via Confidence: Economy’s floating currency | The Herald December 4, 2013
Confidence is the only highway upon which investment both domestic and foreign will travel. Some scholars have said the economy is measured by a floating currency called confidence. With economic growth slowing due to a suffocating liquidity crunch, dealing with a confidence crisis will be critical in generating momentum required to turnaround the economy.
Undeniably, Zimbabwe has exhausted the growth factors that carried the economy over the three years to 2011 and it has become inevitable that Government deals with a confidence crisis inimical to sustainable policy induced growth.
Zimbabwe is currently suffering from the malignant effect of warped confidence due to widespread corruption in public and private sectors, maladministration of public institutions, policy unpredictability and lackadaisical approach to implementation of development programmes. The Government has also failed to apply sound business practices in management of State Owned Enterprises.
At the Herald Business, we have identified factors that inhibit economic growth as corruption; low levels of human capital; poor infrastructure; market failures specific to individual industries; low levels of international trade and cumbersome regulations. Of these,
Government should consider tackling infrastructure bottlenecks, promoting trade, and carrying out regulatory reforms as top priorities for the policymakers.
The fact that numerous corrupt activities have been reported before and evidence exists of blatant maladminiration in State agencies bordering on business as usual mentality, yet little was action taken, has killed confidence in Government. Confidence in the economy and in the plans will only start to rise once the Government itself regains credibility in delivering the goals it sets to achieve. Confidence, according to behavioural economics, is not imposed on people, but it is earned. And Government has taken a step in the right direction in recent days by resolving to assume the Reserve Bank of Zimbabwe debt.
Critical elements of the new economic blueprint, the Zimbabwe Agenda for Sustainable Socio-Economic Transformation, demand that Government deals with all corruption aspects that militate against its efforts to set the economy on a growth path.
Challenges lying ahead for Zimbabwe, are by no means small considering the projected 6,1 percent growth next year to US$15,5 billion which will be largely driven by mining.
“Corruption has the negative effect of adding on to the cost of doing business both for established or intending start ups,” economist Mr Joseph Sagwati said.
“Worse still, it creates an additional cost of uncertainty for investors through cumbersome unquantifiable cost and approval bottlenecks. These act as dissuading factors to actualizing goals of Zim Asset as they cloud the smooth flow of monetary and institutional gains that the programme aims to achieve. Certainty in business brings information asymmetries which is a priceless decision- making tool for most discerning investors.”
Mr Sagwati added that an opaque business environment is a poisoned chalice that no one FRom Page B1
would be willing to risk his money. Zim Asset should have operational checks and balances on officials conduct and functional uprightness so as not to thwart investment flows and structural reconfiguration of the Zimbabwe economy.
Economist Mr Gift Mugano said the success of the Zim Asset hinged on adequate funding and without implementing measures to deal with corrupt activities, it was bound to fail.
“Zim Asset needs to be funded with mineral revenues and if we continue losing such in whichever way, how do we fund the blueprint?” said Mr Mugano.
“The Public Private Partnership is one of the mechanisms to fund Zim Asset and this needs to be treated in a transparent manner. If we don’t stop corruption, we are in trouble.”
Even President Mugabe is quite alive to the corrosive effect of corruption to critical national programmes, which is why he declared, while officially opening the First Session of the Eighth Parliament of Zimbabwe, that Government will not tolerate corruption. “My Government will exercise zero tolerance to the scourge of corruption,” he said.
This is clearly not informed from creations of his imaginations, but graphic cases in which high-profile and public figures have been implicated in shady diamond deals.
Mines and Mining Development Minister Walter Chidhakwa attested to claims about the existence of rampant corruption in the mining sector when he revealed some people had attempted to grease his palms to have mining deals facilitated, which he declined.
“The issue of corruption should not be viewed only from the recipient of the bribe, it must also be seen from the perspective of the giver as they are both corrupt, but I was approached.”
Astonishing is that in most cases, no one is brought to book or punished for all and sundry to desist from all forms of immoral economic conduct that retards development.
A case in point are deep-seated suspicions in Government that the country could be losing millions through understated mineral exports and imports that evade duty, but not enough has been done to plug the loopholes to avoid prejudice to the country.
Reservations abound on the handling of public procurement, murky joint venture diamonds deals, maladministration in State entities as revealed by the Comptroller-General, corruption rife at ports of entry and misrepresentation about fuel in transit.
FBC Securities analyst Mr Albert Nomuredzo said corruption had been at the heart of investor concerns and, as a result, the country was ranked among the most corrupt by international financial bodies such as the World Bank, IMF and World Economic Forum.
“In order to attract foreign investment on a long-term sustainable basis in the form of equity partnerships and long- term financing and technical support, there is need to deal with corruption across all sectors of the economy in order to create Investor confidence and shale of the negative sentiment that hangs on the mind of the international investment community,” he said.
“Any economic thrust (Zim Asset included) will depend on strategic partnership engagement which is a function of investor perception, which at the present moment is weighed down upon heavily by deep-rooted corruption perceptions.
If the Government is going to find partnerships at the right levels of commitment towards economic revival, transparency, policy inconsistencies and corruption issues should be ironed out.
President Mugabe also said measures to ensure accountability and service delivery from parastatals will be put in place, chief among them the introduction of a results-based management system where Government entities would be required to submit periodic reports and be subjected to routine inspection.
Some corrupt people in the public and private sectors would rather have these issues and concerns swept under the carpet, but failure to uproot and deal decisively with the scourge of corruption and maladministration, especially in public spheres, will only cause failure for Government’s initiatives followed by brickbats of criticism.
Government faces one of the most daunting tasks in the history of the country to ensure economic growth, create millions of jobs for the unemployed and ensure participation of previously marginalised indigenous people in the mainstream economy.
Arguably, just dealing with the confidence crisis involving Government and its institutions will be key to earning domestic and external trust that will bring in huge material benefit not directly attached to physical deployment of financial resources.
Even Finance and Economic Development Minister Patrick Chinamasa has admitted many times that rebuilding confidence in the Government, banking sector and the economy in general was key to dealing with the cancer of the liquidity crunch.
Dealing with biting liquidity crunch, distressed manufacturing industry, high cost of funding, shortage of electricity, expensive utilities, stiff external imports competition and low agricultural production will inevitably require audacious solutions and actions implemented more religiously that has ever been done before.