The Economy We Want

THE announcement by the Zimbabwe Electoral Commission that the presidential run-off has been set for June 27 has brought relief to the business sector.

 

Whoever wins the Presidential run-off has their work cut out for them. The comatose state of the Zimbabwean economy cannot be allowed to continue any further.

The stakes have never been higher, unconfirmed reports suggest that inflation has now exceed 330 000%, unemployment is over 82% and industry utilisation at less than 10%. The Zimbabwe dollar it trading at $700 million to the Pound and expected to reach £1:$1 billion before the presidential election run-off.

The xenophobic attacks in South African targeting the migrant population, of which Zimbabweans constitute a majority, have highlighted where we are as a nation.

More than 3 million Zimbabweans have been forced into the diaspora by various reasons from political to economic. Images of a mother and child crawling under a barbed wire to look for work in South Africa shown worldwide by BBC are “a scar on the conscience of every Zimbabwean”.

The level of political violence in some parts of Zimbabwe, regardless of who is behind it cannot be a good sign. The horrific “bile inducing” and tear jerking pictures of our fellow countrymen with plastic burns on their backs, broken limbs and behinds burnt by a hot iron is not “the Zimbabwe We Want”.

Decades of failed economic policies, political bickering and the pursuit of vain idealism have brought us economic ruin, chronic shortages of commodities, hyperinflation, a Zimbabwean dollar virtually worthless to major trading currencies and an agricultural sector unable to feed its people.

Elections will come and go, political leaders will too, but Zimbabwe is a legacy for our children, a nation we should be proud of without hiding our passports when we travel abroad, or suffer the indignity of being considered asylum seekers in other people’s countries or torched alive because we seek better economic prospects elsewhere.

The presidential run-off will decide who the country’s next head of state will be. Whoever wins the election will need to return to rational economics and abandon the previous inward-looking economic experiments which assume self sufficiency in an increasingly globalised world. Addressing the economic problems in the country will have to include a return to real interest rates to attract local investments, addressing the pricing disequilibrium, adopting more austere monetary and fiscal policies and addressing the polarity between government and the business sector.

There is need for a climb down from the prescriptive we-know-it-all policies, the command control monetary and fiscal policies and the megaphone conspiracy theories of yesterday to embracing the contribution of various economic agents in a functionally symbiotic nexus of contracts.

The tensions rising from economic frustrations have the capacity to ferment intolerable dissent, the likes of which cannot be redressed by an election. It is in the interest of politicians, regardless of dispensation, to genuinely address the state of the economy to guarantee their own survival. Politics of idealism can hardly compete with politics of the stomach.

The state of the Zimbabwean economy cannot be turned around by one economic agent, neither the government nor the central bank will address this economic decline without a buy-in from every Zimbabwean.

The government can even put price controls on everything (including lobola) it’s unlikely to make a difference. The policy of price controls reflects a social welfare objective intended to address market failure, achieving equitability with those who can’t afford.

It’s not a secret that price controls also reflect short term survivalism by keeping prices artificially and unsustainably low although the long term impact is often devastating. Rather than exerting a helping hand to ease market failures, the government may instead have used a grabbing hand to satisfy political objectives destroying the anchors of a competitive market, with catastrophic economic consequences.

The idea of a social contract, first proposed by Governor Gideon Gono should be revisited after the June 27 election when the winner is decided. In his 2008 first quarter Monetary Policy Statement, the governor of the Reserve Bank, lamented the failure to implement the social contact idea he previously tabled in 2007.

He said, “As Monetary authorities, our hearts are heavy at the realisation that well over 16 months down the road since we first advocated the urgent adoption of a social contract in early 2007, this virtuous path has not been fully followed though. Had we collectively shown maturity, tolerance and a burning desire for a better Zimbabwe through the adoption of the social contract, we would not be having today’s widespread shortages of basic commodities and other economic ills afflicting us”

An analysis by economist Eric Bloch observed that over the past 80 years, almost every recovery of economies afflicted by hyperinflation or mismanaged economies, such as Germany, Israel, Brazil and Bolivia have adopted social contracts as part of their turnaround plans. Stakeholders collaborated with real intent to reverse the economic problems. A viable social contract must be grounded in a clear and widely shared set of values and expectations. It must build an economy that is strong and durable based on trust and respect for each other.

For a social contract to work, politicians have to be willing to subordinate political survival to the overriding need to genuinely address the causes of the economic malaise, achieve economic recovery and redress the suffering of the majority of the people. The ‘sovereignty or sanctions argument, although noble, has often been used to cover up economic incompetence and the absence of reasoned economic policies. At the rate at which economic fundamentals have deteriorated, soon, there will be no sovereignty to protect.

Regardless of who wins the June 27 election, the country cannot afford another political term of populism and empty rhetoric whilst people are necklaced and torched alive in South Africa for being economic refugees. The government, the business community and labour have to show a real willingness to work together to place national interest ahead of party affiliations.

Quasi fiscal activities have to be terminated, price controls have to be eliminated, rule of law has to be restored and property rights respected (this will create a conducive atmosphere to attract foreign direct investment). There must also be measures to stimulate productivity in all economic sectors such as agriculture, manufacturing and mining. Although, land is our economy, and our economy is our land the country cannot achieve economic growth by encouraging subsistence farming. To generate enough foreign currency reserves, real emphasis has to be placed on industry as the major driver of our economic regeneration.

The economy we want has to address the basic requirements of its citizens, regardless of who is in power. The economy we want has to be based on fundamental economic principles, with a government that respects the contribution of every economic agent from the tomato trader at the bus terminus to the corporate blue-chip listed on the ZSE. The economy we want has to protect the well-being of its citizens wherein immigration is elective than forced.

Lance Mambondiani is an Investment Executive at Coronation Financial based in the UK. The view expressed in this articles are personal and do not necessarily reflect the position of Coronation Financial. He can be contacted at lancem@coronationfinancial.com.

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