The Zimbabwean Gambit…

A GAMBIT is an opening where a player sacrifices or risks a few small pieces in order to achieve a greater objective.

 

As far as strategy goes the game of chess probably epitomises this idea. To master the art of the game one has to know when to make a move and more importantly by attempting to successfully predict how the other player is going to react.

Sadly with the Zimbabwean economic crisis, it is not on as friendly terms and the consequences could be dire.

As Zimbabweans we are faced with the daunting task of trying to crawl our way out of this awkward decade long recession at a time when perhaps everyone else around the world is least able to assist. Now, more than ever, the chance of a complete turnaround stares us square in the face but first an open and honest look at ourselves is required.

Here are a few harsh realities to contend with.

Zimbabwe has become a very expensive place to do business in. Despite their best efforts a number of local manufacturers are struggling to produce below the cost of landing imported goods.

Some have gone to the extent of abandoning production and opting instead to act as agents for mainly South African products.

This leaves less and less people unemployed and thus shrinking the potential market base.

Added to that, the quick turnaround that many were expecting may just not be as quick. Such was the expectation that the pricing policy of particular municipalities and utilities assumed that in no time everyone will have sufficient funds to service their bills.

The reality however is that for one reason or the other most consumers are probably poorer than they were before.

So with local business producing at a higher cost and consumers unable to purchase anything, how then do we turn around the economy?

A vicious circle is evident where eventually the fortunes of all parties concerned become intertwined.

Business cannot pay workers enough, who in turn cannot spend as much on products and services.

When faced with economic crises recent examples suggest that huge capital inflows are needed to stimulate the economic activity.

In the nineties, Mexico, Argentina and South East Asian economies all went through the cycle of heavy recession followed by bailout packages to help ease the storm.

And it goes without saying that the wave of bailout packages in recent months across the globe will probably go down in history as some of the largest.

So for little Zimbabwe, estimates hardly for how much is required to turn around the nation’s fortunes exceed US$6 billion which is a far cry from the US$50 that Mexico required or the trillions that the developed world is looking at currently.

Still, this is not going to come without significant conditions on both monetary and fiscal authorities. But say the required bailout does materialize, would the current set up lead to sustainable growth for the country? Maybe not.

One can be sure that should a large amount of money find its way into the country, perhaps an equally large amount will be moving in the opposite direction.

For as long as local producers cannot produce at cheaper than their regional counterparts then any excess cash will simply be sent right back out through purchase of cheaper finished goods and other imports and Zimbabwe back in square one.

A concerted effort to try and stimulate the economy sustainably has to be made and this, no doubt has to stem, from the respective authorities. One suggestion would be to reduce taxes, both corporate and personal, drastically so as to induce some cost advantage for business while increasing consumers’ disposable income.

After all, it is highly unlikely that Zimbabwe is in the short-term going to be able to finance government expenditure through collections of revenue.

The argument can go further and say 15% of a larger tax base could yield more than a higher percentage for a much smaller base.

The reduction of taxes need not be a permanent feature but can be gradually increased to an economically viable level over the next few years but the benefits arising in the interim can make the difference.

The reduction in corporate taxes can be targeted towards specific industries with a focus on local production.

As with most support measures a gradual weaning of the recipients would be required to improve efficiency.

Local businesses will get a temporary reprieve from outside competition while also getting a chance to recover.

Whether or not the US$2 billion package being touted for Zimbabwe’s recovery does actually come through within the time frame it is expected, getting local industry back on track should be a priority.

And once it does local producers should be in a position to fend off any potential from threats from outside players.

As with chess, it is sometimes worth your while to sacrifice a key piece, at times more than one, to achieve the ultimate goal of winning.

The game for economic recovery has just begun and there is a need for someone to make the first strategic move and given the mistakes of the past, it would not be such a bad idea for the government to make the first one.

Reducing potential revenues now can perhaps hurt its immediate would that strategy not work in the future.

BY TICH PASI