The principle of free markets is a doctrine of the strong; it is reached when industrial output surpasses domestic consumption.
A weaker economy must take this into account when entering bilateral and multilateral free trade agreements. A country’s trade policy evolves over time in relation to the growing industrial strength of weaknesses of its economy.
Zimbabwe’s economy is performing poorly because it has no system or business model. We have lost sight of whose interests must be served by an economy. The priority therefore would be to restore the economic system or game plan by adopting the concept of, “Our Country — Our Markets”, which is at the centre of the Buy Zimbabwe proposition. This is a simple approach that requires the nation to be in a full control of the factors of production — land, capital, labour, entrepreneurship — and market factors of production focusing on their availability, maintaining their accessibility and enhancing their quality as part of the growth and improvement process. The factors of production need to be re-organised such that they serve domestic interests first before they serve the outside world. Industry, which is the vital part of the system, must be positioned to create goods and services needed to satisfy domestic needs and consumption. There should be no undue pressure to consume beyond the capabilities of the nation, to the extent that it harms itself with uncontrolled imports.
As the nation limps through the pitiable growth, many towns and cities are hurting. The economy is languishing not because too little cash comes in, but as a result of what happens to that money. Money is like blood. It needs to keep moving around to keep the economy going. Buy Zimbabwe thus provides an ecosystem of survival. This is a hopeful message in a recession because it is not about how much money you have got, but how much you can keep circulating without letting it leak out.
It is common cause that a country that fails to rein in its import bill against declining export income will surely and certainly dig its own grave. Even those who could import tonnes and tonnes of anything foreign suddenly are realising that without a thriving local economy that is supported by a robust industry, gains can only be shortlived.
In real terms, our import bill remains very high and unsustainable, averaging US$7 billion annually since 2011. As a country, we choose to send hard earned money to foreign lands rather than invest in creating jobs and wealth at a time most of our graduates are failing to secure gainful employment. The sad part is that by pursuing this pro – foreign policy at the expense of local, we are killing the hen that lays the golden egg. Over the past years, and against the odds, there have been tremendous improvements in the related industry’s capacity to produce and as such a temporary reprieve to allow a level playing field on the local market as enunciated in SI 64 of 2016 in an appropriate but insufficient response.
Few consider the effects of purchasing on the local economy, on the ability of spending to increase wealth and jobs in local communities and regions, often referred to as the “local multiplier”. As a result, the major strategic tool at the disposal of both public and private bodies often goes unused. For instance, government at various levels spends millions on economic and business development, and tens or hundreds of millions on procurement, yet these efforts are rarely co-ordinated to meet the same end. The wider economic impacts of purchasing are rarely taken into account, partly because there is lack of awareness and data regarding the different economic impacts of local and non-local businesses. We need to be reminded that, national prosperity is created, not inherited. It does not grow out of a country’s natural endowments, its labor pool, its interest rates, or its currency’s value, as classical economics insists. A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade.
The conventional wisdom that guides the thinking of many companies and national governments that labour costs, interest rates, exchange rates, and economies of scale are the most potent determinants of competitiveness have led captains of industry to press for more government support for particular industries and this has led to a growing tendency to experiment with various policies intended to promote national competitiveness, from efforts to manage exchange rates in the Zim dollar era, to new measures to manage trade through various forms of preferences.
The country is very much exposed to external shocks due to the fragile global economy and heavy reliance on commodities. Declines in global activity and commodity prices will affect the country’s export earnings, and hence its output, incomes, and fiscal revenues. Diaspora remittances and investment flows are likely to weaken, with knock-on effects on domestic demand, banking sector liquidity and loan quality, resulting in more difficult credit conditions and the prevailing cash challenges. Our predicament is further worsened by the reality that Zimbabwe has no capacity to ease the markets quantitatively by printing money due to the fact that we use a multiple currency regime; the ability of the government to intervene directly to stop the hemorrhaging is very limited, more so considering that our national budget is not generating surpluses.
The Buy Zimbabwe message therefore is premised on the rationale that if we encourage our people to buy our locally produced goods, the nation will be able to save a lot of money through minimising leakages from the economy. This money hopefully can be re-invested, building competitiveness and economies of scale, employ more people and grow the economy. This is possible when government ensures there is a predictable and stable operating environment. It is, therefore, critical Zimbabwe implement policies which exudes a positive image and boost government to realise the vision of an industrialised economy.
The principle of policy certainty, which avoids sudden changes to investment regimes, will greatly contribute towards a successful Zimbabwe. While the principle of import substitution is sometimes viewed in a retrogressive manner because it is seen as being counter to the central tenets of globalisation, the situation in Zimbabwe demands that we rely on it to offer temporary protection for our industry to counter the surge in the disruptive imports of cheap and “dumped” goods which can easily be produced locally.
Gundani is the chief economist of Buy Zimbabwe. These New Perspectives articles are co-ordinated by Lovemore Kadenge, president of the Zimbabwe Economics Society, e-mail: firstname.lastname@example.org, cell +263 772 382 852.