Zimbabwe…. from here our economy rises!
By Richard Mawarire
18 April 1980 was a good seven years since God had decided to bring me on this beautiful land between Zambezi and Limpopo. Thanks to fate and the Grace of God I was lucky to be amongst the 14 million Zimbabweans who relived the “independence moment” on the 21st of November 2017 after His Excellency RG Mugabe’s resignation.
It’s a moment that marked the end of his sinusoidal rule that had 20 years of plenty and 17 years of horror. It is a milestone for the majority of Zimbabweans who had never known any other Head of State ever since the country got its independence from colonial Rhodesia.
This article will seek to postulate the various key requirements that the new government will need to put into place if the revival of our battered economy is by any means an achievable dream.
The leadership question
Arguably the best portion of scripture in the word of God on the subject of leadership is when Jethro visits Moses his son in law some 3000 years ago and he advices had the following advice: “….select capable men from all the people, men who fear God, trustworthy men who hate dishonest gain, and appoint them as officials over thousands, hundreds, fifties and tens”( Exodus 18 v 21).
This passage of scripture has never come at an opportune time than this hour in the history of Zimbabwe. As the nation looks forward to President Mnangagwa naming his first cabinet, the man is probably seized with the same predicament that Moses faced as he led the children of Israel into the Promised Land.
There is need for Zimbabwe to have a capable, honest, competent leadership that steers the country’s economy to its prospect. The new government should also disabuse itself of leaders with a long dated history of corruption and incompetency. Upon good leadership is the tone set for prosperity and success in all facets of Zimbabwean life- social or economic.
Curbing corruption
It is refreshing to note that the military operation that ushered in the new dispensation was premised on weeding out corrupt criminal elements that were surrounding the President. This is a fight that the new government should carry into the new dispensation. As a starting point all corruption cases against high ranking government officials, the public and private sector should be fully investigated and those responsible put to trial by our courts.
Scraping bad laws
At the centre of Zimbabwe’s problems has been bad laws such as the indigenisation and Economic Empowerment act, Access to Information and Protection of Privacy Act (AIPPA), Public Order and Security Act (POSA).
On its own the Indigenisation and Economic Empowerment Act of 2007 was sorely responsible for the loss of over $1 billion on Zimbabwe Stock exchange Market Capitalisation as the then Minister moved in to implement the Act in 2010 and immediately triggering massive negative foreign investor sentiment as the market participants feared losses within their investment portfolios.
Access to Information in the 21st century is a key success factor for the modern investor. Zimbabwe ever since the early 2000s has been renowned for its draconian legislations that inhibit journalists from carrying out their jobs freely.
Removing draconian laws helps to sell the positive Zimbabwean story to the world and investors. It is therefore incumbent for the new administration to make deliberate attempts to pacify the negative effect these laws have caused on the economy and society as we go into a new era.
Our own Marshall Plan
Subsequent to having a good leadership, curbing corruption and the amendment of laws is the need for Zimbabwe to negotiate a massive bailout package. Zimbabwe is in dire need of its own version of The Marshal Plan.
The Marshall Plan (officially the European Recovery Program, ERP) was an American initiative to aid Western Europe, in which the United States gave over $13 billion (approximately $135.4 billion in current dollar value) in economic support to help rebuild Western European economies after the end of World War II.
The need for Zimbabwe to get a head start is never to be overemphasised. However as a prerequisite, Zimbabwe needs to reintegrate into the community of nations by restoring its diplomatic ties back to pre-2000 levels. Key to this process is the need for Zimbabwe to apply for readmission into the Commonwealth of Nations with all the advantages that it brings to our economy.
Agriculture, manufacturing, mining sector revival
It is refreshing to note that the incoming President Hon ED Mnangagwa presided over probably the most successful government agricultural programme ever since the violent land redistribution when he oversaw the government’s special maize import substitution programme otherwise better known as Command Agriculture.
Despite it being a controversial choice, the new government would also need to liaise with some of the 4000 white commercial farmers displaced during the land reform programme with an intention to restore them ownership of their pieces of land acquired during the fast track land redistribution. Some of the farmers have went on to do wonders in countries like Zambia, Mozambique and Nigeria after these countries extended them an olive branch post their eviction from Zimbabwe.
On the back of this a fresh tone has to be set to revive the country’s ailing manufacturing sector. Synergies between agriculture and manufacturing have to be sharpened in order for the country to generate the much needed foreign currency through improved export performance.
On the other hand a strong manufacturing sector ensures that the country produces locally the majority of the goods it consumes. This ensures that foreign currency which would otherwise have been spent on imports is saved and channelled to other critical sectors of the economy.
The mining sector is yet another quick gain the country might urgently exploit through enhancing the value of exports through beneficiation and value addition. With metal prices relatively stable on the world market, Zimbabwe’s high gold, diamond and platinum output might set the country on a good pedestal for the growth of the economy.
Demonetisation of the bond note and restoration of full dollarization
Introduced as an “export incentive” by the Reserve Bank of Zimbabwe the bond note has been the subject of intense debate in Zimbabwean economic circles. It has to a greater extent eaten away the trust dividend that had been ushered in by the introduction of the US dollar denominated economy post 2008 hyperinflation at the inception of the government of national unity in 2009.
In modern economic theory, economists postulate that exports have no influence on a country’s GDP. This is primarily so because a country’s exports are an autonomous function in the national economic multiplier equation {C+I+G+(X˚-M)}. In simple terms this means that exports are influenced by terrestrial factors that are outside the influence of a single government and hence they cannot form the basis for any meaningful change on a country’s GDP.
At least according to the above economic observation, the bond note export incentive was always going to fail to address the cash challenges or bring a meaningful growth to the export sector. If anything through the decimation of the trust dividend, the bond note has seen the re-emergence of the parallel foreign exchange market where the pseudo-currency is trading at a discount of between 60-85%. The complete demonetisation of the bond note coupled with a deliberate attempt to lure the transacting public to deposit their US dollars on the back of the fresh political developments will bring the economy on a recovery path.
Joining the Rand Monetary Union
In the long term after restoring minimum requirements as espoused by the Rand Monetary Union, Zimbabwe would need to consider joining the Rand Monetary Union. Zimbabwe and South Africa have a combined $2.5 billion worthy of trade or approximately 20% of Zimbabwe’s GDP.
In addition close to 4 million Zimbabweans work and reside in South Africa. Joining the Rand Monetary Union will unlock synergies between the two economies and most importantly help Zimbabwean prices of goods and services to approximate to the same prices that are charged in South Africa.
Effective Public Debt Management
Central to the economic problems that are currently obtaining in Zimbabwe has been the government’s appetite to spend money that it doesn’t have. Prior to the recent political developments of the past few weeks the then Minister of Finance had warned the nation that the 2018 Fiscal Budget deficit would rise to as much as $1.8 billion.
The bulk of this deficit is primarily funded through domestic borrowing (using treasury bills) since the country doesn’t have any other source of budget support by way of concessionary loans from the IMF or the World Bank nor can it resort to the printing of money in the absence of a domestic currency.
The use of Treasury bills has stifled the credit creation process since the government has become the biggest player in private financial markets and hence crowding out domestic borrowing customers. This is very detrimental to the growth of any economy.
Going into the future Zimbabweans need to tighten their belts and adopt a massive austerity programme premised on “eating what we hunt” as we try and contain the already ballooning national debt currently at over $14 billion.
The budget and public debt management framework should be such that all debts that the government contracts are subject to parliamentary oversight and the resources channelled to critical economic sectors that produce the maximum impact to our people and society.
In conclusion our unity of purpose and hard work going forward will be very crucial to the revival of Zimbabwe’s economy.
Let good times roll!
Richard Mawarire is Head of the Economic Research Cluster of the Young People’s Dialogue (YPD), a think tank of Young Professionals passionate about their country, Zimbabwe. He can be contacted on [email protected]
