Private enterprise key to economic recovery

“We owe it to all the peoples of the sub-continent to ensure that they see us not merely as good leaders waxing lyrical about our development, but as front commanders in the blast furnaces of labour, productive investments and visible change.” — Nelson Mandela

Vince Musewe,Economist

Economic freedom seems to be eluding the whole of Africa. Reading the book- Why Nations Fail by Daron Acemoglu and James A Robinson leaves one with sadness in that, despite Africa having some of the world’s largest natural resources, we remain locked in a cycle of poverty. Most of it has to do with our history of course, but we in Africa, have also been responsible for creating the continuing inequalities through apathy, mismanagement and corruption. We therefore cannot continue to blame the past.

Africa’s rise, which is being punted by international development agencies, is unfortunately not distributive, but is a consumption-driven boom that will merely result in Africa’s bourgeoning middle class consuming more goods from Europe, China and the United States. Africa is failing to manufacture and consume its own products and thus unable to create sustainable developmental states.

It is difficult to disagree that colonialism survived on extractive racial political and economic systems. Although it developed substantial infrastructure and public administrative systems in countries such as Zimbabwe, the liberation parties inherited skewed development patterns and rent-seeking economic structures which were geared solely to export raw goods for manufacture overseas. Unfortunately nothing has fundamentally changed and this continues to make our economy vulnerable to international commodity prices.

Extractive economic systems are not sustainable because they limit economic freedom and free enterprise. Inclusive economic systems that protect private property rights, create fair access to economic opportunity for all, encourage investments in new technologies and skills are more likely to create better societies and developing societies. That is the Zimbabwe which we are trying to create.

Acemoglu and Robinson capture our fundamental challenge when they proffer that: “Economic growth and development will never be sustained under extractive political systems for two main reasons. The first being that sustained economic innovation cannot be decoupled from creative destruction, which replaces the old with the new in the economic realm and also destabilises established power relations in politics. This is because dominant elites fear creative destruction and they will resist it at all cost. Any economic growth under such conditions will therefore be short-lived.”

Second, the ability of those who dominate extractive political systems to benefit at the expense of society means that political power is highly coveted and all will fight for it, not because they seek to create better conditions, but merely to wield unchecked political power. Because of this, there will always be political forces pushing for political instability.

Explaining the failure of private enterprise in Mozambique, Greg Mills and Jeffrey Herbst in their book Africa’s Third Liberation say that: “The failure to attract private funds is linked to overall tensions in Mozambique’s business sector that arise from widespread protectionist sentiment against investors and a state-centric and interventionist response to development demands, where the private sector is over-regulated and subject to over-bureaucratic practices, crowded out by the state-linked actors, and a target for elite rent-seeking and resource nationalism.”

In Zimbabwe, it is now clear that we are trying to reverse this limiting psychology as we begin to appreciate that it is only when we have succeeded in creating a vibrant free economy that we can begin to achieve our social developmental objectives. A successful private sector must be looked at as a source of revenue and growth and not a political threat. The private sector is therefore not an enemy but the engine for growth.

The first thing we need to do is to expunge or transform all legislation, policies, practices and institutions that limit free enterprise and economic freedom. We must then increase the level of domestic and foreign investments. This will mean that we have to reduce the costs of maintaining a huge government bureaucracy and spend more in capital formation to create future productive capacity.

We must make it easy and less costly to do business and also pay special attention to how we incentivise a savings culture. The role of our government must be to create the infrastructure that allows business to prosper while creating a safety net for those that need help.

The efficient collection and allocation of resources by a government in a transparent manner is critical. This means that we are all accountable for the use of public funds and resources. Without this in place, we cannot lead by example. We have seen how lack of accountability leads to discretionary policy measures that seek to address political fears and not economic needs. In pursuant of this, the national budget must become the tool which we use for accountability and efficiency.

We must see better regulation of the financial services industry. A strong financial sector is good for private enterprise.

Critical to this is an independent and effective central bank and good governance and ethical culture within the banking industry.

Where private property and innovative ideas are protected by law, societies tend to be more innovative and are able to invest in new ideas, knowing that they will benefit. The funding of research and development becomes important and must therefore be encouraged through incentives to the private sector.

Underlying all this must be a clean and accountable government, the respect of human rights, the rule of law and an inclusive culture where all Zimbabweans participate in the creation of a new ethos that says Zimbabwe belongs to all its citizens.
This is exactly what the recently launched investment guidelines and opportunities policy is seeking to achieve. A successful implementation of this policy will certainly see Zimbabwe rise, but it will not happen on its own. Zimbabweans need to begin to look ahead to the future and apply their energy and efforts on building a new economy and focus less on contentious political contestation.

Foreign investors are attracted to those countries which have a vibrant and positive business sector. We must therefore rebuild a local and vibrant private sector that is not in contestation with government, but that works with government as a partner. This also requires government to be open to new ideas and adopt a consultative approach as opposed to an arrogant prescriptive approach of the past.

There is no doubt that the penny has dropped and we are certainly going to see a transformative developmental paradigm emerging. Political will and leadership, despite the odds, will be key.


Musewe is an independent economist and author. These New Perspectives articles are co-ordinated by Lovemore Kadenge, president of the Zimbabwe Economics Society. Cell +263 772 382 852, e-mail: kadenge.zes@gmail.com