HomeBusiness DigestZim’s competitiveness — Action points crystal clear

Zim’s competitiveness — Action points crystal clear

A FORTNIGHT ago about 2 500 business, financial and political leaders from both developed and emerging economies converged in the Swiss ski-mountain resort of Davos for the World Economic Forum (WEF).

Report by Victor Makanda

The annual event, whose concept dates back to the early 1970s, is a discussion platform focusing on country competitiveness ranking.

Worth noting is that Switzerland topped the latest competitiveness ranking from the WEF, closely followed by Singapore.

Of the big emerging economies, China remained on top, with Brazil moving up.

The most striking fall was the United States, which has dropped in the rankings for four years in a row. It is now seventh. The rankings are based on 12 pillars which include institutions, infrastructure, financial systems, labour and goods market efficiencies, economic stability, innovations and public services.

The interesting thing about Davos was that the founder, Professor Klaus Schwab, calls it “a platform for collaborative thinking and searching for solutions, not for making decisions”.

It is against this background that we thought of analysing Zimbabwe’s latest ranking to find the missing link on the path to sustainable economic growth. According to the Global Competitiveness Report (2012/13), Zimbabwe’s ranking rose by two places from 132 out of 144 countries, compared to 142 countries assessed in 2011.

Zimbabwe’s strength in the competitiveness ranking lay in the “soft factors” such as female participation in the labour force (where it ranked 61st), reliance on professional management, quality of education system, low business cost of tourism and organised crime.

Other areas where Zimbabwe scored highly were in low inflation levels, protection of minority shareholders and taxation. However, the realm of soft factors has a low weighting in enhancing competitiveness ranking and the performance of the economy as a whole.

By contrast, Zimbabwe had the worst rankings in the “hard factors”. The factors are termed hard as the presence or lack of them determines the level of an economy’s competitiveness.

Zimbabwe ranked at the extreme end, ranging from 135 to 143 in these factors, which included national savings, breadth of value chains, property rights observance and venture capital availability. Other factors were quality of electricity supply, number of days to start a business and soundness of banks.

Overall, Zimbabwe, on a peer analysis to other African economies, trailed behind former underdogs Malawi, Uganda and Madagascar.
The survey also came up with six most challenging factors for doing business in Zimbabwe.

There were no major surprises in the list of challenging factors as they were also similar to the findings from the 2012 CZI Manufacturing Survey which led to the deceleration in capacity utilisation from 57,2% to 44,2%. The factors were policy instability, lack of funding, corruption, inefficient government bureaucracy and inadequate infrastructure.

Surprises, however, arise not from the rankings, but rather from the policy disconnect; specifically the unwillingness of policymakers to tackle the challenges identified, opting rather to focus on soft factors which do not necessarily add value in lifting competitiveness rankings.

One key lesson about the Davos meeting relates to origination of new and fresh ideas peculiar to each nation or challenges advocated by the fine minds in economics. Policymakers in our case may come up with investor-friendly policies that will impact positively on the attraction of new capital from offshore.

Such policies will continuously boost our country credit rating, which is precarious at the moment owing to the external debt position of more than US$10 billion. Significant improvement in property rights observance must be undertaken as Zimbabwe stood at the seventh spot from the bottom.

The recent cases on Interfresh and Renco Mine will only reduce the local economy’s ranking as an attractive investment destination. The crafting of investor-friendly policies will go a long way in improving the liquidity crisis as foreign direct investments remain a key area where we are still lagging, according to the recent Monetary Policy Statement by the Reserve Bank governor.

Another lesson, especially if we are not utilising our own local currency, is that of focusing on austerity measures. Most developed nations, particularly Greece, Portugal and Spain, have been leveraging on “internal devaluation” which simply means keeping tight control on wages, costs and public expenditure.

However, the major downside for internal devaluation is that austerity measures may pull an economy into recession, a case in point being the fear by US policymakers on the “fiscal cliff” at the end of 2012. Austerity measures with regard to the Zimbabwean case relate mainly to management of the wage bill and allocation of resources focusing on capital formation.

Policymakers may also work on innovation and technological advancement rankings, especially in upgrading industry equipment as Zimbabwe declined from 119 in 2011 to 128 in 2012. The direction of the movement is worrisome as it effectively refers to de-industrialisation of the economy, implying a slipping backwards in structural terms. The decline in this ranking explains the reason why most corporates are playing second fiddle to imports on pricing and quality.

The worrying thing about our economy’s failure to excel on this front is that beneficiation and value addition will not be achieved, ultimately worsening our current account deficit, which will only increase. The increase in the current account deficit will eventually lead to a worsening of the balance of payments position and increase our debt position.

Overall, policymakers should work in unison through activities or series of activities to de-risk Zimbabwe’s competitiveness rankings and also take heed of the IMF president Christine Lagarde’s closing remarks in Davos 2013, not to relax.

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