Prosper Chitambara: ACADEMIC
Government is in the process of crafting a National Development Strategy (NDS), that will run from 2021 to 2025. The NDS will replace the Transitional Stabilisation Programme (TSP), which was launched on October 5, 2018, and is running until December 2020.
It is vital to take stock of the TSP in terms of its successes, challenges and key lessons.
The focal areas of the TSP include: stabilising the macro-economy, and the financial sector; introducing necessary policy, and institutional reforms, to transform to a private sector led economy; and launching quick-wins to stimulate growth. The TSP is underpinned by Vision 2030: Towards an Upper Middle-Income Country.
A major critique of the TSP is that there were no effective consultations and dialogue with key stakeholders to reach a consensus and to achieve buy-in and support.
A major reason for policy stillbirth and failure is the lack of effective participation by key stakeholders and the citizens in policy formulation. Development is not a top down approach, but rather a bottom-up approach.
This is key to ensure that no one is left behind. The TSP is also based on shock therapy (a big bang structural adjustment approach). Such an approach is, however, not desirable for a country like Zimbabwe, that has serious capacity constraints in a number of areas.
Developmental welfare states adopt a sequential and gradualist approach that focus on attacking the most binding constraints to development incrementally, rather than trying to address many constraints simultaneously.
In the words of Rodrik (2007), “development success requires not a ‘big bang’ approach, but, rather, a selective, sequential, and often unorthodox approach that accounts for country-specific circumstances.
The TSP envisaged overall real GDP growth percentage of 6,3 (in 2018); 9,0% (in 2019); and 9,7% (in 2020). While the TSP has clear economic growth targets there are no explicit targets on employment creation and poverty reduction.
The TSP is therefore not based on a holistic approach to sustainable development that integrates economic, social and environmental imperatives and considerations.
The TSP is therefore predicated on the underlying conventional macroeconomics assumption of “trickle down” that once economic growth is attained that will automatically result in employment creation and poverty reduction.
Also given that future economic growth is projected to be underpinned by the natural resource sectors (in particular mining) it is highly unlikely that a lot of employment opportunities would be created owing to high capital intensity. Such a projected growth pattern will also likely result in many people being left behind and left out of the growth dynamic.
In terms of macroeconomic performance, the overall real GDP growth targets for 2018 and 2019 were missed. In 2018, the economy only grew by 3,4% against a TSP target of 6,3%, while in 2019, the economy declined by -6,5% against a TSP target of 9%.
The economic growth target for 2020 will also be missed with the World Bank projecting economic decline of -10% for 2020 against the TSP target of 9,7% owing to the Covid-19 pandemic among other factors. Likewise, the inflation targets for 2018 and 2019 were missed. The target for 2020 is also likely to be missed with the IMF projecting an average annual inflation of 221% for 2020.
Revenues (% of GDP) fared below targeted performance in both 2018 and 2019 on account of the economic slowdown. However, the expenditures (% of GDP) targets for both 2018 and 2019 were achieved.
This resulted in the country attaining a budget deficit (% of GDP) of -5,3% in 2018 against a target of -9% and a budget surplus (% of GDP) of 0,6% in 2019 against a target of -5,2%. The country also attained a positive current account balance (% of GDP) of 0,41% in 2018.
The Zimbabwe is open for business mantra has shown an obvious bias towards attracting Foreign Direct Investment (FDI). Empirical evidence and case studies from both developed and developing countries have, however, shown that micro, small and medium enterprises (MSMEs) have the greatest potential of creating employment and contributing to gross domestic output (GDP) if well harnessed and supported by a conducive policy, regulatory and institutional framework.
MSMEs also have great potential of being successfully linked with local, regional and global value chains. In China, for instance, the Township and Village Enterprises (TVEs) have underpinned the Chinese growth success story.
Government must therefore adopt an active bias towards supporting and facilitating local businesses and investments. For foreign investments to thrive they must be anchored by a strong and thriving local business sector. In fact, foreign investment must complement and not supplement local investment.
Underemployment and informal employment are widespread in the country, with large numbers of people involved in precarious and vulnerable employment.
Most of the employment opportunities in Zimbabwe are in the informal economy, which is characterised by low productivity and poor working conditions.
According to the 2019 Labour Force and Child Labour Survey, 75,6% of total employment is informal. The high level of informality also presents challenges for domestic resources mobilisation, as it has eroded the tax base.
One reason for the high levels of informality is the onerous and distortionary tax regime (there are so many taxes, levies, statutory fees and other unofficial charges through corruption which increase the overall cost of doing business).
This has discouraged formalisation, while seriously eroding competitiveness. It has been demonstrated in empirical literature and country case studies that having so many taxes and levies encourages tax evasion and forces small businesses to go or remain, informal. It has also been shown that tax compliance rises as tax rates fall.
A major challenge for creating decent employment opportunities is the challenging doing business environment and regulatory framework.
Estimates from Enterprise Surveys for the African continent reveal that about 1,3 to three million jobs are lost every year owing to administrative hurdles, corruption, inadequate infrastructure, poor tax administration, and other red tape.
This figure is close to 20% of the new entrants to the labour force every year. Doing business reforms aimed at simplifying and streamlining the business environment are vital to realising the full the potential of the private sector to create decent job opportunities.
It is necessary and desirable to rethink the current conventional macro-economic thrust. Conventional macro-economic policy framework inordinately focusses on the attainment of macro-economic stability as an end in itself, at the expense of employment creation and poverty reduction.
It has been observed in many countries that, obsession with eliminating fiscal and current account deficits, if achieved through cutbacks in public expenditure, especially on development and social services, can retard the process of growth and result in an increase in poverty.
It is vital to ensure that future macro-economic and development policies are based on the following principles: the adoption of a holistic approach to development, integrating economic and social imperatives; ensuring that explicit employment and poverty targets are mainstreamed in all the macroeconomic and development policies.
Employment creation is very important in the fight against poverty, as it provides an important link between economic growth and poverty reduction; and rebuilding and strengthening the role of the state as a basis for transforming it into a developmental welfare state. A developmental welfare state, therefore, is a state which actively invests in the well-being of its citizens, as well as boosting the capacity of its economy. It prioritises investments in both social and physical capital.
The developmental welfare State puts its people and their welfare first in the development process. An important feature that characterises a developmental welfare state is relatively low levels of corruption, state capture, patronage and rent seeking tendencies.
Chitambara is a scholar based in Harare. These weekly New Perspectives articles are co-ordinated by Lovemore Kadenge, immediate past president of the Zimbabwe Economics Society. — firstname.lastname@example.org or mobile +263 772 382 852.