Before FDI, State should be a good investor

02 Feb, 2018 - 00:02 0 Views

eBusiness Weekly

A poor track record only satisfies partisan economics

Chris Chenga
The new administration of President Mnangagwa must proceed with careful caution. It must avoid hastily proceeding into a new dispensation, giving into the temptation of chasing popular goodwill. With supposedly less than six months until very consequential elections there is a temptation, naturally, to give into the wishes of as many different stakeholders as possible.

This would be risky politicking considering that in any transition where diverse stakeholders have heightened expectations, responsibility and honesty by those in power are at their most needed, unfortunately often at the expense of making everybody happy.

It is only less than 90 days since the last administration in Zimbabwe, so while the governing administration may have changed, many of our societal dynamics and habits have not, especially intellectually.

Our public discourse today remains largely influenced by politically charged economic conventions. Conventions such as FDI, business friendly environment, indigenisation, State enterprises, structural reforms, white farmers, and the expectations behind these conventions are largely still perceived politically. This is not to say that whatever positions currently held on economic conventions by different stakeholders are wrong; but the perceptions behind them remain inheritance of a polarised political culture in Zimbabwe. Economic conventions were conceived and tenaciously argued along partisan ideological rhetoric.

For example, this is why when President Mnangagwa says his wishes to engage the whole world, not just the East, many stakeholders interpret such a stance as belonging to an identified brand of opposition politics. Or when structural reforms are advised no matter their pragmatism, many stakeholders interpret such a position as conceding to imperial subjugation, a pillar with strong partisan identity.

Economic conventions in our public discourse had become monopolised by partisan positions. In fact, any suggestion of whichever economic outlook meant the proponent of such thought was vulnerable to partisan support or ridicule.

This is why on matters such as bond notes for instance, financial institutions and banks, independent think tanks, or academics had no space to offer empirical appraisal respected in public discourse.

The matter was addressed along partisan grounds. Such was the political climate less than 90 days ago; no room for the empirical validation of economic conventions.

So, before the new administration proceeds to satisfy the expectations of different stakeholders, it would be responsible and honest leadership to place our economic mindsets back to appreciating empirical validation.

Conventions such as FDI, business friendly environment, indigenisation, State enterprises, structural reforms, white farmers, must all be perceived from a fresh pragmatism and empirical credibility. Consider the matter of FDI. It is a good matter to highlight how conventions had drifted from empirical validation, and had become highly conceived from partisan understanding.

As Zimbabwe’s consistent narrative is now “Open for Business”, FDI (read as private investment) is at the forefront of all economic conventions. However, the question is yet to be asked as to the role of the State in investment? In fact, many superficial perspectives believe that government should minimize its involvement in business altogether – especially pointing to the failure of public enterprises, the corruption and rent- seeking that chose undeserving winners in respective sectors, and an overall lethargic attitude by government to inspire innovation and dynamic business.

Concededly, these real occurrences did diminish the case for the State in business, let alone investment. However, these flaws were of a defective political culture. It should not mean that State involvement in investment should be debunked entirely from investment. From a contesting partisan perspective it may be credible to do so, and to the current administration, it would seem sound strategy to minimize State involvement in business and open up the economy to liberal extent.

I would argue, however, that such a convention would risk the economy’s capacity for enhancing innovation and developing social welfare. It is the role of the State to ensure improving welfare amongst citizens and that there is improved business innovation amongst citizens.

That means that the State must lead investment, not necessarily private investors who understandably simply seek out profits. In a book titled “The Entrepreneurial State: debunking public vs. private sector myths” written by Mariana Mazzucato, the author argues that the private sector only finds the courage to invest after an entrepreneurial State has made initial high-risk investments. She gives credible empirical evidence as to how private investment in the developed world, particularly in the IT sector was facilitated and subsidised by public investment creations such as the internet, touch screen technology and GPS. She argues that companies such as Apple and its eastern peers were all beneficiaries of active public investment. In agreement with this sentiment, there are two examples in Zimbabwe where we should expect little from foreign private investors before demanding more investment from our own State.

Consider the media sector. There were high expectations for Kwese TV to stimulate the media industry by investing into content development and broadcast infrastructure. In fact, many sector observers and participants themselves suggested Kwese was a welcome structural alternative to the ZBC. Indeed, attentive to public perceptions Kwese TV did utilise a marketing campaign that hinted at satisfying these expectations.

However, such a convention of private investment is incorrect. It is a wrong economic convention. It is not a Kwese TV (private investment) mandate to develop a sector. That is the purpose of a public entity such as the Zimbabwe Broadcasting Corporation as an entity that is financed by public capital. Unless in the instance of local procurement laws for content creation and broadcast, the capital financing Kwese TV has no obligation to function outside of justification for profits and subsequent dividends to private investors.

That means that public investment is the only investment in which we should expect a capital starved sector to start creating local studios, production infrastructure, and content creations ventures. It is public investment that is accountable for stimulating these activities; for instance this is why there is a public mandate to pay a TV license.

In similar support to public investment, the currently popular sentiment to sell-off state enterprises is incorrect. It has become unfashionable convention that State enterprises are an economic necessity, but in her aforementioned book, Mazzucato argues that in the history of modern capitalism the State has not only fixed market failures, but has also actively shaped and created markets. This is the most important reason why the new administration must not give into the fad of selling off state enterprises. The Grain Marketing Board, ZimPost, Agribank, and other sectorial participants do not only exist for capital returns, but they are market shapers.

Last week, many stakeholders read that GMB made a $2 million loss, and referenced that as evidence that the entity should be privatised. But that is a misinterpretation of why State enterprises exist and their economic mandate. GMB can take on that loss on condition — even if it is passed onto taxpayers — if ultimately that loss was justified in stimulating the grain sector through an input and pricing subsidy to local farmers. There is fiscal justification for such an occurrence, but moreover, there is a market structure justification for such a State enterprise. Private capital was not going to stimulate the sector by subsidising farmers with inputs and a higher buying price.

Here is another point to note: to many astute private investors, the sentiment to sell off state enterprises can be perceived as lazy, and reflective of an incompetent culture within the State itself. If an administration cannot enforce efficient and competitive governance structures within economic entities financed by taxpayers, then how is that administration supposed to enforce efficient and competitive market regulation for private entities financed by private capital?

Indeed I have just mentioned one economic convention, of FDI (private investment), in which the new government is susceptible to giving into. There is pressure to reduce State involvement in investment. Yet, while there is partisan evidence to motivate such a convention, it lacks empirical validation. It is easy, however, for the new administration to take a passive stance and hope for private investment to lead. That would please many stakeholders who have recent defective State memories in mind. But for a new Zimbabwe that is going to seek the empirical validation of our economic decisions, we should be pushing the mantra: before FDI, the State itself should be a good investor!

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