Why the economy is broken : What Zim government can do

Dr Fay Chung

THE article is divided into two Parts. Part 1 looks at what government can do, while Part 2 examines what the private sector and individuals can contribute.

Introduction

Zimbabwe is working well only for a few, while the rest are suffering. Tobacco farmers have done well, but not maize and wheat farmers. The mining sector faces the problem of prices being decided by buyers and not sellers. The manufacturing industries have shrunk to about 34% of capacity.

On the negative side, prices of basic foods like maize, bread, sugar and cooking oil are extremely high. They cost three times more than they did a month ago, but wages have not increased at the same rate. With the closure of many companies, the unemployment rate has gone up. A large number of children are unable to attend primary and secondary schools because fees are now unaffordable.

Hospitals and clinics have been without medicines and workable equipment for years now. It is difficult to get clean tap water, even in the capital city, Harare.It is evident that the economy is not working well. How can we fix it?

The forces of productivity

The forces of productivity are firstly government, secondly the agricultural and business sectors and thirdly individuals and how they spend their money. To find out what is wrong with the economy all of these three aggregate factors must be examined.

One or all of them may be problematic. Small or big adjustments by each sector could bring about substantial improvements.

Government

Government is an important leader and partner in development. The first responsibility of government is to cooperate with and facilitate other partners to develop and agree on the overall national political and economic frameworks. It is important for everyone to understand and work within these frameworks.
Zimbabwe inherited and continues to have a divisive system of governance: there is need to build consensus on a few shared principles and ideals, rather than continue to have diametrically opposed views.

This consensus should include social welfare and social development such as education for all; health for all; clean water supply; increase in the number of employed people; housing for all; etc. These basic rights were respected in the 1980s and 1990s.

l A sound economy must also devote a substantial amount of money on infrastructure and production.

This has not been the case for the last two decades.

Governments must lead in this. How governments spend their money affects everyone in their countries.

l It is essentially governments’ responsibility to develop both good macro- and micro-economic plans.

A stable currency is essential for economic growth. This has been a major weakness of the Zimbabwean government for the last two decades.

Basically this means working within what the real economy produces, e.g. how much maize and how much gold we produce tells us how much money we can print in order to have a good economy.

l The danger is the printing of money divorced from the real economy. This became a major problem after the imposition of the Zimbabwe Democracy and Economic Recovery Act (Zdera) by the United States government in 2001, which has been followed by most Western countries.

Zdera directly attacks the provision of loans and investment to Zimbabwe through the international banking systems led by the International Monetary Fund (IMF) and the World Bank (WB).

Known as “sanctions” in Zimbabwe, it has made it very difficult for the country to access foreign currency.Zimbabwe’s insistence on using the US currency enabled the United States to place heavy fines on foreign banks which do business with Zimbabwe.

Zimbabwe’s printing of money in response to Zdera caused hyper-inflation. Hyper-inflation led to the pauperisation of the majority of Zimbabweans.

What government can do

The first priority of developing a national consensus has yet to be done. Instead the two major political parties, Zanu PF and the MDC Alliance, have been at loggerheads, including the use of violence and killing of opponents and rivals.

Party politics and elections bring out extreme hostility as the two parties fight for power, ignoring the essential policies which must be in place if the country as a whole is to succeed.

Both are populist parties, out to win elections. Neither appears to be concentrating on the key practical priorities, such as whether there are medicines in the clinics and hospitals. Is there clean water for all? Is there quality of education for all?

We have party politics and elections, but we have failed to grasp the essentials that can produce unity of purpose.

At this point we need to include not only the political parties, more than a hundred of them, but all institutions of government and of civil society.

Businesses, agricultural associations, trade unions, professional associations, religious organisations, civil servants, indeed all the institutions in the country need to focus on the key achievements that are important and possible in the next five years.

We need to be specific, practical and realistic as to how we get medicines into the clinics and hospitals, how we can produce quality education, how we can create more jobs, etc.

Zimbabwe has had more than 16 economic plans, but few of their goals have been achieved.One serious handicap is that governments in most developing countries have followed the Economic Structural Adjustment Programme (Esap) advice that governments must not interfere in the economy.

Yet governments have a key role to play in all forms of development, including economic development.When governments sit back and relax, expecting others to do their job, their countries are in serious problems.

It is important to agree with the positive aspects of Esap and reject the retrogressive aspects.There are four huge and insuperable elephants in the room that we fail to address when looking at what is wrong with the economy.

If we fail to deal with these four elephants, we will fail. The first one is we continue to print money which is not linked to the real economy.
We printed ZW$4,417 billion between 2014 and April 2017 (Minister Chinamasa in Parliament, 11 April 2017), and this is the main reason why we have hyper-inflation today.

We have to stop printing money and causing hyper-inflation. We have to learn to live within our means, that is, within the real economy.

The second huge elephant in the room is the informal economy. Whilst the formal economy employs only 816 000 people, of whom about 67% are employed by government (Zimstat and USAid, Central Business Registry Inquiry Review Report, 2012) the Informal Economy employs 5,7 million people (FinScope MSME Survey 2012).

This large number of people are not catered for in the National Budget.Their needs are straightforward: they need low-cost factory shells so that their industries can work in simple shelters with electricity, water and access to communications; they need training so that their billions of dollars of low-quality goods can gradually be upgraded to export quality; and they need protection of their labour force.

The third enormous elephant is the system by which nearly all foreign currency is taken by the Reserve Bank of Zimbabwe, and then re-distributed secretly.
This system has become known as “cartels” in Zimbabwe and is known as “monopolies” elsewhere.

There are very strong laws against monopolies in western economies as they are totally destructive of economic growth.Monopolists are fined or imprisoned in those countries.

The Zimbabwean monopoly system has enabled RBZ grants to favour powerful political individuals and companies, and they are in a position to undermine and even destroy parts of the economy.

The fourth elephant is the high level of corruption in the country, most of it linked to the government and parastatal budgets.

So far, little has been done to stem this outflow which is highly destructive of development and also hinders the entry of foreign direct investment.

Chung was a secondary teacher in the townships (1963 – 1968); lecturer in polytechnics and university (1968 – 1975); teacher trainer in the liberation struggle (1976 – 1979) ; civil servant (1980 – 1987); former minister of education (1988 – 1993); UN civil servant (1994 – 2003.)These weekly New Perspectives articles are coordinated by Lovemore Kadenge, immediate past president of the Zimbabwe Economics Society (ZES). Email kadenge.zes@gmail.com & Cell no. +263 772 382 852

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