eBusiness Weekly
Last Word
The very severe drought that hit Zimbabwe in 2024, basically middle or end of the rainy season, after some reasonable although very late planting rains, will inflict economic damage.
For a start, agriculture’s contribution to gross domestic product is likely to he more than half of last year but not dramatically more than half and certainly unlikely to be more than two thirds.
Although tobacco was not that badly hit, and the winter wheat is being boosted to almost twice domestic demand, the summer grains are about half self sufficiency, although the extra wheat does make a difference, cotton is severely affected and other oil seeds are likely to be hit, possibly not as bad as summer grains since soya beans tend to be grown by farmers with some irrigation and sunflower plots are small and the crop has a high level of drought resistance.
The second effect is the strain on the national budget, the fiscal strain, as the Government needs to find a lot of extra money to supplement food supplies for rural households, and in significant number of cases provide food for the whole period until the 2025 harvest and in far more cases for quite a few months of that period.
There will be other budget demands, such as more assistance with school fees for families that will simply have no crops for sale, so the BEAM budget will have to be raised, and there will be need for more money from the Treasury to be pumped into health care, as the modest contribution from fees will be lower.
Other fiscal strains will include more provision of help for livestock farming, certainly in the water supplies with extra boreholes as rivers and streams run dry, and possibly in supplementary feeding.
Decisions will need to be taken on the priority for maintaining the national herd without increasing slaughter rates.
The Government is its reassignment of budget allocations will be helped by the fact that pure running costs were cut as percentage of the national budget during the Second Republic, so it is the capital spending that is likely to have to take the strain, first for extra recurrent expenditure arising from food aid and other emergency programmes, and secondly because there cannot be a general cut back.
Some programmes will have to be maintained in full and even expanded, so others will carry more of the burden.
For example most people would agree that the expansion of irrigation has to be pressed forward, both for the winter cropping and to ensure that a significantly higher percentage of the next rainy season cropping will have some access to irrigation, although summer irrigation can go further since it sills the gaps in rainfall rather than the whole water requirement.
If there had been general supplementary irrigation in the season that is now ending, at least half the required water would have fallen from the sky as rain, and in parts of natural region two that would have risen to two thirds.
It is highly unlikely that the Government will be reckless and that it will maintain its solid fiscal discipline of the last five years, so the Ministry of Finance, Economic Development and Investment Promotion will be doing some awesome recalculations.
Finally come the monetary pressures. Almost 700 000 tonnes of grain will need to be imported. Some will be imported by the private sector with millers having been told some time ago that they will have to import their commercial requirements in excess of what they have in stock or on contract, and some will have to be imported by Government for its food aid programmes.
There will also be need probably for higher oil seed imports, and progress on increasing dairy production while continuing for this special sector is still likely to slow, so the plans to reduce dairy imports will be modified, the import cuts being lower than expected.
The grain deficit seems to require a little over US$1 billion to fix with imports, depending on how close the millers and the Government can find suppliers and the prices they will charge.
This seems to account for easily the largest slice of the US$2 billion plus Zimbabwe needs to cope with the drought, the figure announced by President Mnangagwa when he declared the drought a nationwide state of disaster this week. Other additional imports of food, plus the fiscal pressures to keep the population fed and other basic social needs maintained account for the rest.
That figure of more than US$2 billion is more than a quarter of the total export earnings recorded last year. It will not all be in foreign currency, but a large block will be, the money needed to buy more food.
This will mean other imports need to be cut, regardless of the method used to ration foreign currency.
Pure market forces will force up the prices of imports and so demand for non-essential imports will fall, and there is the option of a general agreement to cut back on non-essential imports so that the pressures will be reduced.
Export earnings are largely dependent on mineral sales, and this year sees the culmination of the first round of Government pressure for miners to do a lot more local processing before export.
That value addition should more than compensate for the generally lower global mineral prices, at least for everything except gold, and higher volumes can also be expected.
The net result is likely to be a modest gain in export earnings, which will help for the general higher demand for imports.
It seems sensible for everyone to see what can be done voluntarily to cut back on non-essential imports to reduce pressure.
This could be backed by the licensing regime for imports, opening the doors for food imports but closing it a bit for non-essentials.
It could be seriously useful to reduce demand for petroleum fuels, one of the largest import sectors although it does tend to use diaspora money rather than export earnings since fuel imports were not a major item, or even much of an item, on the old auction systems, and have not provided much pressure on the more modern banking systems.
But getting more diaspora money into the general import sectors would be a major help.
At a push a higher tax on fuels would tend to force users, commercial and personal, to be more efficient in their use, and cut back on pure recreational burning of fuel. That could be on the agenda.
Zimbabwe will get some international assistance. There are aid programmes and what amount to insurance schemes that will assist, and the major drive to combat corruption, have accurate accounting and use aid money carefully and properly will certainly help.
Those who give aid assistance always want this to be used properly, and they are also very keen on topping up national efforts, rather than hearing the entire strain.
The Government’s determination to make the private sector play a major part in the whole process will also encourage certain assistance programmes from countries that are not that desperate to help the Government to chip in through support for private sector imports.
Certainly there will be some who would prefer to do it that way and we imagine the Government will be more than happy to see this, as part of its announced efforts to make sure the burden is spread as widely as possible.
Nationally we can share information, so that we avoid duplication. In fact it now seems to make sense for the private sector, starting with the millers, to organise fairly constant communication with the Government, to cope with any disruptions and to smooth out as many difficulties as possible.
This could also avoid bidding wars for supplies that are close at hand; we do not need private companies and the Government bidding against each other because they are unaware of who in Zimbabwe should tackle which market.
In some cases a joint approach would make sense, where there is close Government contact with the foreign Government of a country that could be a supplier, with the Government handling the diplomacy and funding its share of the order and the private sector coming in for the rest and making the foreign suppliers realise that we can operate as a good team.
As we have already warned, the private sector will need to play ball with these imported supplies, making sure that their accounting is accurate and profit margins are fair and that distribution is not being manipulated.
But the rewards for a general national approach will be very high and in the long term accelerate that growth we all need.
