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WS MoreOrLess: Zimbabwe's Economy
00:09:36
Zimbabwe’s budget provided a fascinating insight into the country’s economy last week.
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This is the short edition of More or Less, first broadcast on the BBC World Service. Thank you for downloading from the BBC. For details of our complete range of podcasts and our terms of use, go to bbcworldservice.com podcasts hello and welcome to More or Less. I'm Ben Carter. Last week, Zimbabwe's Finance Minister, Patrick Chinnamassa, delivered his budget for 2015. His speech gave a fascinating insight into the state of Zimbabwe's economy and the challenge the country faces going forward. It also contains some rather worrying statistics.
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In 2014, the government of Zimbabwe managed to find $18 million to spend on medical equipment for all hospitals in the entire country, which is a population of 12 million. Meanwhile, it also found $16.7 million to spend on maintaining Mugabe's official residences.
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More from David Blair, the chief foreign correspondent at the Daily Telegraph later. But first, let's take a look at some of the headline numbers in the budget. For a lot of economic powerhouses in the West, a predicted growth rate of 3.2% for 2015 would raise a cheer. But there's not much cause for celebration in Zimbabwe for a couple of reasons. Firstly, countries in Africa are growing on average at 5% per year, and secondly, Patrick Chinnamassa had forecast growth of 6.1% for 2014. One of the reasons that Zimbabwe's economy is struggling to grow is because it has very high unemployment, which Patrick Chinnamasa admitted in his budget speech. Chinnamassa didn't put a figure on the unemployment rate and trying to find an accurate number is quite difficult. As Julian Rademeyer, director of fact checking website AfricaCheck, explains, There's old data, World
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bank models and data taken from the International Labour Organization that puts unemployment at as low as 4%, which is ludicrous. Opposition figures have suggested it's as high as 95%. Robert Mugabe's on IPF has said in their election manifesto that it stands at 60%.
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We know from a study done in 2011 by the Zimbabwean National Statistics Agency that 6.1 million of the 13 million population were economically active. 5.4 million of those around 90% were deemed to be in employment.
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But of that number, 84% were employed in the informal sector and only 11%, or 606,000 were informal employment. What that means is that the bulk of the people that Simstats consider to be employed were actually employed in the informal sector, where many of them are subsistence farmers, small time traders, people that other southern African countries no longer class as employed. Essentially, it inflates the employment figures for the country and it gives an unrealistic idea of what employment levels are like there.
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Roughly 45% of the 606,000 deemed to be in formal employment are employed by the government. Zimbabwe's spending budget for 2014 was $3.3 billion. 80.1% of that money was spent on public service wages. To put that percentage in context, the United Kingdom spends around 23% of its budget on public sector wages. Zimbabwe's government had previously committed to reducing the amount to 60% by the end of 2014, but they now say it's a problem that can only be resolved in the medium to long term. They face a difficult task when you consider state employees turned down a 27% pay rise offer earlier this year. When a government spends 4/5 of its budget on public sector wages, there's little left to spend elsewhere. So what was spent on healthcare, schools and infrastructure? David Blair is chief foreign correspondent at the Daily Telegraph. He lived in Harare for three years and when the Zimbabwean government started publishing its budgets online, he began looking into them. A lot of what he found didn't surprise him.
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In some countries, public spending is designed in some way to benefit the public. In Zimbabwe, public spending is designed really to benefit only one member of the public, and that's President Robert Mugabe. So to give you an example, in the course of 2014, the government of Zimbabwe spent US$824,000 maintaining the President's cars. Over the same period, it spent $180,000 on capital spending for all secondary schools in the entire country. And bear in mind There are about 6 million school aged children in Zimbabwe. And that sort of misallocation of resources runs through the whole thing. So for example, Robert Mugabe's Foreign travel spending 2014 $21.6 million TB drugs for the entire country, $500,000. If you add up the amount spent on travel cars and residences for Mugabe, it comes to 1.1% of all public spending in the entire country. If you look at capital spending on schools, it's 0.01%. So that's a discrepancy of a factor of 100.
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David Blair we asked to speak to someone from the ZANU PF party to talk about the figures, but no one was available. In a country with disappointing growth, high unemployment, and where investment in schools and health care to help the next generation is pretty much non existent, is there any good economic news for the people of Zimbabwe? Well, yes. In 2008, inflation in the country hit a peak of 79.6 billion percent, which led to the currency crashing and worthless notes littering the streets. As a result, the government started using the US dollar in 2009, which has helped the poor, but not been so kind to the government. As Russell Lamberti, chief strategist at ETM analytics and co author of the book When Money Destroys nations, explains, having adopted
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US dollars, they are now forced to trade in physical dollar notes, of which there's a finite amount within Zimbabwe. And in fact, many of those dollar notes are physically becoming so worn out that there's even some marginal money destruction. And so you've got, in many respects, the opposite of what you had prior to 2009. Whereas there you had significant money printing. You've got almost no money supply growth and possibly even money supply shrinkage. And so that's leading to these very low rates of inflation and even deflation. The overall picture is much more favorable for Zimbabweans than it was prior to 2009. They can actually understand what prices they're going to pay and reasonably expect those prices to stay at those levels for sensible periods of time. But of course, it does also start to create certain challenges. If you have become highly indebted over the last few years and you are paying an interest rate that's higher than, say, 3 or 4%, deflation can start to really hurt you. On the other hand, poorer people love deflation because it makes things affordable for them. So there are winners and losers on both sides of the inflation and deflation equation. I don't think that low levels of deflation are particularly economically harmful for Zimbabwe. If anything, I think it can be a boon for consumers who are poor and under considerable pressure if the strain
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on the money supply does become too great. Russell Lamberti points out, Zimbabwe does potentially have other good options.
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They're in a fantastic position to adopt a free currency zone, a free market currency zone, and potentially be at the cutting edge, ironically, of monetary progress, which is potentially adopting the use of cryptocurrencies, various online payments and trading mechanisms. And in fact, in Zimbabwe, there's pretty sophisticated mobile technology. Many, many people are connected, and it's a tremendously viable mechanism of payments. So, as I say, it's well within their grasp. And I think it just needs a sensible and friendly regulatory regime, which unfortunately doesn't exist at the present moment. But change is certainly within Zimbabwe's grasp.
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Russell Lamberti, Robert Mugabe's Zanu PF party held its annual conference this week. No doubt the ailing economy was on the agenda as Russell points out, deflation is not good news for a government with debts because as prices decline, government revenue declines while the terms of servicing the debt remain unchanged. The International Monetary Fund estimate that Zimbabwe has external debts of more than $10 billion, and in September it told the country to repay $142 million in overdue payments before it's eligible for any more credit. That's a demand Patrick Chinnamassa says his country cannot meet. That's all we've got time for this week. If there are any numbers you'd like us to check or explain, please do email us at more or lessbc.co.uk and you can also download this program and many others for free at our website, bbcworldservice.com More or less there are dozens of different podcasts now available from the BBC, including news, documentaries, science, business, arts and sports. For details of them all, go to bbcworldservice.com podcasts.