Sustained growth will double economy

14 Jan, 2022 - 00:01 0 Views
Sustained growth will double economy

eBusiness Weekly

Zimbabwe’s economy is now growing fast, even if there is likely to be some minor argument over just how fast, and everyone agrees that this growth can be sustained, which is something new and in many ways far more important than just decent growth in one year.

Both points are critical. In the past we have gone through cycles of busts, followed by a minor recovery and then a new bust. We have not had that steady annual growth year after year that moves a country in the middle-income categories and then further.

Last year saw significant growth. The Government was predicting 7,8 percent although as yet it has not given its final figures. The World Bank has come forth early, with 5,1 percent, considerably more than the 3,9 percent it had written down early in the year as its best guess. The World Bank is notorious, or renowned, for being very conservative when it makes its predictions.

More importantly this conservative institution is predicting continued rapid growth for this year and next year. The estimate for this year is 4,3 percent and for next year 4,2 percent. The Government is looking at an extra percentage point. But the critical factor is that we are looking at three continuous years of real serious growth and that means we keep building on what we have already done, instead of worrying about “recovery” from the latest set of disasters.

It is this continuity of the growth curve that is so important. A country managing 4 percent a year for a decade, will be 48 percent richer at the end of that decade. At 5 percent a year the decade gives 62,9 percent, at 6 percent a year the decade is 79,1 percent, at 7 percent you hit 96,7 percent.

The 5,1 percent measured by the World Bank if sustained for a decade would make the country 64,4 percent richer. If we could manage just under 7,2 percent a year for a decade we would double the country’s gross national product.

Even on the World Bank figures for last year and its prediction for this year and next year give us 14,2 percent growth over the three years, and that is strong growth.

Since independence Zimbabwe has missed on the sustained growth, year after year, decade after decade, that is so important for moving a country from poverty via middle income affluence to developed status in a couple of generations.

Instead we had a recovery-driven boom, followed by a plateau, followed by a slump. And we went through that cycle four times.

Early independence was the recovery driven boom. The liberation war had shut down a good slice of the economy and just re-opening everything, without adding much, produced a boom. Unfortunately the decision was made to keep the exceptionally high level of control of imports and investment, along with high taxation levels and a tendency to sneer at incoming investment. And along with all of this we had that relentless deficit budgeting that so bedevilled our financial systems for so long, stripping the productive sectors of access to finance as we in effect imposed an extra tax to fund Government consumption.

So the economy quickly plateaued. The UDI-era mistake, of assuming no one should have to recapitalise their operations or replace technologies, continued without even the excuse of economic sanctions. This meant that in many cases factory managers, back in contact with their suppliers, were waiting for the second last installation, somewhere in the world, of the type of equipment they used to be replaced so that some very second-hand spares were available.

As with all centrally-controlled economies the wheels eventually came off.

So we then tried ESAP, a fine idea rather badly administered. Instead of pumping increased funding into capital investment and opening up the productive sectors to increased investment, instead of maintaining that idea that private ownership of new factories was a “bit off”, we instead opened the consumer sectors and spent the money on imports of consumer goods.

In retrospect we would have been a lot smarter to have cleaned up the productive sectors before submitting them to competition. Everyone agreed that by the 1990s Zimbabwean industry was not the most efficient, and far too many industrialists had worked for all their working lives in an environment where people either bought their stuff or went without. But the switch was in the wrong order.

However we soon spent the extra money we had borrowed, and were pretty much in the same place. We went through the next crash, and some still talk about “Black Friday”, because we were stressing consumerism rather than production. The controls were in the wrong place. That cash became worse when, having borrowed to the maximum, the Government went down the side road of printing money to meet ever rising expenditure, until reached world records in hyperinflation and had crashed our economy.

There were some good reasons to dollarise. At least it started some sort of recovery. But that recovery was even more than the ESAP one built on imports and consumerism. So it plateaued rather quickly and far too many people saw it as a way to maintain at least some sort of economy, which considering the continued lack of fiscal discipline in those days had some justification. But it killed growth.

At the same time an indigenisation policy cramped investment severely. There was, almost from independence, a degree of transferring ownership of assets rather than building and growing an economy rapidly. The colonial-settler mess was serious, but the white population was largely transitory, not as much as in the protectorates, but hardly embedded like the South African Afrikaners. In fact three quarters pushed off in the first few years, reducing the percentage to below one percent of the population.

The land issue should have been split from the rest. Land is a finite natural resource and having half the arable land, and the better half in general, locked into large and seriously undercapitalised estates was hardly good economics, regardless of the racial factor. In retrospect land reform should have been applied a lot more seriously far earlier and the programme run over more years. White farmers did not help, rejecting advice within the white community that they should work out how to convert land into capital and switch to exceptionally highly-capitalised far smaller farms. If that had been done we would have ended up with much the same situation as we now have, but perhaps with say 5 percent of the A2 farmers being the former estate owners, a sufficiently small minority not to matter.

The rest of the business world was not constrained by the critically finite resource, which was eventually recognised. As has happened, while the minority businesses still exist in a growing economy they become an ever smaller percentage. The present rules, which stress citizenship or at least permanent residence, when it comes to smaller businesses are far more akin to the immigration rules common throughout the world. A huge foreign investor can get a residence permit, but someone just drifting in with empty pockets cannot.

The present growth seems to have avoided most of the errors of the past, and that is why it can be sustainable. Fiscal discipline means that there are no secret near-taxes or printing of money to fund Government activity, and that discipline extends to the rising budget percentage spent on capital development. That was a critical starting point.

Secondly investment is seen as a positive good, in fact a very serious positive good. If you want to spend a lot of money opening a mine or factory in Zimbabwe the red carpets are rolled out, and so long as you pay your taxes and follow the labour law you are considered an asset, not something that may be tolerated in a push.

This stress on investment, Government infrastructure, expanding local businesses and welcomed foreign investors, is something that the World Bank picked up on, with particular stress on the Government investment in energy, roads and the like. It is that sort of thing that makes growth sustainable.

Thirdly the growth has been spread, and that is important for the medium and the long-term. There are good political reasons for spreading wealth and supporting the poor. But economically the benefits are huge when you use production by the poorest to boost growth. For a start the growth is faster, but secondly you are creating the local markets that continued economic expansion requires. The rural development policies now being pushed are a central factor in the growth we are seeing.

Simply converting money once spent on food relief and social payments to providing seed, fertiliser and guaranteed markets to those physically able to produce their own food and sell surpluses is a far smarter way of spending taxes, and the growth such programmes generate increases the taxes, even if it only VAT from the businesses who are supplying the new customers.

With sustained growth year after year, the actual change in a single year may not be dramatic. But even just averaging 4 percent a year means that a baby born this year will, when they enter the economy in 21 years time as they leave tertiary training be entering an economy, be well over double the size, in fact 127 larger.

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