ZimAsset: Doomed economic development strategy

via ZimAsset: Doomed economic development strategy – DailyNews Live 10 July 2014 by Tapiwa Mashakada

HARARE – The soundness of an economic policy is determined by its strategic development trajectory,  its end game.

Without an end game,  an economic policy becomes a decorative document full of rhetoric.

In our case,  ZimAsset appears to be a policy document which is not grounded on any known development trajectory.

The fundamental problem is that ZimAsset is not clear on the key drivers of its economic growth target and other macroeconomic targets.

Yet, the mapping of a growth trajectory and its drivers is an indispensable element of economic planning.

In other words, there must be something which is going to drive the success of ZimAsset.

Unfortunately, the ZimAsset document does not spell out that which is going to be the pillar of its success.

In the so-called Asian Tigers, namely South Korea, Singapore, Taiwan, Hong Kong and Malaysia,  a defined economic development strategy was identified. That particular strategy was religiously pursued as the anchor of their economic development blueprints.

South Korea for example, chose shipbuilding as its comparative advantage in order to kick start its journey towards economic growth.

Malaysia’s growth trajectory was underpinned by a developmental state. China has surpassed Japan as the second largest global economy.

The high growth rates registered in China were made possible by foreign direct investment. FDI became a key plank in China’s growth story.

In fact, China’s appetite for FDI was so strong that in its southern province of GuangZhou, a whole new special economic zone was established in a small town called Shenzhen bordering Hong Kong. This town was built as a special economic zone by Singapore and was only handed back to China after 30 years.

These international examples serve the purpose of demonstrating the need for ZimAsset to identify its key  success drivers.

Eight months after the launch of ZimAsset, legitimate questions are being asked regarding the character and nature of its trajectory. What is it that we could say is the real driver of growth under ZimAsset.

In my view, ZimAsset development strategy must have been predicated upon the natural resources of the country and foreign direct investment.

These two areas are the only ones that could spur Zimbabwe’s growth.  The focus on agriculture would have been first to carry out a comprehensive land audit to determine the levels and degree of land productivity.

Such an audit would have released idle land for reallocation to trained black farmers and agricultural graduates. The State would give production targets and open commercial agriculture to FDI in order to inject fresh capital, research and technology and build new agricultural infrastructure. As it stands, agriculture will not recover because of liquidity challenges.

Government cannot raise sufficient capital to revamp agriculture. Attempts to have private sector financing of agriculture has serially hit a brick wall.

Without FDI, agricultural production in this country is doomed. It is clear that the only success story in agriculture has been the tobacco sub-sector and the reason being that apart from the economies of scale, FDI has been the key driver. Most tobacco has been grown under contract farming where mostly Chinese firms have contracted small-scale tobacco farmers to produce.

The farmers are given capital in the form of inputs and finance to grow tobacco using modern farming practices.

The contractors are involved from the beginning of the planting season to the final stages of auctioning. This is the reason why tobacco has been a success story producing total output of almost $400 million in 2014.

Cotton would have been another model of introducing FDI into agriculture but the cotton merchants have failed farmers dismally due their pricing models.

My thesis is that the tobacco sub sector provides us with the empirical evidence regarding the potential role of FDI in the transformation of agriculture. Other crops have not performed up to the expected levels because of the drought or poor financing.

The point is that ZimAsset has failed to define the role of FDI in agriculture hence the prospects of growth in this sector are encumbered. Poor agricultural growth always has a boomerang effect on the rest of the economy because Zimbabwe is an agro-based economy.

ZimAsset also fails to identify the role of FDI in mining. Mining is a capital intensive sector. In order to recover the sector to its 1998 levels, Zimbabwe needs $6 billion.

Most mines had closed by 2008. During the inclusive government, we witnessed most gold and nickel mines re-opening and starting a slow process of capitalisation.

The little confidence brought by the inclusive government saw the mining sector recovering. However, since the July 31 elections, the mining sector is in turmoil.

Most recapitalisation deals in the mining sector have stalled. The political direction of the country is not clear to mining investors.

Resource nationalism is the right question but indigenisation in its current form is the wrong answer. In order to attract FDI, government must amend the indigenisation law and lower the 51 percent threshold.

The problem with 51 percent is that no investor wants to surrender controlling interest.

Any threshold less that 51 percent will find traction from investors. As an economist, I have great difficulty to understand the pundits of indigenisation. What needs to be understood is that ownership must be a means to an end and not an end in itself.

The State can own all mineral deposits and all agricultural land and that ends there because all those resources will remain dead capital until and unless capital has been invested to create value. Without investment, those minerals cannot be extracted from the ground.

Without capital, those minerals cannot be beneficiated. The same thing applies to agriculture.

ZimAsset is therefore bereft of an investment strategy making it very difficult for our natural resources to play their role as the key drivers of growth in Zimbabwe.

Other African countries like Angola, have realised the cardinal rule that unless value is attached to natural resources, they remain dead capital.

I therefore conclude that ZimAsset is doomed to fail because it has underplayed the role of FDI in the natural resources sector where our comparative advantage lie. ZimAsset has failed to articulate a clear growth trajectory based on FDI and it’s role in capital raising for transforming mining and agriculture.

It lacks the requisite strategy to make agriculture and mining the real growth drivers for Zimbabwe.

*Tapiwa Mashakada is the acting secretary general of the MDC led by Morgan Tsvangirai.

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