Which way for Zim economy?

via Which way for Zim economy? – The Zimbabwe Independent February 27, 2015 by Webber Chinyadza

ZIMBABWE has seen a plethora of economic statements since Independence, starting with “growth with equity” in 1980 to the current ZimAsset adopted in 2014.

The policy pronouncements express the desire to, among many objectives, accelerate the process of post-war reconstruction; engender sustained economic growth; redress social imbalances; expand employment opportunities and job security and empower the indigenous people of Zimbabwe.

Zanu PF was in July 2013 ostensibly elected primarily to spearhead the attainment of the above objectives.

Yet the brutal truth is that the economy has regressed seriously as epitomised by the contraction of GDP in constant terms to figures well below the 1982 levels; labour shedding has gathered momentum throughout the three decades reaching alarming levels during the land reform era that started around 2000 and beyond; serious trade deficits continue to haunt the economy as national output plummets; gross fixed capital formation and the savings – GDP ratios decline persistently reflecting the adverse impact of low investor confidence in the economy; and the gross national savings as a percentage of GDP which registered 28% in 1995, has dropped to a low of 5% in 2001 and then to 0% in 2006.

This compares poorly with similar statistics achieved in the region with Mauritius averaging 24%, Kenya at 15,8%, Namibia at 31%, Uganda at 16,7% and Zambia at 9,8%.

The effect of the poor macro-economic performance discussed above led to the unrestrained deepening of poverty in Zimbabwe.

Studies show that in 2003 72% of the population was living below the total consumption line (TCPL) compared to 55% in 1995. This implies a 30% increase in the incidence of poverty in Zimbabwe then.

It is safe to say that the current situation is worse off in view of the regression in economic performance after that date. Yet the Millennium Development Goals targets required the percentage of the population living below the total consumption line to be reduced below 36% by 2015.

Furthermore, real wages have dropped significantly from an index of 119 achieved in 1982 to 10 in 2003.

When the impact of the economic meltdown is factored into this, the percentage of population living below the total consumption line can only be well below the 2003 levels.

Collapsing incomes and the deepening poverty cited above translated into low levels of effective demand for goods and services leading to serious under-utilisation of existing factory and shop capacities. This has adversely affected business viability leading to the unprecedented volume of company closures.

It must be pointed out that the Government of National Unity (GNU) temporarily arrested the free fall of the economy leading to the taming of inflationary trends, increased availability of goods in retail and wholesale outlets and the improved industrial capacity utilisation. As a result, GDP grew at of 5,7% in 2009, 8,1% in 2010. It is estimated to have grown by 4,5% in 2013 but this growth started to fizzle out again after 2013.

Collapse of the economy

Myth of economic sanctions

The statistics discussed above show that the economic decline of Zimbabwe started in the eighties. However, the free fall of the economy only gathered pace at the turn of the century. In view of this, it is wrong to suggest that sanctions were the main cause of poverty in Zimbabwe. But sanctions or no sanctions it is the prime responsibility of government to husband the economy in a way that averts economic destruction whatever the cause of that malady may be. This is what the government of Zimbabwe dismally failed to do.

Dearth of leadership

That Zimbabwe is mired in poverty is because its leaders in government have made this choice. Instead of devising policies which benefit the bulk of the population, government concentrated on evolving policies which create short-term benefits to their followers.

The record all over the world shows that economies can grow and develop faster if leaders take sound decisions in the national interest. This is what governments are elected for.

Success in the global economy has not required a miracle, an elixir. It has not demanded any special conditions to enable countries to prosper.

What is required is the creation of a socio-political environment which guarantees the frictionless movement of people, capital, services, technology and goods to centres of need. This is the prerequisite to development which has been recognised and accepted in the progressive economies of the world but has been shunned in Zimbabwe.

It’s in the Zanu PF culture
The failure of Zanu PF also stems from a compendium of entrenched positions and promises made during the war of liberation.

These include its discomfort in embracing simple economic principles which have proven their efficacy in the developed economies; its failure to accept that increases in production are founded on a nation’s ability to access the requisite technology, and the human and material resources needed to facilitate growth and development.

In addition, it failed to appreciate that transparency and accountability are the crucial maxims of governance as they provide the compass and confidence for the development ethos of the nation.

Lastly, Zanu PF is oblivious to the fact that trust builds confidence and that increased investment depends on confidence and the minimisation of risks attendant to that investment. Zanu PFs policy flip-flops and policy inconsistencies have accentuated these risks. This, in turn,has increased the cost of borrowing and, addition, eroded business confidence which are the basis of long-term investment.

The war of liberation was waged, in part, to establish wise husbandry and dominion over the indigenous resources of the country. This is accepted.

However, when the war was won, the need to control resources became the overriding objective of almost all development effort. Government programs increasingly became the means to pay-back for the war effort at the expense of programmes which would grow the national cake. This undue accent on institutions of control rubbished the role of property rights, capital investment and the rule of law, in the development process.

In addition the disproportionate expansion of social at the expense of productive investment created unsustainable demands on the meagre revenues generated by central government.

This is where the national crisis of little productive investment and inadequate revenues to finance the fiscus originates from. With little or no investment, at best, the economy underperforms and the number of people living in penury rises dramatically. This is our situation.

The blame game
In addition to the issues raised above, Zanu PF’s wholesale engagement in the blame game to explain the poor performance of the economy has created a situation where the nation cannot focus on the real problems facing the country.

It’s shameful vitriol directed against the Bretton Woods Institutions for foisting the ineffective Esap programme on it, and its decade long castigation of “Sanctions” for the economic melt-down, are but a few examples which amply demonstrate this.

This, they have been able to do because of the biddable nature of the country’s population which continues to suffer silently as the situation worsens.

This absence of an effective bottom up pressure on leadership has enabled government to get away with excesses despite the pernicious damage inflicted on the economy.

The docile response of the population is due, in part, to the neo-patrimonial “big man” chieftain styles of rule, which dispenses favours to supporters, and uses state tools to silence dissenters. Consequently institutions and legal provisions established to enforce transparency and accountability are, at best, not effective, and at worst, corrupted.

Bloated civil service

Finally, it is patently obvious that the government is struggling to meet both the budgeted recurrent and capital expenditures because of the dwindling central government revenues.

The net effect of this is that the majority of programmes are not implemented and huge underemployment haunts the civil service. It boggles the mind of a simple economist to understand why Zanu PF continues to employ, year on year, a bloated civil service when their out-put is so insignificant.

Throughout the central and quasi-governmental institutions civil servants are under employed as there is no adequate money to finance its programmes.

Over 90% of the national budget is now spent in paying the salaries. But these civil servants have no programmes to implement due to lack of funding and due to limited fiscal space. The percentage of central government revenue spent on employment costs continue to rise as inflows dwindle.

Sooner or later civil servants will not be paid at all. This eventuality not-withstanding, Government continues to prevaricate on solutions which effectively address the problem.

It is clear that the poverty situation in Zimbabwe is worsening with time. Further, the number of unemployed people in the country is growing in leaps and bounds.

The bulk of young people being voided into the labour market continue to swell the streets with no hope of ever getting employed in the near future. In addition, the revenue base continues to shrink and there is no guarantee that central government will be able to sustain its services to the people.

Furthermore, with the low levels of domestic and foreign investment in the economy, sooner or later the process of de-industrialising the country will be accomplished.

This eventuality must be rejected outright because nobody will benefit from it. It is our filial and national duty to redress the situation at the earliest opportunity.

Whilst some may feel that this onerous task belongs to the opposition politicians, those who have gone into politics have done so not because this is a profession for them. Their prime motivation is to create a Zimbabwe we all want.

Accordingly, the clarion call is for Zimbabweans from all walks of life to join in the crusade to fight the wrongs that bedevil our economy. This is the impending calamity that cannot be left to a few individuals to pursue. All our voices must be heard far and wide.

These articles are coordinated by Lovemore Kadenge, President of the Zimbabwe Economics Society. Contact: Kadenge.zes@gmail.com, +263 772 382 852.

Webber Chinyadza is economic Affairs secretary for the MDC-T and former chief economist in the Ministry of Finance and the Zimbabwe National Chamber of Commerce.