Zimbabwe is “back in business” according to the Reserve Bank governor, John Mangudya. There are growing signs of optimism as investors flock to Zimbabwe in search of investment opportunities.
Zimbabwe has remained isolated for more than decade due primarily to sanctions imposed on the country following the land reform programme initiated in 2000. The frosty relations between Zimbabwe, Europe and the US appear to be thawing though making Zimbabwe an attractive investment destination. Much has been achieved over the last year, but much more needs to be done if Zimbabwe is to play a role in Africa’s growth story.
The recently announced Monetary Policy Statement clearly outlined the challenges facing the economy, but also provided potential solutions.
I truly admire and respect the newly appointed RBZ governor for his discipline and focus on the economy. Rather than looking for external solutions, Mangudya focuses on internal solutions.
We need to go back to basics. We need to focus on the supply side of the economy rather than the demand side.
What does this mean? In a dollarised environment the supply of money cannot be controlled and the ability to stimulate growth through expansionary monetary policies are limited. We therefore need to focus on the supply side of the economy and focus our attention on becoming more efficient, more competitive by driving prices lower thereby stimulating demand.
According to Mangudya: “The major causes of uncompetitiveness of local products are the higher costs of production emanating from high mark-ups to sustain high overheads epitomised by high utility tariffs, finance charges and wages and salaries which are higher than those in neighbouring countries and beyond.”
Dollarisation exposed huge inefficiencies in the market. The cost of doing business in Zimbabwe is high due to a combination of factors as outlined above. Furthermore, the sharp depreciation in the South African rand in 2014 (Zimbabwe’s major trading partner) has made imports cheaper rendering local goods uncompetitive. These factors have led to a significant dependence on imports resulting in company closures and job losses.
“Lack of competitiveness therefore needs to be urgently addressed across all sectors of the economy,” he said.
Another factor is the low productivity from poor work ethics and the use of obsolete and antiquated equipment. Poor work ethics can be addressed through changes in the Labour Act, which is urgently required to bring Zimbabwe in line with international best practices.
Productivity can be enhanced significantly in Zimbabwe if all employees — from the private sector to the government sector, including parastatals — were committed and dedicated to hard work. In the Zimbabwe dollar era, productivity fell significantly, but went unnoticed due to hyperinflation.
People spent more time looking for basic commodities like bread, milk and sugar in order to survive and lost focus of key responsibilities. We forgot the meaning of work in our battle to survive.
If Zimbabwe is to become productive again we need to go back to the basics and focus on becoming more efficient. The means of productions, namely ageing machinery and equipment need to be modernised. Funding will have to be sourced externally and this can only happen if we create a conducive environment, not only for doing business, but for investment capital. We are certainly making progress in this area but much more needs to be done to encourage foreign direct investment (FDI).
Zimbabwe suffers from a “war of negative perception” leading to a lack of confidence, despondency and despair among many in and outside the country. Government is making significant progress in improving the investment climate and making Zimbabwe an attractive investment destination. This is clearly evidenced by the increase in the number of investor delegations visiting Zimbabwe in recent months.
Perceptions are certainly gradually improving and the war of negative perception is being won, albeit at a slow pace. Over the next 12-18 months Zimbabwe will see a significant increase in FDI flows. Government needs to continue to focus their attention on the economy and rebuilding our balance sheet.
The Monetary Policy statement is bold and decisive. Apart from doing our utmost to increase FDI, internal solutions are the key. Zimbabwe can no longer stimulate demand by increasing money supply or wages. We need to become more efficient and productive; we need to work harder and smarter and learn to compete on the global stage.
Zimbabwe is very much “back in business” and is an awakening giant. Make sure you’re not sleeping when the giant awakens!