THE introduction of the foreign exchange interbank market by the Reserve Bank of Zimbabwe (RBZ) in February 2019 was a major milestone towards free market economics.
Despite fears of government manipulation, the foreign exchange market provides the basis upon which currencies can be valued or traded freely by all market players instead of it being an unsubstantiated proclamation as was the case with the bond notes to US dollar rate of 1:1. Zimbabwe has traditionally been an overregulated or command economy with the government playing overstretching roles in key economic sectors such as energy and petroleum, agriculture, mining, banking, media and broadcasting, telecoms, health and transport services among others. It did not matter whether the roles were conflicting or not; from legislation, regulating, business ownership (competitor/supplier), consuming, financing and tax collecting at the same time or in the same industry.
Typical cases of excessive regulation can be observed on how Zimbabwe Electricity Supply Authority (Zesa), Zimbabwe Broadcasting Corporation (ZBC), National Railways of Zimbabwe (NRZ) and Grain Marketing Board (GMB) play conflicting roles in their respective sectors.
The services offered by these organisations speak volumes about the demerits of command policies to the economy.
The conflicting roles have nurtured inefficiency in resource allocation thus creating market shortages, limited innovation and growth, high levels of unemployment, corruption and limited private sector investment to the detriment of economic development.
A free market economy is a system based on supply and demand with minimal or no government controls. Supply includes goods and services, natural resources, capital and labour. Demand includes purchases by consumers, businesses and the government. Free market economics compel corporates to grow and innovate to satisfy demand with a clear motive of attaining economies of scale and profit maximisation. A key feature of a free market is the absence of forced transactions or conditions such as price controls, property seizures, government threats and dictatorial economic policies.
In essence, production and consumption of goods and services is voluntary. Individuals are free to acquire, consume or produce as much as their own needs require. While there are no pure free market economies in the world (even in so-called First World countries) with most nations practicing different levels of mixed economics. However, the degree of freedom in the economy relates positively to growth in private sector investment and economic prosperity.
A classic example of how free market policies develop the economy can be found in the unbundling of an inefficient Posts and Telecommunications Corporation (PTC) in the year 2000 to form NetOne (mobile telecoms), TelOne (fixed telecoms) and Zimpost (postal services). The sector was liberalised soon after, resulting in the licensing of Telecel, Econet, Africom and TeleAccess. A host of other private sector investors also got operating licences for fibre optic installations, internet service provision, mobile financial and technology services. Today telecommunications in Zimbabwe is a highly competitive, multi-billion dollar sector which contributes close to 10% of Zimbabwe’s GDP and is highly integrated with financial services. The sector has churned out innovations in mobile payments, internet and data services which have improved financial inclusion even in the remotest parts of the country and creating jobs, thereby lifting thousands out of poverty. Zimbabwe’s payments ecosystem is one of the most digitalised in Africa, with over 95% of national payments being done through electronic means.
The telecommunications sector is still regulated to ensure that the consumers are protected and to prevent unfair business practices but there is no question about efficiency in the industry. The ongoing efforts to privatise selected players in the sector will go a long way in unlocking private sector investment and inducing competition.
Free market policies could have happened to electricity generation, broadcasting services, railway transportation, aviation and grain marketing, thereby unlocking multiplier effects to the whole economy in terms of enterprise growth, direct and indirect employment creation, tax revenues and innovation.
Recently, the government enacted Statutory Instrument 145 of 2019 (Grain Marketing Control of Maize Regulations) which bans the buying and selling of maize among unauthorised persons in Zimbabwe. The law further prohibits any person or entity from buying or acquiring maize from producers other than through the GMB. The Statutory Instrument also bars the transportation of bulk maize from one area to another and limits producers to transporting a maximum of 5 bags not exceeding 50 kilogrammes per bag, from one area of the country to the other without any authorised person or police officer confiscating the maize. Simply put, the government is legally the sole buyer and seller of maize in Zimbabwe.
Victor Bhoroma is an economic analyst. He is a marketer by profession and holds an MBA from the University of Zimbabwe (UZ). For feedback, mail him on email@example.com or alternatively follow him on Twitter @VictorBhoroma1.