Reflections on 2016, prospects for 2017

We have all heard the repeated claims that economic growth was disappointing in 2016. However, the statements continued to claim that growth was taking place, right through to President Robert Mugabe’s State of the Nation Address and the Finance minister’s budget speech in the first week of December.

John Robertson,Independent Economist

About 30 000 young people left school in December and very nearly all of them will have been forced to join the informal sector to contribute a few dollars a day to their household incomes.

About 30 000 young people left school in December and very nearly all of them will have been forced to join the informal sector to contribute a few dollars a day to their household incomes.

But we also hear that the economy has been shrinking, and this seems to be a much more likely possibility, specially as the evidence for this is more compelling than any claims of growth. We regularly hear of more people losing their jobs, more companies going onto shorter working weeks, or closing down, more parents struggling to pay school fees, more tenants pleading for lower rentals and more people suspending, or cancelling, their payments to the National Social Security Authority as well as their medical aid societies.

Perhaps the post powerful evidence of shrinkage in the economy is the almost non-existent creation of employment.

About 300 000 young people left school in December and very nearly all of them will have been forced to join the informal sector to contribute a few dollars a day to their household incomes. Most of those who are hoping for a better future than they will have as vendors or scavengers are no doubt making arrangements to leave the country to look for real jobs.

Government has hoped to persuade the population that improvements in the values of gold, platinum and tobacco produced took place and compensated the country for the falls in just about everything else.

And government also argues that restored support for local producers of potato crisps, PVC pipes and metal window frames have caused industrial capacity utilisation improvements that were big enough to launch an economic recovery.

Regrettably, it will take more than one step in the right direction to fix the damage caused by years of narrowly targeted policy choices. Every one of these can be seen to have had a single underlying purpose, which was to increase government control over the activities of everyone trying to run a formal sector business.

Government’s objective is as clear as it is simple: whatever anyone wants to do, they need to apply for, and receive, government’s permission to do it. If they do get investment authority approval, the hopeful applicants then have to persuade many officials to grant them a long list of additional permits and licences, most of which will have to be renewed. Government’s real purpose is to show that, whatever knowledge, experience, business skills and courage an investor might have, all of these talents and special qualities have been officially declared to be subordinate to government’s authority.

Government’s philosophy is equally clear and simple: it is in power to wield power, not to share power with the business sector.

New business opportunities did arise from increases in manufacturing costs. Retailers could capture the manufacturers’ markets by supplying imported equivalents at lower prices, but the blame for the manufacturers’ inability to compete usually lay with government policies, or with labour union demands that were supported by government. Indigenisation requirements severely discouraged the investment that was needed to keep pace with changing production methods and consumer preferences and was also needed to achieve productivity levels that could accommodate rising wage levels.

Without that investment, the consumers’ access to cheaper imports forced the closure of many companies and destroyed tens of thousands of manufacturing jobs. However, many of the import bans were imposed on agricultural products, the local manufacture of which was made difficult, if not impossible, by government’s decision to evict the farmers who could supply the needed input products.

For government to successfully revive those manufacturers, the right place to start would have been, not with a ban on imports, but with the reinstatement of good farming practices. Assurances of steady supplies of crops and livestock products in the right volumes and of the needed quality would have brought most of the factories back to life.

But that would have required government to restore ownership rights to experienced farmers in a way that would have also restored the collateral value of the land and placed bank finance within every farmers’ reach. Meeting these requirements calls for a few simple, elementary steps that could be accomplished in a heartbeat. But government has declared them unreasonable, impractical and even impossible. Unfortunately, its reasons for this response have nothing to do with farming and nothing to do with economics.

The real reason why commercial farmers were evicted from their land in the first place was that they had acquired too much political influence. What gave that influence so much leverage was the farmers’ access to bank finance, and their access to finance was a function of the farmers’ ability to offer security to the banks. Their land ownership rights provided them with that security.

So, in a single move in which government declared all the land to be the property of the State, government was able to eliminate a potentially competing political influence and provide itself with an asset base that could be used to convert a few thousand potential political opponents into hundreds of thousands of political supporters.

Black as well as white farmers were dispossessed, so the claim that land was simply being recovered to correct a past colonial injustice carefully ignores the much more important fact that the colonisers were introducing a vastly more efficient productive system into the country. Unfortunately, anyone who tries to draw attention to this much more important fact is treated by the government as a hostile witness.

This is because government’s intention all along was to establish and entrench its authority. On the land, it could do this best by allocating it, not by selling it. The very deliberate policy was to prevent a new, influential land-owning class from replacing the one that was being wiped out. It also prevented the more efficient productive from working. The price tag on that mistake runs into billions of US dollars, and counting.

For the new farmers, their access to a piece of land depended much more upon obedience and loyalty than upon their farming skills and their performance. But the study of economics is all about the study of behaviour. The new farmers’ behaviour was profoundly influenced by the knowledge that land given to them for nothing could be taken away from them for nothing. And they were far more likely to have their allocation taken away from them if they generated on that land something worth taking.

For the previous commercial farmers, their security of tenure depended directly upon their performance and their ability to repay the money lent to them by the banks.

Today, to secure their tenuous hold on the plot they were allocated, the resettlement farmers have to display just enough loyalty to retain the respect of the ruling party and just enough output to sustain a subsistence income for their immediate needs.

But such farmers are lucky if they can feed themselves. They certainly cannot feed the nation. That explains why Zimbabwe is now dependent on food imports and why the country has had to import more than a million tonnes of basic cereals and processed foods every year since Land Reform was announced at the end of 1997.

With outflows of hundreds of millions of dollars a year for nearly twenty years, it is not hard to see why so many billions of dollars have left Zimbabwe.

It is pleasing to see that, at last, government has tumbled to the fact that production increases are the key requirement to restoring economic recovery. However, government’s claim that it has caused production to get going again by banning the importation of things we used to make has to be put into perspective; it is not going to add up to very much until it includes all the agricultural output that used to supply most of the inputs needed by most of the manufacturing sector.

Of course, the crops and livestock products are very important in that mix, but the non-food agricultural output losses add up to a large amount as well. They mostly reflect lost export revenues. Tobacco has recovered, but for 10 years tobacco output was well below normal and the revenue lost accounted for more billions of dollars.

Cotton production has virtually collapsed, taking with it most of Zimbabwe’s formerly very robust textile industry and adding yet more billions to the lost earnings. Another non-food crop was timber for the now defunct paper industry. The country is now spending millions on importing newsprint, tissue and all the inputs for the packaging industry.

Import bans will not be enough to restore any of those sectors, but even the food industry will not get back on its feet until arrangements can be made to bring in, or attract, the foreign exchange needed to retool and modernise most of the factories. Right now, as the country tries to gear itself up for growth in 2017, the need for investment inflows is more glaringly obvious than ever before.

Nobody will give the country the money it needs and, as we have earned for ourselves the worst credit rating on the international scale, nobody will lend it to us either. The only other option is to earn the money, but the country has crippled its earning capacity. So investment capital inflows have now become the only relatively quick option.

Zimbabwe will not receive these inflows before the country has earned the trust and respect of foreign investors.

But most importantly, trust and respect are not earned by policies that permit, even encourage, government officials to drain unearned incomes from investors by demanding fees for approvals, licences and permits, all of which exist only to elevate the authority and earnings of the officials.

Robertson is a renowned local economist.

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