with his messy deficits, non-existent foreign reserves, and high default rate do on that score?
Africa has seen a slowdown in investment growth from nearly 8 percent in 2014 to 0.6 percent in 2015. Any party that relies almost entirely on FDI for its policy needs to understand that the world has changed.
The MDC-T is right that it would enjoy more international goodwill than the current Zanu-PF government, whose economic management has been a lesson in how to ruin an economy.
It is expected that all politicians come bearing promises of milk and honey. However, MDC-T needs to be careful not to raise expectations of an overnight economic turnaround. It sounds good on a rally podium, but recovery will not be as easy, or as fast, as claimed.
A claim of a $100 billion economy, in either 100 days or five years, is not only mathematically impossible, it is also irresponsible for a party that promises a change from four decades of Zanu-PF’s lofty, broken promises.