Right mindset will stabilise Zimbabwe economy

By IAfrica
In Article
May 11th, 2014
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It seems the phrase “economic collapse” is gaining traction in Zimbabwe.

Itai Zimunya

From government ministers to traders in the streets, as well as listed company statements — the narrative is the same: The economy is collapsing. The immediate and usual statement from government is that they are looking for new money from China or other countries to save the economy.

The question is: does Zimbabwe actually need new money to stabilise and grow, or rather, it actually needs something else, and — what is this something else?

This paper seeks to do two things. Firstly, it shall deconstruct this big and largely perceptive thesis of a collapsing economy into easily understood bits to facilitate public understanding.

The second section shall attempt to offer simple but objective solutions through which this economy can be stabilised and grown.

The argument in this paper is that Zimbabwe needs no cent to stabilise and grow its economy in the short term. The sickness in this economy is not lack of money. That is a convenient lie.

There is money in Zimbabwe and other global capital markets to get Zimbabwe grow even above 10% levels. The disease afflicting Zimbabwe is high risk and uncertainty — and it is very easy to cure. In Zim Asset, the government calls this a low-hanging fruit.

Even if the government knows what to do, they further suffer from what policy scholars call the Pierre Wack disease “knowing what to do, but for some reason, just not doing it”.

The government has to sit down and agree on competent policy prescriptions, maintain such policies and ensure their alignment to avoid policy incongruence.

While it is true that the government is broke, it needs to be stated that this condition of insolvency is not the problem, but a mere symptom.

Zimbabwe has no cash/money to pay for its goods and services to keep the country going like salaries, road maintenance, defence and security. This situation is caused by two main things —

1) falling revenue to the state,
2) increased government expenditure.
Some economists, especially the international financial institutions preach the gospel of “tightening one’s belt”, meaning the government must retrench and shed off non-core services so that its budget is leaner and more manageable.

On the other hand, the government could grow its sources of revenue through taxation and borrowings. As it is, Zimbabwe can’t borrow, even from China because her national debt estimated around US$12bn is well above her national budget of US$4bn.

Zimbabwe is like a person with a cellphone worth US$50 but owing people US$150. So no sane person will lend money to that cellphone fellow because they are already trapped in debt.

Even China can’t lend money to Zimbabwe, despite the friendship because Zimbabwe does not know what it wants. The Chinese are not stupid enough to just sink money in a “leaking” Zimbabwe because China supported the liberation struggle.

That line of argument is both arrogant and defective. As a sovereign and independent country, Zimbabwe has to honour its responsibilities both to Zimbabweans and the international community.

On the other hand, the move to tax the informal sector to raise government revenue may work for weeks, but is as good as chasing the wind. That is not the solution in the short term.

So the question is: what is the solution to Zimbabwe’s economic collapse?

The Zimbabwean economy can grow rapidly even without borrowing a cent. The economy is a legal persona in its own right and all it needs is “confidence” that the political leadership in Zimbabwe is sincere about wanting that economy to function normally.

These confidence building measures include, i) crafting of competent policies, ii) policy congruency and iii) policy consistency. The indigenisation policy or rhetoric (whichever it is) is a good example. That policy is murky, more opaque than masese [soghurm made] beer, inconsistent and very incongruent to other policies like the tourism drive and the banking sector development strategy of this government. So, it’s not sanctions or some conspiracy theories, but policy failure that is collapsing this economy.

The biggest solution to our economic woes is for this government to sit and clarify its priorities and interests in one cabinet sitting and address the world of its firm direction which every minister and state department will follow religiously.

I argue that it’s not the priority business of government to “look” for investment all-over the world to prop this falling economy. The government must create an inviting environment for the economy to stabilise and grow.

The “popcorn” messaging from government further increases the risks and uncertainties which make any money into Zimbabwe very expensive.

The cost of doing business in Zimbabwe is too high. To start a company in Zimbabwe is a nightmare. To get a passport in Zimbabwe is a nightmare. To get land in Zimbabwe — both for housing and business — is a nightmare. To freely express your different opinion in Zimbabwe is a nightmare! A nightmare for Zimbabweans, let alone foreigners!

Brian Raftopoulos argues that economists must not crack their heads trying to advise and help this government on how to grow the economy.

He argues that this government has people with the craft competence and statecraftcy to manage a functional economy. They know how to stabilise and grow this economy, but the political elite is not interested because they are shareholders in the current chaos. The political elite benefits so much from the confusion, corruption and deals in darkness.

The selling of a public park in Mutare to a local businessman without consulting residents, shareholders of the city of Mutare, is one such deal sealed in the dark. Mining, land and government tenders among others are some examples of deals-of-darkness that the political elite are focusing on.

I argue that even a US$1 billion bail-out from China will not get this economy to stabilise, let alone grow. The money will simply be looted. It’s like the proverbial story of an insane person connecting a hosepipe to a leaking tin and expecting it to fill.

It will not fill up. The simple issue is to seal the holes and fill it!

Policy clarity, policy consistency and policy congruence from this government is the touchstone!

Zimbabwe has enough money to power its own stabilisation, but would of course need external capital injections to boost its growth in the medium term.

The informal sector’s estimated US$7bn can easily liquefy all banks and lower the cost of capital. The old pieces of law which criminalise and alienate the informal sector need to be changed.

The informal sector is a powerhouse that can spur initial growth.
People are not stupid. The effects of Dr Gideon Gono’s midnight bank account raids are still with us. Domestic savings are low because no one trusts the central bank.

The Minister of Finance who took over the central bank’s debt must return people’s moneys — with interest and get the depositors protection commission to work so that people feel safe to bank!

In conclusion, one can argue that even though new capital is necessary, it is not the first button to turn around this economy.

Policy clarity and congruence is a one-day affair if this government is serious. In Zim Asset, they refer to this as low-hanging fruits but God knows why they are not picking these low hanging fruits. Foreign Direct Investment (FDI) is a medium term intervention, and will come not as a result of the government’s charm offensive, but like all capital, follows opportunities!
The ball is therefore in the government’s hand to reduce risks and uncertainties through talking and acting “one way” as the late Simon Chimbetu sang.

Itai Zimunya
tanatsei@gmail.com


This post was originally published on this site

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