eBusiness Weekly
Luke W. Gumbo
Generating rapid sustained economic growth in Zimbabwe remains one of the most pressing challenges to development. Zimbabwe has averaged an annual nominal growth rate of 5,66 percent in the last 10 years to 2018. The variability of these annual growth rates over the intervening period (lowest 0,6 percent in 2016 and 11,9 percent in 2011) would indicate susceptibility to external shocks and the rather tenuous foundations upon which much of this growth has been achieved. Indeed 2019 growth projection by IMF is estimated to come in at a negative 5 percent reflecting the numerous headwinds the economy is under siege from.
In view of attempts at generating ambitious growth rates it would be instructive to look at other country growth models and history. The first salvo would be to debunk the common tendency of analysing by reviewing nation states like Singapore, Luxembourg and Hong-Kong which are really offshore financial centres though Singapore and Hong Kong also possesses shipping hubs. Offshore centres are not normal states.
Around the world, they compete by specialising in trade and financial services while enjoying lower structural overheads than other countries, which have larger, more dispersed populations, and agricultural sectors that drag on productivity. Offshore centres’ lower overheads mean that they also have a built-in fiscal advantage. Yet they can never exist in isolation, they are in a sense parasitic, because they have to have their host or hosts to feed on. They act as facilitators and aggregators of global trade. In the global village one could contend that such economic models remain relevant, but for countries like Zimbabwe and much of sub-Saharan Africa, the economic model will not work.
But other Asian economic growth models can provide some insight into how countries like Zimbabwe can achieve rapid economic transformation and growth. China’s economic growth and its capacity to move in thirty years from underdevelopment and extreme poverty to an emerging global economic power had attracted the attention of many developing countries, including those like Zimbabwe. China’s economic growth has been miraculous: its annual GDP growth averaged 9,9 percent over a 30‐year period since 1979.
In 2010, China’s GDP growth reached 10,5 percent and accounted for one‐third of world growth. While Africa’s growth averaged 5,2 percent between 2000 and 2013, China averaged 10 percent.
Though China’s growth has recently witnessed some decline (the escalation of trade wars with USA not withstanding), its level is still stellar, especially at a period advanced economies (especially those in Europe facing sovereign debt crisis) are not only struggling but also have a pessimistic outlook. For China, studies have shown that the key factors driving its economic growth have been domestic investment, trade openness, initial income, and rural share of the population.
Factors driving down China’s growth have included inflation rate, domestic credit to the private sector, net official development assistance inflows, population growth, telephone density, and oil and agricultural and raw materials prices. In contrast much of Africa economic growth has been driven by domestic investment, net official development assistance inflows, education, government effectiveness, urban population, and metal prices.
Africa is almost twice as open as China, without reaping the same dividend relative to China pointing to the suggestion that openness does not positively and significantly affect Africa’s growth, unlike in China and that openness is sectorially strategic and not to be implemented economy-wide.
Zimbabwe, (trade deficit for 11 months to December 2018 stood at US$2,4 billion) much like Africa imports (mainly consumer goods) more than it exports while the reverse is true for China.
Moreover, the structure of the country’s exports is biased towards traditional primary commodity exports accounting for over 80 percent of our export receipts, unlike China that has rapidly shifted towards manufactures.
In addition, Chinese domestic investment is about double that of Africa. It is these policy nuances and economic objectives that give rise to differing economic trajectories experienced by both China and Zimbabwe.
But in reality China’s growth model while possessing strong components of export driven strategies was also underpinned by possessing a large resident population in excess of 1,4 billion people. This allowed it to build its growth model on a more diversified platform of growth drivers than would be the case for countries like Zimbabwe. In this regard, a look at other Asian countries like Japan, South Korea, Taiwan whose populations are more modest might be more beneficial. These countries basically adopted a 3-phased strategy whose implementation was in many respects simultaneous and not just sequential.
The first phase was to maximise output from agriculture, which employs the vast majority of people in developing countries. Successful Asian states such as those mentioned before have shown that the way to do this is to restructure agriculture as highly labour-intensive household farming. This makes use of all available labour in a poor economy and pushes up yields and output to the highest possible levels, albeit on the basis of tiny gains per person employed.
This strategy is quite relevant in view of the land reform programme and the low productivity of the larger A2 and commercial sized farms. The overall result is an initial productive surplus that primes demand for goods and services.
The second intervention is to direct investment and entrepreneurs towards manufacturing.
This is because manufacturing industry makes the most effective use of the limited productive skills of the workforce of a developing economy, as workers begin to migrate out of agriculture.
Relatively unskilled labourers create value in factories by working with machines that can be easily purchased on the world market.
In addition, in east Asia successful governments pioneered new ways to promote accelerated technological upgrading in manufacturing through subsidies that were conditioned on export performance. This combination of subsidy and export discipline took the pace of industrialisation to a level never before seen.
Finally, the third is in the financial sector where policies enacted must encourage financial intermediaries to focus capital on intensive, small-scale agriculture and on manufacturing development. The state’s role is to keep money targeted at a development strategy that produces the fastest possible technological learning, and hence the promise of high future profits, rather than on short-term returns and individual consumption.
This tends to pit the state against many businessmen, and also against consumers, who have shorter strategic horizons. But the medium term dividends reaped are worth their weight in gold and in generating sustainable rapid growth rates. In this event Government concern will then also drift to ensuring that this growth is equitable so as to ensure the buy in of the country’s population.
A more detailed study of these underlying drivers would lay bare that the conditions for similar growth in Zimbabwe presently obtain and with sufficient will and strategic planning the 2030 vision of achieving middle class status for the country is attainable.
◆ Luke W. Gumbo is an economic and financial analyst. His views are personal and in no way represent any of the institutions he is associated with.
