eBusiness Weekly
Clifford Shambare
I normally go over my articles quite a few times after they have been published. This approach helps me to introspect on the issues that I will have covered, particularly if they are as sensitive as the last one of the week September 18-20 2019. I have always believed that like gratitude, sensitivity is a sign of one’s level of intelligence. And it has been my experience that Zimbabweans are some of the most sensitive people in Africa today.
However, not all forms of intelligence are beneficial to mankind in general. For example, my former English teacher at Thekwane, Peter John Collingwood, used to quip; “Mischief is misdirected intelligence”. Does this statement remind you of someone you know, or used to know?
Why am I saying all this, you may be beginning to wonder? Like I alluded to in the first instalment of my previous article in this paper, if you don’t know your history, you will be likely to get lost on your way in life or in trying to achieve your aims. It is this reason that compelled me to say what I said and how I said it, in that article. It is for the same reason that I am not ignoring our history here.
However, for the sake of diplomacy, I am going to tell my story without being as blunt as I was last time when I may have sounded a bit insensitive to the feelings of the local business fraternity!
I said then, that in the next article, I was going to continue along the lines of my original objective of analysing the nature and form of the economic challenges bedevilling this country. After reading the heading of this article, you may be wondering what I am driving at by it; so here is it. If you look closely at the Zimbabwean situation, you begin to realise that as the situation stands, the probability of this economy prospering is quite high. The fundamentals are said to be satisfactory. And yet for some reason, another problem rears its ugly head from the blue. Here we have a doggedly stubborn inflation that is rising inexorably. To find the real reason why this is happening is proving an uphill task for the authorities, assisted by experts in this field.
Personally, I feel that theoretically, it should be reasonably easy to deal with our inflationary challenges but practically, it is proving almost impossible to do so, Why? To me, the only possible reasons have to do with our attitude as well as our failures in sorting out certain areas of the economy.
That said, my aim in this article is to explore certain negative trends, why and how they are preventing the achievement of an economic breakthrough in circumstances where this seems to be just round the corner.
Quite a few (apparently) easy answers are available here. One of them is the current economic sanctions imposed on the country by the US in 2001 while the other is the perceived “economic mismanagement by the ZANU-PF administration.” But there are complications embedded in both of these reasons.
As far as the first one is concerned, up until very recently, a sizeable proportion of Zimbabweans believed that economic sanctions did not exist in this country. Today one would have to do a proper survey to establish the true situation on the ground as far as this thinking is concerned. Be that as it may, these people had, and still have their reasons for thinking this way.
Some are ignorant of the issues involved. Others are being insincere in their perception and judgment of the same issues. And yet others are in a state of denial of the fact. But whatever the reason, these sanctions that are intertwined with dysfunctional politics — are hampering the economic progress of this country in a no mean way. As an illustration of this fact, it is estimated that the country has lost around US$ 44 billion since they were first enacted 18 years ago. This works out at US$2,4 billion and 14,38 percent of GDP, per annum. For a developing and relatively poor African country such as Zimbabwe, this is too much money to lose!
The second reason is much more fascinating than the first one since it is loaded with contradictions which I am going to elaborate on. To begin with, the Mugabe-led Government has been responsible for many improvements in the economy since independence in 1980. These are reasons that anybody in their normal senses, could not deny if they knew this country’s history well. These improvements have been in the areas of education, health, technology, general infrastructure and energy development, among the major ones. For example, Zimbabwe’s rural electrification status is one of the best in the whole of Africa today.
Moreover, although some spoilers have been trying to claim otherwise, it is generally agreed among Africans, that Zimbabwe has the highest literacy rate in Africa and is in the top tier in this respect in the whole world today. So it cannot be completely true to say the Mugabe administration bungled things right trough to its end.
As far as the Mnangagwa administration — another phase of Zanu-PF rule — is concerned, it is too early yet to make a valid judgment on it.
That said, most of us do not seem to appreciate certain pertinent economic phenomena, events and processes that have led to the country’s current economic demise. So let us tease them out here also. First of all, we need to understand how capitalism functions and what makes this system tick. Capitalism is essentially about capital ownership. This ownership can be expressed in a number of forms, the most commonly known and understood of them being company shares, otherwise known as equities, and bonds. And looking at Africa’s history, one finds that the continent has not had, or has not been, a capital base since her states became politically independent — that is, from the end of the continent’s colonial period in the late nineteenth century, to date.
During this whole period, African economies have had to depend wholly on Western capital for economic growth and development. Consequently today, most Africans (Zimbabweans included) believe that all capital comes from the West — in this case the Breton Woods institutions. This mentality itself, is some kind of psychological prison.
Meanwhile, the perception of Africa in the same West, is that it is a risky market to invest in. And in this case, the most feared risks are political, and default risks. As a result they sarcastically, almost cynically — refer to it as “an investment jungle”. The heavily indebted poor country (HIPCS) status of most African counties lends credence to such a perception.
This negative perception has two major (negative) consequences. Firstly, the lender loads the continent’s debt with a risk premium that makes the resultant borrowings expensive; in most cases they become almost prohibitive.
Secondly, the market limits the lending options to specific bonds such as Government guaranteed infrastructure development bonds. This is not to imply that infrastructural development is a bad thing, it just means that under these conditions, Africa’s private companies will not be able to borrow as single entities and so the companies involved will not grow.
This is a situation that in turn, hampers the process of economic empowerment for the Africans in general. This condition results in a vicious circle in which this lack of emancipation results in a continued dependence on the West for capital.
At this juncture, I know you are asking; so what is the way out of this quandary? The easiest answer here is to call in FDI; and why FDI and not portfolio investment through the C-Trade? You see, although these two options constitute a type of investment, there is quite some difference between the two in terms of what each entails and what it is able to do, or achieve, especially with regard to the economic emancipation of those involved. FDI brings everything — that is money, machinery, skills (except labour and most probably, also raw materials) — into the host country.
So it seems the easy option to take, but beware! It also takes out a good chunk of the profits through the repatriation of same. This is so in spite of the payment of corporate taxes, which most of the foreign direct investors make strenuous efforts to negotiate down with the host government, anyway. So it takes an astute government to deal with such situations; and many developing country governments, particularly African ones — baulk at the prospect of standing up to a powerful FDI when negotiating for decent corporate tax rates!
This is the reason why Matthew Picketty describes FDI as “a slow poison”. You see, in most developed and emerging economies, FDI should be and actually — is (a) two-way traffic, but in Africa it is (a) one-way traffic. This situation does not bode well for the continent’s economic emancipation or even just growth.
So the question still remains; what should the Africans do about the matter? The easiest solution here is to create their own capital, but how, is the question? Here the answer is not that simple in practice but in theory it is. They should form their own capital market/ base. At this juncture, another question arises; What capital components does the continent have and which ones does it not have at the moment?
It has land in abundance and most natural resources are also available in abundance on the continent. The human capital aspect is interesting in that labour is abundant but skills are not. Social capital is not that abundant since there is a dearth of the others; this is because a community that is poor in most respects cannot mentor successful entrepreneurs.
That said, the way I see the matter, Africans should endeavour at all costs, to make capital goods, starting with a machine that makes other machines — that is a machine tool. They should then proceed to join other countries in manufacturing and trading in such capital goods. This is the route that the emerging economies such as the BRICS countries — that is, China, Brazil India and South Africa — have taken in their quantum leap to the top.
In this respect, South Africa’s case as an African country, proves the point well. It is an interesting country in a number of ways. Its capital is not wholly African, but a hybrid of the former and the European one. And like all capital the world over, it has a racial element embedded in it. Not only that, it also has a tribal element in it in which the Afrikaaners and the English are the major tribes.
However, these two tribes have adapted in such a way as to be able to accommodate each others’ interests well in spite of the initial tiff — a tiff that is well described in Oppenheimer and & Son. At a higher level, there is a latent distinction between the African and Anglo-Euro-American capital systems. This is a somewhat fragile relationship whose fragility has been manifesting itself through the recent threat of withdrawal of investment from that country by the Western trio, just before the South African elections of 2019.
That said, the West is not keen to have Africa move that far up the economic development ladder.
The following quote from Michael Oppenheimer, professor of geosciences and international affairs at Princeton University proves this assertion; “The only hope we have for the world is that there is not another US. We can’t let other countries have the same number of cars, the same amount of industrialisation we have in the US. We have to stop these third world countries right where they are.”
In this respect, also consider (Dr) Ouzo, the Nigerian’s motor car model case.
Zeroing in on Zimbabwe in this respect, we find that so far, the effort of the country’s indigenes to become fully fledged capitalists still leaves a lot to be desired. Put in another way, black Zimbabweans are reluctant or pseudo capitalists in the current era although they want to feel otherwise. It is for this reason that I intend to revisit this issue if I get the chance to do so.
Clifford Shambare is an agriculturist cum economist and is reachable on 0774960937.
