eBusiness Weekly
Clifford Shambare
Our current economic challenges have caused every Zimbabwean to be extremely worried by this predicament. As a result, everyone is talking about the matter these days. The type of comments coming from them depends on how people at different levels see the matter.
It appears that their views depend to a large extent, on how close one is to the media and how often they purchase whatever it is they will be purchasing. To those who are less connected to some form of media, who buy goods less frequently — prices are rising continually.
To the analysts and those closer to the media, who do their purchasing more frequently, the picture is clearer. They can see that at one time, prices stay stable for periods ranging from two to three weeks, then they rise again. The last spate of price rises was around the end of February and the beginning of March, 2020.
In regard to this matter, the Business Weekly is keeping track of the price/inflation trend.
To illustrate the economic complexity of our time, during my informal research on the matter, I have come across no less than 23 sources of our challenges as expressed by both ordinary citizens and experts in various fields.
Here are the main ones:
Manipulation by some political entities to make the current Government unpopular with the electorate.
Economic sanctions on Zimbabwe by the US and the EU.
Oversupply of money by Government through the issuing of Government bonds.
Too high a level of domestic and foreign debt.
Manipulation by a certain clique, for purposes of profiting from the situation.
Rampant corruption in the country.
A shortage of foreign currency specifically, the US dollar.
Manipulation by Old Mutual using its fungible stock.
Inadequate foreign reserves.
A redundant manufacturing sector with obsolete machinery.
Deficient energy supply system.
Too much dependence on commodities to earn foreign currency.
More imports than exports, resulting in a negative trade balance and consequently a negative current account balance.
Incessant droughts.
No clear and effective agricultural finance support systems.
Underdeveloped value addition strategies.
Poor monetary policy and poor management of same, by the RBZ.
Vacillation by government regarding monetary policy.
Uncooperative banks.
A political leadership that is indecisive on many economic issues.
Lack of unity of purpose among citizens.
Too high an expectation to be rescued by foreign direct investment with minimal local investment.
Internal use of a basket of foreign currencies specifically, the US dollar.
On considering all these reasons, I find each of them to hold true to a certain degree. So I feel the challenge here is to decide which ones are more critical than others.
And looking closely at all of them, one can discern the cause and effect relationships among them. Here are some examples:
Low levels of foreign currency reserves are a result of too much dependence on the export of commodities and too low, a level of value addition.
A redundant manufacturing system is either as a result of, or made worse, by a poorly operating energy supply system, among other reasons.
Frequent droughts, unclear agricultural finance support systems and uncooperative banks, are all interrelated and acting together; the result is a domino effect on the economy.
Naturally, when faced with such an overwhelming situation, the normal reaction by any sensible person is to rank the above-mentioned challenges in order to prioritise them so as to effectively solve the main challenge — that of an ailing economy. However, to my mind, this approach may not work here because of the complexity of the situation. So the challenge here is to decide where to start from.
But I feel that in order to enable us to effectively deal with our situation, we need to first do some sort of SWOT analysis of our case. If we do this we find that our strength lies in the expertise of Zimbabweans in monetary analysis and the management of the same aspect(s).
Our major weaknesses
When it comes to identifying our major weakness, I have two suggestions. One of them is that, we as the indigenous, have never had the experience of running an economy and we are not doing a good job of taking over the reigns of same. This is a reason most of us are unwilling to admit and/or accept.
This situation creates its own challenges in that, as a result, we misdiagnose the malady and consequently fail to formulate effective strategies to solve the said challenge(s).
The other is the Caucasian element that is locked in our midst. This is an element that is complicated in that it has two faces, one as local investment, and the other as FDI.
This is a critical issue when it comes to such aspects as foreign currency dealings, capital and profit transfers, transfer pricing practices, as well as the C-Trade between Zimbabwe and other countries particularly, Western ones.
But do not get me wrong here, I am not implying that the Caucasian element is undesirable in this country. After all, even if some of them want to have a dual citizenship, they only want to use is as a safety net. But otherwise, a good proportion of them have opted to remain genuine citizens of this country.
However, I feel they could relate with this economy in a more sustainable way than is presently the case. And of course, the onus is on us as indigenous to create conditions in which this is possible. Smart partnerships are one of these ways. In this case, refer to my article “Demystifying the power behind FDI”.
As far as weaknesses go, it is a known fact that knowing them is the first step towards finding a solution to one’s problems.
As far as opportunities go, I have the following suggestions: We should turn around our perception of the persecution we are currently experiencing from our foes, into an opportunity to strengthen our resolve to own this economy.
This condition is akin to being weaned from our reluctant mentors, so to speak. In going through such a process, we should appreciate that being weaned is a painful but necessary experience.
In this respect, I know that we admire our African compatriots’ currently high economic growth rates. But have you ever asked yourself how much of those economies the indigenous own, because this is important for posterity?
In this case, the threats to our goal of eventually owning this economy are ironically, some of us. These are people who are going into “partnerships’ that are not smart. And there are many of these in the agricultural industry.
Going back to do a closer scrutiny of our situation, we find that in order to make any headway towards achieving any degree of success towards full economic resuscitation, we need to adopt both approaches, one long term the other, short term. So it becomes a question of how to handle each aspect without losing sight of the others.
Be that as it may, I believe there is a strong case for using both approaches concurrently because of the complexity of our situation accompanied by the challenges associated with the rapid movement of time.
On the other hand, I believe we cannot solve Zimbabwe’s economic challenges in isolation — particularly of the other African economies. This position is supported by the goals of the AU, as well as the success of the EU — an organisation that has its own challenges, but has still been largely successful.
A cursory analysis of the continent’s economic challenges reveals the fact that their root cause lies in those economies’ shallow capital asset bases and their low technological level of development, all resulting in low economic outputs as compared to say, the developed and emerging economies.
And in order to have a better picture of the implications of such a situation, let us consider Zimbabwe in the context of some African economies using the GDP per capita, the debt per capita and the debt to GDP ratio indices.
Zimbabwe’s GDP per capita for 2017 was US$1 019, Zambia’s US$1 509, Tanzania’s US$1 500, Nigeria’s US$1 968, Kenya’s US$1 507, and South Africa’s US$6 160, for the same year.
The indebtedness of the same countries as measured by debt per capita is as follows: Zimbabwe US$1 079,Tanzania US$357, Nigeria US$500, Kenya 865, Zambia 950, South Africa US$2 670.
Debt to GDP ratio (2018): Zambia 78,11 percent, Zimbabwe 95 percent, Kenya 60,15 percent, Nigeria 30 percent, Tanzania 37,29 percent, South Africa 56,71 percent.
However, these statistics do not tell us the whole story since there are aspects of economic sanctions (Zimbabwe) interest on debt, and debt forgiveness (Nigeria and other African states) to take into account in such an analysis as this one. Nonetheless, they are still useful here.
However, overall, these conditions have a strong bearing on how well these economies can control inflation and currency exchange rates. As a result, if we look closely into these same economies, we find them to face the same challenges of weak currencies which I believe are a result of weak economies with equally weak manufacturing bases.
(Here, South Africa is a bit of an anomaly, so we can leave it out of this analysis.)
In the developed economies, where the economies have strong asset bases, are vibrant, there is relatively less corruption, and the banking systems are functioning normally, they do not have much challenge dealing with inflation which they control mainly through the manipulation of interest rates. In those environs, they are unnerved by seemingly excessive money supply which they term quantitative easing.
This is the case even within the EU with its preponderance of struggling economies for such countries as the PIIGS and such relatively small eastern European economies such as Georgia, Estonia, and others.
These are conditions that countries like Zimbabwe and Nigeria do not have, hence their current serious exchange rate challenges.
At this point, I believe we can now see that in the case of Zimbabwe, all those maladies that are expressing themselves through uncontrollable inflation, an unstable exchange rate and an overall monetary policy dysfunction — what I term “the trees” in the title of this piece — are a result of a poorly structured economy, ‘the wood’. This a wood that is moreover, being poorly managed in the present period.
If we appreciate this fact, we also begin to appreciate the fact that in order to realise any meaningful improvement, our economy needs to go through a deep structural change — a sort of metamorphosis — in the not so distant future.
At this stage, let us clarify what factors make up the structure of an economy. To put it simply, the structure of an economy is normally divided into primary, secondary and tertiary industries.
Looking closely at African economies — Zimbabwe’s included, we find some common pertinent anomalies embedded in them. Again, South Africa is a bit of an exception in this case, but as I have pointed out before, that economy still has quite a few characteristics of underdevelopment lodged in it.
The said (other) African economies’ secondary industries are not yet developed. To get to that stage, they need to be industrialised. And this is proving to be a tall order for most, if not all, of them.
Clifford Shambare is an agriculturist cum economist and is reachable on 0774960937.
