LIQUIDITY CHALLENGES
AND WAY FORWARD
j. Mverecha
OVERVIEW
Introduction
Economic
Recovery
Current
Liquidity Challenges
 FDI and the Economy
Impact of FDI on the economy
Way
Forward
Introduction

Economy Prior to STERP





Multilayered policy induced distortions
Hyperinflation
Hyper Asset Price Bubbles
Economic meltdown……2008
Inclusive Government & STERP
Measures






Liberalization of the economy
Multicurrency
Slow Capacity recovery
End of hyperinflation
Deflation
Steady but uneven recovery…….
Introduction

Economy steadily recovering…..

Price stability
Capacity utilization
Revenue growth
Deposits growth……..

But Major Issues……….

Liquidity challenges
Slow capacity recovery
Low output/wage equilibrium
Low savings and investment
Unemployment & Poverty







Introduction
Inflation fundamentals improving.............
Figure 1: Annual Inflation Rate (%)
8
6
(%)
4
2
0
-2
-4
-6
1
r-1
Ap
1
r -1
Ma
1
b-1
Fe
11
nJa
0
c-1
De 0
v-1
No
0
t-1
Oc
10
pSe
0
g-1
Au
0
l-1
Ju
0
n-1
Ju
0
y-1
Ma
0
r-1
Ap
0
r -1
Ma
0
b-1
Fe
10
nJa
5
Introduction
Inflation fundamentals…….Uncertainty
2011 Headline Inflation Forecasts
0.070
0.060
0.050
0.040
0.030
0.020
0.010
0.000
dsm (yoy)
tsm (yoy)
tsm+adf (yoy)
Economic Recovery……
GDP By Industry (US$m)
2010
2011
2012
Agriculture
1266
1462
1703
Mining
919
1198
1593
Manufacturing
981
1025
1077
Electricity & Water
269
275
284
Construction
92
94
96
Finance & Insurance
241
248
257
Real Estate
122
125
128
Distribution & Tourism
1290
1328
1381
Transport & Communication
717
731
749
Public Administration
88
89
91
Education
167
170
174
Health
87
89
90
Domestic Services
64
65
66
Other Services
348
355
363
Less Imputed Bank charges
-59
-57
-56
GDP at factor cost
6592
7197
7996
Net taxes on production
0
0
0
GDP at basic prices
6592
7197
7996
Net taxes on products
214
227
243
Real GDP at market prices
6806
7425
8239
Real GDP (yoy%)
8.0%
9.1%
11.0%
Nominal GDP at market prices
6999
8016
9337
Nominal GDP (yoy%)
12.0%
14.5%
16.5%
Economic Recovery…………
Gross Domestic Product by Industry at Constant Prices (US$ M)
2010
2011
2012
Agriculture
34.0
15.5
16.5
Mining
44.0
30.3
33.0
Manufacturing
3.5
4.5
5.0
Electricity & Water
2.0
2.4
3.0
Construction
1.2
1.8
2.4
Finance & Insurance
2.2
3.0
3.3
Real Estate
1.3
2.0
2.2
Distribution & Tourism
2.5
3.0
4.0
Transport & Communication
1.2
2.0
2.5
Public Administration
1.5
1.5
1.5
Education
1.3
1.7
2.3
Health
2.2
1.8
2.2
Domestic Services
2.1
1.6
2.3
Other Services
1.8
2.0
2.2
Less Imputed Bank charges
-3.3
-3.3
-2.5
GDP at factor cost
11.9
9.2
11.1
Net taxes on production
-2.0
-2.0
-2.0
GDP at basic prices
8.0
9.2
11.1
5.0
6.0
6.7
8.0
9.1
11.0
Net taxes on products
GDP at market prices (yoy%)
Economic Recovery………..

Assumptions: Optimistic Scenario

Accelerated mining sector and agriculture growth
Indigenization and empowerment framework on the basis of
stakeholder consensus
Progress on Debt and Arrears Clearance strategy
Sustained GPA Progress : Political and Macroeconomic
stability
New investment in infrastructure: energy, power and ICT
Structural reforms including privatization
Investment in Education, Health; New ICT; R&D






Banking Sector Deposits

Growth in deposits from US$1,4 bn in Dec-09 to
US$2,6 bn by April 2011
Liquidity Challenges……
Deposits Growth……
Money Supply Forecasts….
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
2,692,466
2,786,702 2,884,237 2,985,185 3,089,667 3,197,805 3,309,728 3,425,569
2,666,452
2,733,113 2,801,441 2,871,477 2,943,264 3,016,846 3,092,267 3,169,573
Liquidity Challenges…..

Economy faces liquidity Challenges
Slow deposit Growth @Us$2.6 billion (April)
 Mainly short term deposits (90%)


Financial intermediation growing slowly

Two Sources of Liquidity (Multicurrency)
Exports
 Credit Lines


Economy Requires significant capital flows
Capitalization of firms
 Working capital financing
 New Equipment financing
 New Projects (e.g Energy/infrastructure)

National Imperatives

National Imperatives:

Economic Growth
Job creation and poverty alleviation
 Investment in Education, Health, Research &
Development
 New (wealth) value creation
 Broad based economic transformation
 Equity, Fairness & Opportunity For All
 SMEs growth & transformation
 Youth & Gender mainstreaming……



Financial intermediation is at the heart of
economic growth……
Economies grow due to investment/FDI...

China, India, Peru, South Korea, Taiwan……
National Imperatives

To Achieve National Imperatives:
Promote export growth
 Secure Credit Lines
 Engagement of International Community
 External Debt & Arrears Resolution
 Address Banking sector Vulnerabilities
 Capacitating Central Bank
 Lender of Last Resort Function


Domestic stakeholder engagement
An All stakeholder approach
 Govt, Business & Labour (Policy Consensus)


Deal with Uncertainty

Political & Policy Issues
Why Investment is Critical




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Economic Growth & Poverty Reduction
Economic Growth & Improving living
standards
Economic growth & national development
Economic development & long term
stability
Economic Growth & Social cohesion

Greece, Tunisia, Egypt, Jordan, Yemen…..
Ghana and Malaysia





Both Were British Colonies
Both got independence same year
Both had similar per capita levels
in 1957
In 2010, Malaysia’s per capita is
10 times higher
What accounts for the difference?
Ghana and Malaysia: 1957
G D P P E R C a pit a T e rm s
180
160
140
120
100
US $
80
60
40
20
0
1957
G ha na
M a la ys ia
Ghana and Malaysia: 2009
2 0 0 9 G D P P E R C a pit a T e rm s
16000
14000
12000
10000
US $
8000
6000
4000
2000
0
2009
G ha na
M a la ys ia
Ghana and Malaysia
Malaysia
Ghana
Population (millions) 2000
23
19
Percent of population below the national
poverty line
16
33
Infant Mortality Rates (per 1000)
8
65
Adult Illiteracy
13
30
Agric share of GDP (%)
14
36
Paved road as % of total (1998)
75
24
Per 1,000 people: Telephone Main Lines
(1998)
198
8
59
2
No. of listed domestic companies (1999)
757
22
Foreign Direct Investment in US$ million
(1999)
1,553
17
Exports of Goods & Services as % of GDP
(1999)
124
32
CPI Inflation Rate (2001)
1.4
33
Personal computers (1998)
Sources: World Bank, World Development Report 2000/2001 & 2002 issues; Statistics Dept., Malaysia
Per Capita Comparative
Analysis: 1960
300
Zim babw e
250
Zam bia
200
US $
150
100
Ke nya
India
China
50
0
1960
Ke nya
India
C hina
Z a m bia
Z im ba bwe
Per Capita Comparative
Analysis: 2009
China
5000
4500
4000
3500
3000
US $
India
2500
2000
Ke nya
Zam bia
1500
1000
ZIm babw e
500
0
2009
Ke nya
India
C hina
Z a m bia
Z Im ba bwe
Seven Lessons From China



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


Specific Well Defined Economic
objectives
Learning from own Mistakes
Understanding the Global dynamics
Far sightedness/ Focus on Long term
Mastery of International Engagement
Investment in Education, Health, R& D
Nationalism balanced with Global
Imperatives
Gold Prices…..
A window of opportunity
WAY FORWARD


Improving the Investment
Environment
Improving the overall investment
environment is critical for FDI.

Zimbabwe is presently viewed as a
high risk investment destination.

Agreed Framework for IEE
Stakeholder Consensus

THANK YOU