It is the intention of every progressive government to pursue and fulfill the key macro-economic objectives of low unemployment, low inflation, a balance of payments surplus and economic growth.
With the current inflation rate just lower than 800%, unemployment rate at over 85%, a persistent negative balance of payment and negative economic growth, Zimbabwe is literally in an economic abyss.
In economics, it is understood that trade-offs are bound to be there when these objectives are pursued, for instance, according to Philips, when trying to achieve the objective of a lower rate of unemployment the inflation rate is bound to be high. However, nothing of that sort is transpiring in our case, everything is on the wrong end of the statistics.
The Zimbabwean economy has been a bone of contention for nearly the past three decades internally and externally. From adopting the IMF economic structural adjustment programme; participating in the DRC war to the land reform programme and several economic blueprints being adopted — the country has faced a myriad of economic challenges.
Several prescriptions have been adapted and adopted but nothing seems to quell the economic doldrums. It is against this background that this article tries to unravel the source(s) of our problems and proffer some recommendations.
Misinformed decision-making on the part of the authorities can be tagged to the adoption of the structural adjustment programme adopted in the early 1990s as the country was programmed the Friedmanite way.
The adoption of the free market package saw the downsizing of the public sector, massive layoffs also occurred in the private sector and aggregate demand contracted. The economy shrank and as result failed to accommodate those who have been laid off.
Most of them plunged into poverty. The country got entangled into a vicious debt trap which it is failing to unshackle from. Our credit worthiness hit rock bottom and the BOP support has been severed since the late 1990s.
Unabated government expenditure up to this day continues to cripple efforts of recovery. Millions of United States dollars were spend financing the DRC war and populist programmes such as command agriculture to mention just two. This causes serious budget deficits which happen to be financed by a heavy tax burden and or high interest rates. These instruments cause the crowding out of private sector in the economy and as a result curtail economic growth.
The land reform programme undertaken in the beginning of the new millennium though noble has turned the country into a basket case.
Those who benefited either lack capacity to undertake productive farming or some are generally not into farming-own land as a status symbol. Massive audits have to be undertaken. This has affected the gross domestic product and balance of payments negatively in real terms.
Lack of accountability, exacerbated by massive corruption, is also a cancer deeply entrenched in the economy. Other economies have survived and grew even under the yoke of sanctions, Zimbabwe prior independence included.
Financial discipline is paramount and this involves avoiding expenditure on misplaced priorities. Our country is endowed with a vast mineral resource base, but proceeds (billions of dollars), for instance, from the Marange diamonds vanished into thin air.
Instead of being in state coffers, funds got lined into a few private pockets. Beneficiation of such natural resources should be prioritised so as to increase their value on the world markets. Strategic nations create sovereign wealth funds for a nation’s natural resources.
Such funds are handy in capitalising the productive sector of the country which is currently operating far below capacity rendering our country a net importer.
Linked to the above is the problem of policy inconsistencies and reneging by authorities. The indeginisation act is a very good example of policy inconsistency whereby its interpretation by line ministries was different. This had the negative effect of scaring away investors. Multinationals winded up operations and aspiring investors do not enlist our country as a good investment destination.
Land is also one contentious issue if recent pronouncements by the government are anything to go by. Other policies are done away with midair their implementation and this negatively batters the confidence of concerned stakeholders. Policies must be well-articulated and should reach a fitting epitaph in-so-far as their implementation is concerned. Monitoring and evaluation techniques should be applied.
With the authorities in fire-fighting mode; the course of this year saw the RBZ presiding over the revoking of agent lines, which affect largely Econet (major player) as well as the deactivation of the local bourse (ZSE) for allegedly fueling currency black market.
Addressing the root cause of arbitrages in the exchange rate is the panacea. Such actions imply the lack of respect to property rights. Macro-economic fundamentals need to be fine-tuned to stir productivity and thus enhance economic growth. In his own admission, former RBZ governor Gideon Gono pointed out that the interference by the government through the presidium and fiscal authorities (through capitalising on clauses in the banking act) as a major setback to financial autonomy by the apex bank. This results in its engaging in quasi-fiscal responsibilities which are detrimental to the economy.
Another major hindrance to gaining economic mileage is the political environment. There is a thin and fragile line between politics and economics.
The constant bickering of political parties on the democratic space raises a red flag especially to foreign investors. Foreign direct investment has dwindled over the years and this reflects on our shrinking economy.
As a nation we should exude political maturity in order to instill confidence locally and internationally. Economic fundamentals should be fine-tuned into a people centric and growth package.
Purazeni is an economist. 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.