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Answers Anonymous' Questions Regarding "Wheeled" - 7.25.17

Received via email at 2:25 AM EDT for publication. ~ Dinar Chronicles "Re: Wheeled" by (Anonymous) - 7.25.17 Question 1: How ...

Friday, June 16, 2017

"When One Breaks a Bone" - Fri. PM KTFA Thoughts, News w/ Frank26

KTFA

RE: Peggy68 Thoughts 6-15-17

Frank26 » June 16th, 2017


Even with the obvious .............. When one breaks a bone ................. The doctor takes an X-Ray. Why?

To get a Better Look at what ................ Is being Looked at.

IMO ........... This post by PEGGY is an X-Ray of Your WEDNESDAY CC.

If she keeps going in her direction ........... She will eventually also show You of our CC SHARING ........... A Cat Scan.

DELTA did it again ..................He found something rather profound.

On the CBI website SS late last night.

We will break this finding down on Your FRIDAY TEAM CHAT tonight.

Then maybe .............. PEGGY can do it again too.

Aloha Friday and pau hana Ohana .......... \m/


Samson » June 16th, 2017

Zimbabwe, the US$100 billion economy dream

By Hopewell Mauwa

ECONOMIC assertions by the government and opposition alike have left observers wondering if Zimbabweans have become so gullible to incontestably believe promises by their preferred political parties.

ZANU-PF intends to create 300 000 jobs from the dualisation of a 900-kilometre road! The Movement for Democratic Change (MDC-T) plans to create a US$100 billion economy in five years! Really?

Truly, democratic change requires leaders to be accountable on any matter to discourage complacency. Equally, ordinary Zimbabweans ought to learn from history that patriotism and loyalty are better exercised towards national values, not necessarily political party interests.
Consequences of corruption and poor policy execution by government are apparent and, frankly, warrant no further analysis. That said, the 2009-2012 Government of National Unity (GNU) exposed that the opposition is not immune to the trappings of power either.

Particularly concerning is the MDC-T’s lack of robust strategic planning ability. With hindsight, for example, the party had a golden opportunity and enough leverage to prioritise electoral reforms in 2009. They failed dismally. The noble long-term legacy of electoral reforms was quickly swallowed by internal bickering for short-term ambitions like ministerial positions. ZANU-PF cunningly pounced on that weakness. Isn’t it appalling that MDC-T still has the temerity to complain about the flawed electoral process after four years in government?

That lack of strategic thinking could spell disaster for economic prospects. Without benefit of hindsight, how will the economy change under the MDCT’s sole stewardship? Shadow finance minister, Tapiwa Mashakada, is on record planning a US$100 billion economy in five years. To put this into perspective, Zimbabwe had a US$14 billion economy in 2016, the 22nd largest of 52 African countries. A US$100 billion economy is the size of Africa’s fifth biggest economy, Morocco. To match that size in five years requires an astronomical growth rate of 48 percent per year. Even a 10-year period would still demand an enormous 22 percent annual growth rate. Considering Africa’s fastest growing economy, Ethiopia, is growing at just under 10 percent per annum, such a growth trajectory is unprecedented and improbable.

Looking from another lens, however, back in the 1990s, Zimbabwe was roughly the 15th largest African economy. Had Zimbabwe kept the same pace of growth seen in the 1990s, the economy could have arguably grown towards US$30 billion by 2016. In fact, the 15th largest economy in 2016, Libya, was just over US$30 billion, which tallies with that projected estimate.

This suggests that Zimbabwe’s economy could be roughly half its possible size. Therefore, because of unused capacity, initial recovery could be fast, mainly through recapitalising and resuscitating idle production/services capacity. This phenomenon was evident during the GNU era (2009 to 2013) when stability led to an impressive nine percent average annual growth rate (IMF GDP constant prices, April 2017), but the economy stagnated post-2014. But does this mean, post political stability, the economy can grow to US$100 billion in five years? No! This is far-fetched.

ZANU-PF’s growth plans are pinned on capital from the East. Likewise, MDC-T economic plans also rely significantly on foreign capital. Here is why.

Let’s analyse logically: There are four levers to grow the economy; domestic consumption (households spending and business profits), private investments (domestic and foreign), government expenditure and net exports.

From the above, clearly, growth will be driven by government spending and/or private investments since domestic consumption will not materially rise given likely low household disposable incomes. Also, net exports are unlikely to grow either as imports will remain elevated. Trouble for Zimbabwe, however, is financing this strategy.

First, let’s consider government spending as a driver of economic growth. Using this route, government would be forced to borrow externally. Why? With a low tax base (revenues) and urgent need to boost spending on schools, hospitals, defence, law enforcement, compensation of evicted farmers and other services (public spending), MDC-T finances are unlikely to be in surplus.

There are known unknowns, however, regarding revenue leakages through corruption and how much current public spending is actually necessary/efficient. Even so, it is safe to assume that, left to our own devices, there would not be any meaningful surplus.

Therefore, the country will be forced to resort to borrowing to fund growth. The only viable option would be international lenders (International Monetary Fund (IMF)/World Bank), but this will be conditional to a prescribed economic plan. Private lenders, foreign and domestic, will exercise caution on issuing new debt, unless there is sufficient collateral. Or perhaps, the MDC-T may appeal for aid, but this too needs scrutiny because there is no free lunch!

The second option for growth using private investment leaves just Foreign Direct Investment (FDI). Domestic private funding will not fuel much growth under current circumstances. Further, research shows Diaspora remittances are a survival mechanism — only Israel and India have thus far materially converted such funds into an alternative source of investment. It follows, therefore, that MDC-T’s economic strategy hinges significantly on access to foreign capital.

They only have western goodwill, but no control over funding. In fact, such capital will still seek the highest returns in global markets. Therefore until competitiveness is addressed, no significant flows will materialise. Given that the country’s competitiveness is constrained by under performing national institutions and inadequate infrastructure, which require time to remedy, that raises the question, what concessions are MDC-T promising foreign capital providers to suddenly make Zimbabwe attractive?

Perhaps initially targeting a US$30 billion economy sounds sensible. But that too is a mammoth task given human capital shortages due to migration. Even during the “breadbasket” years, Zimbabwe was not Top 10 in Africa. To then think Zimbabwe can miraculously leap from the abyss to the top five within five years is seriously misleading or gross incompetence at worst.

The verdict

It is incomprehensible that any nation can extricate itself from poverty simply through borrowing and FDI. Actually, several countries inadvertently end up in a poverty debt spiral after excessive borrowing only to fail to service repayments. Also, the IMF will advocate free market conditions for FDI as decision making countries are linked to multinationals. There is nothing sinister, any country capitalises on its strengths! As such, FDI will certainly create jobs (mainly low skilled), but foreigners will benefit more under free market conditions.

Granted, the country’s bargaining ability is currently severely compromised. But perhaps Zimbabweans should “live within their means” first. Sparingly using IMF funds only for short-term budgetary support, while developing creative home-grown alternative financing arrangements, sounds more pragmatic and certainly supports sustainable long-term growth.

Real expansion to a US$100 billion economy will involve expanding the supply-side. That is not easy. It will be partly achieved by boosting productivity, but essentially through creativity and innovation. A shrewd government crafts successive five-year plans towards that goal. Initial stimulus could involve promoting home-grown enterprise to tailor existing technologies to domestic challenges. Crucially, human capital development must underpin any strategy to aid future innovation. That will be the engine for future economic expansion in the digital age.

Hopewell Mauwa is an economic analyst and global natural resources strategist based in London. He writes in his personal capacity

http://www.zimbabwesituation.com/news/zimsit-m-zimbabwe-the-us100-billion-economy-dream/

Samson » June 16th, 2017

Foreign banks tighten screws on Zimbabwe

By Shame Makoshori, Senior Business Reporter

FOREIGN banks are demanding fully funded letters of credit (LoCs) from domestic banks meant to facilitate vital imports by customers due to a worsening foreign currency crisis in the country that threatens to wreck recovery and further ruin the frail economy.

LoCs, which are indispensable for international transactions since they guarantee payment, allow suppliers to considerably lessen the risk of non-payment for delivered goods by transferring the risk of the buyer to the bank, according to experts.

Under normal circumstances, LoCs do not require upfront funding by importers’ banks, but the situation in Zimbabwe is said to have dented the creditworthiness of local banks, resulting in rejection of unconfirmed LoCs by foreign lenders.

Unconfirmed LoCs are issued without remission of cash to the offshore bank of suppliers on the basis of trust that the originating bank would honour its commitment in the event that the buyer to whom the LoC is issued defaults on international payment commitments.

Banking sector and industry sources said the situation was now so grave that it threatened to undermine productivity in the economy, at a time government was spearheading increased output after banning the import of at least 100 products to promote the revival of local industries.

A banker said the worst affected sectors were manufacturing and mining, which are essentially the bedrock of the country’s economy and currently the critical pillars of foreign currency mobilisation.

“Foreign banks are no longer willing to take the risk of local banks,” the banker said, indicating that the problem started when the central bank started rationing offshore cash holdings by local banks, resulting in their creditworthiness becoming questionable.

He said foreign financial institutions were now only accepting “confirmed letters of credit” from Zimbabwe banks.

He said a confirmed LoC entailed the originating bank putting cash into the suppliers’ bank to guarantee that the LoC would be honoured.

“The situation has undermined international trade,” said the banker, noting that many manufacturers were failing to ramp up production because of the situation.

The Confederation of Zimbabwe Industries, the country’s main industrial body, said local banks were facing increasing difficulties in issuing guarantees.

“It is a problem that we have always had because of the country risk that we have. Not all bank guarantees from local banks have been accepted because of the internal banking challenges that we have had,” CZI president, Sifelani Jabangwe, told the Financial Gazette.
“These are the closure of banks and the inadequate currency issues that we are currently having. Foreign markets have been accepting guarantees from the big four banks because they have confidence in them.”

Bankers said the creditworthiness of local financial institutions plunged after the Reserve Bank of Zimbabwe (RBZ) directed in 2014 that all banks reduce their nostro account balances from 30 percent of total bank deposits to a paltry five percent.

A nostro account is a bank account held by a local bank with a foreign bank, usually in the currency of that country. Nostro accounts are used to facilitate foreign exchange and cross border trade transactions.

RBZ governor, John Mangudya, said then that keeping large balances in nostro accounts was tantamount to providing liquidity to offshore jurisdictions where banks held their nostro accounts.

http://www.zimbabwesituation.com/news/zimsit-m-foreign-banks-tighten-screws-on-zimbabwe/

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