The inclusion of South Africa to the Brics (Brazil, Russia, India, China and South Africa) economies in 2010 has been a welcome stamp of approval of this promising continent, although many African countries would have loved South Africa and other African countries going in there as a bloc, say as Sadc or sub-Saharan Africa.
It would be interesting to look into what Zimbabwe’s place is in this emerging continent which may be the future centre of global growth, like China has now become.
Short-lived commodities bubble
Now that the once nascent signs of a slowdown in China are becoming evident, African countries that have been riding on China’s craving for resources like coal, platinum, diamonds, oil and commodities ought to rethink their economic growth models. The reality is that the Chinese economic growth rate is slowing down and will perhaps continue to do so. A couple of weeks ago China’s Premier Wen Jiabao signalled that the growth rate could go down to 7,5% from its historic average of 9%.
Muted commodity demand is the inevitable consequence of this slowdown and will leave nations such as Zimbabwe with no other meaningful option but to rebalance their economies. After being hit by external demand shocks two times in the last three years, China is now anxiously looking at a growth model driven much more by internal private consumption than by investment and exports.
Admittedly, China will not stop importing commodities soon and certainly not in the short-to-medium term. However, new developments in China indicate signs of a waning appetite for commodities. This could serve as a signal to mineral resources-based countries such as Zimbabwe that they have a 20-year window period to diversify their economies.
As the New York Times noted in May 2011: “The timing for when China’s growth model will run out of steam is probably the most critical question facing the world economy”. Respected economist Nouriel Roubini believes China’s high reinvestment rates nearing 50% are indicative of an economy nearing overcapacity.
Zimbabwe has reasons to be worried, especially if government and its policy-makers ignore this trend and fail to plan ahead.
The Fung Global Institute in Hong Kong believes the pattern of growth in China has been remarkably industry and investment-heavy. Private sector consumption as a share of China’s GDP has actually declined over the past decade, falling from 46% in 2000 to 33% in 2010, and probably remained at around that level last year. Stories of a 40km highway on the sea, empty bullet trains and ghost towns hastily built as part of economic stimuli support the theory that China’s growth has been predominantly driven by state infrastructure spend.
Putting this into perspective, China’s urban expansion is said to currently consume half of the world’s steel and concrete production. Arguably, growth that is promoted in this fashion is not sustainable, which is why economies that have benefitted from China’s economic surge need to be cautious.
The envisioned Zimbabwe
History has taught us not to hastily dismiss grand goals as mere dreaming. So, even the recently proposed vision by Finance minister Tendai Biti to grow Zimbabwe’s economy to US$100 billion in 40 years deserves attention. To attain such a goal, the economy would need to grow at a compound rate of 10% per year for 40 years. Certainly, for an economy that had contracted by above 40% in the last decade, there is potential for it to pick up at 10% in the short-run during the recovery period.
But over the long-term, say 40 years, 10% may not be impossible but it will be a marathon of short sprints. It is likely that without the suggested rebalancing, the economy is most likely to choke due to subdued commodity prices.
In light of this, what then should constitute Zimbabwe’s grand plan in making its mark on the continent?
A CEO’s grand plan
A good place to start is identification of the nation’s competencies or those things we do or have potential to do better than others. Strategy expert, Bruce Henderson, argues that your most dangerous competitors are those who look and act like you. In Zimbabwe’s case there are clearly such competitors across Africa in Kenya, Zambia, Uganda and many others. Zimbabwe’s challenge would be to identify its unique and competitive advantages.
In supporting the notion of rebalancing the economy, Michael Porter, a professor at Harvard Business School and an authority on competitive strategy and international competitiveness, says the abundance of natural resources is not the most important comparative advantage of a country.
Instead, he believes, conditions in the economy, firm strategy, and related supporting industries contribute more to the competitive advantage of a nation. The journey of discovering our competencies could begin with a study of the prominent companies that have sprung from Zimbabwe onto the regional or global scene.
Applying Porter’s framework, the Nordic countries fared well on factor conditions such as skilled labour and infrastructure. Appreciative of their relative small size, Sweden, Finland, Belgium, Denmark and Iceland coexisted as a connected bloc riding on their competitiveness. Even the mighty and low-cost centre, China, has not succeeded in snatching the components industry from these competitive nations.
Taking gradual steps
While cognisant of how sound economic planning will always clash with populist policies in Zimbabwe, the country’s journey down this road is unlikely to be an easy one.
The “Ease of Doing Business” rankings by the World Bank currently rank Zimbabwe 172 out of 183 countries. Among the criteria considered is the ease of starting a business where Zimbabwe ranks 144. According to the rankings, it takes 90 days to get a company registered in Zimbabwe against one day in New Zealand and 19 days in South Arica. One wonders what it is that which needs to be done in a quarter of a year for a company to be registered. A painfully long registration process is not only a tax on entrepreneurial development but a major deterrent to foreign direct investment.
Apart from bureaucratic impediments, there is also the issue of policy inconsistency and uncertainty. Policy consistency means businesses can make long-term plans and commit resources to investments. One investor once remarked: “If you are going to screw me up, please tell me so in advance, that way I can prepare.”
These are small but game-changing steps that must be taken. But more required are leaders long on implementation and short on promises.
Zimbabwe needs more investment and competitive enterprises to grow and realise its full potential but for this to happen there must be political stability and policy certainty.
Chipendo is a management consultant at a Johannesburg-based firm, as well as managing partner for Emergent Capital Management, a niche investment management company on the ZSE and JSE markets. Email: email@example.com