Rebuilding starts with strong institutions

VICTOR-BHOROMA.jpg

Victor Bhoroma

It is now apparent that Zimbabwe’s socio-economic status needs rebuilding and radical reforms if the country is to develop. The economy is set to contract by at least 6,5% in 2019, according to data from the Treasury department, while the International Monetary Fund (IMF) predicts that the decline will be more than 7,1%. This will be the first economic decline since 2008 when the economy retreated by over 9,9%.

The economic decline has also seen a sharp increase in unemployment levels and a spike in poverty levels with over 90% of the population now classified as poor. According to the World Bank 2019 Report, extreme poverty in Zimbabwe is estimated to have risen from 29% in 2018 to 34% in 2019, an increase from 4,7 million to 5,7 million people, over a third of the population.

The increase is driven by economic contraction and an upsurge in prices of food and basic commodities.

Inflation rate has spiked to over 440% for October 2019 while production across all economic sectors is tumbling. In terms of key national infrastructure (i.e. railway and roads, energy generation, health and sanitation), the decay is palpable.

Despite boasting of incredible economic potential in tourism, agriculture, mining, energy generation and education, Zimbabwe remains one of the poorest countries in the world with Gross National Income (GNI) per capita of less than US$1 025.

It is often said that if you want to predict the prosperity of a country, just look at its institutions. The economic challenges that bedevil Zimbabwe today have little to do with lack of natural or financial resources.

It has everything to do with the decay of the country’s institutions since the early 1990s. Institutional decay has now become more pronounced due to economic hardships even though it has been brewing for close to three decades.

Institutions can be formal or informal. Formal institutions are established and constituted by binding laws, regulations and legal orders which prescribe what may or may not be done. Informal institutions, on the other hand, are constituted by conventions, values and accepted norms, whether economic, political or social. In socio-economic terms, institutions are the rules of the game in various organisations or the systems that shape incentives for human interaction.

The most important institutions to Zimbabwe’s socio-economic recovery include leadership and governance systems, democracy and constitutionalism, rule of law, independent judiciary, authoritative legislature, and respect for property rights, monetary and fiscal policies, free and open markets (including financial) and contracts enforcement.

Leadership and governance systems

Leadership is key in defining Zimbabwe’s long term vision and ensuring state resources are efficiently distributed to solve national problems such as poverty, poor health care, energy shortages, infrastructure degeneration, high inflation and foreign currency mismanagement. Leadership and governance pertains to the policies by the executive arm of government in influencing socio-economic development.

For Zimbabwe to develop, there is need for a culture change from bad governance to good governance. This involves inclusive governance, meritocracy, pragmatism, transparency and accountability with state resources.

The Auditor-General’s reports, dating as far back as 2014, have highlighted various aspects of mismanagement of public funds and lack of accountability at all levels of local and central government.

The starting point in transparency is to take these audit reports seriously and implement the governance reforms stated in them. Good governance in Zimbabwe will also entail devolution of power to provinces to ensure equitable distribution of wealth.

Authoritative legislature

The role of parliament is to debate and enact laws that promote national development, and to advance the aspirations of the electorate. Critically, the legislature enforces checks and balances on the executive for transparency and good governance in accordance with the country’s constitution.

Zimbabwe’s parliament requires far reaching authority to summon any party to its committees and its recommendations should carry legal consequences. Good governance in Zimbabwe will remain a pipedream if the government can carry unauthorised expenditure of about US$9,7 billion in four years without seeking parliamentary approval within the constitutional time limits, and that expenditure is passed on to the tax payer in form of debt.

This misdemeanor will be repeated over and over again rendering parliament ineffective in instilling good governance.

Rule of law and property rights

Rule of law provides economic stability and certainty in economic transactions backed by the country’s judicial institutions. Property rights refer to the legal ownership of resources, either tangible or intangible and how the resources can be used by the owner. These resources include land and capital. Ownership allows people to produce, buy and sell goods and services at a profit.

Zimbabwe’s history is littered with violations of property rights and inadequacies of the rule of law hence confidence has sunk to the lowest levels. Cases such as the raiding of foreign currency accounts (FCA) by the central bank in 2009, incessant and arbitrary acquisition of land, assets or mining claims belonging to private investors by the government tarnish the image of the country.

Without the rule of law and protection of property rights, attracting investment (local or foreign) will always be a tough task for the government.

Free and open markets

A free market is an economic system based on supply and demand with minimal government controls.

While there are no pure free market economies in the world, the degree of freedom in the economy relates positively to growth in private sector investment, Public Private Partnerships (PPPs) and economic prosperity.

Zimbabwe’s economy is still overregulated in some sectors with various laws and bureaucracies negatively discouraging private sector investment.

Typical cases of excessive regulation can be observed on how Zimbabwe Broadcasting Corporation (ZBC), National Railways of Zimbabwe (NRZ) and Grain Marketing Board (GMB) play conflicting roles in the regulation of their respective sectors.

The past three years have seen more government controls on agriculture and petroleum to the detriment of economic growth.

Lack of free market mechanisms also create corruption, market shortages, pricing distortions and unequal distribution of national resources.

The biggest constraint to free market economics in Zimbabwe is political interference on the operations of state enterprises and parastatals (SEPs), especially regulatory authorities.

Rebuilding Zimbabwe requires free market policies that provide incentives to businesses while the government concentrates on tax collection for its primary responsibility of providing a safe and stable economic environment, public goods and managing the negative externalities for economic growth.

Monetary and fiscal policies

There is a strong case for the independence of the central bank’s monetary policy function considering the economic demise caused by excessive money printing in the past, and the collusion between monetary authorities and the executive for short-term political motives.

Monetary policy independence will force the government to live within its means (i.e. spent within collectable tax revenues) or cut unproductive expenditure. Fiscal policies reflect on Zimbabwe’s taxation systems and channeling of public funds to projects that promote socio-economic development.

The country’s tax regime needs to provide incentives to new investment, strategic and struggling industries to reduce the cost of doing business. A heavy tax burden breeds tax evasion and informalisation of the economy.
Rebuilding Zimbabwe starts with building strong institutions that are not mirrored on short term political agendas or personal ideologies but on the constitution of the land that promotes common good for socio-economic development. Any change that doesn’t encompass reforming the country’s poor institutions is akin to changing a navigation system of an automobile with no fuel.

Institutions induce hope, trust and investment confidence by providing policing and justice systems for the adherence to common laws and regulations.

As such institutions increase the security that the risk of incurring in an economic transaction is matched by the full assumption of its commercial benefits. Proper alignment and reforms to Zimbabwe’s institutions can correct the negative impact of decades-long misgovernance and mismanagement of public resources in a very short period of time.

Above all, Zimbabwe’s economy will stand above individuals or organisations of the day and be guided by principles, policies and systems that are perpetual.

Bhoroma is an economic analyst. He is a marketer by profession and holds an MBA from the University of Zimbabwe. — vbhoroma@gmail.com or follow him on

Twitter: @VictorBhoroma1.

Top