The Zimbabwean economy has been in the doldrums for a long time, long before dollarisation in 2009 and long before the land reform programme in 2001. Zimbabwe started to experience Gross domestic product decline in 1996. The latest policy reform has seen the end of the multicurrency era and the final nail in the coffin of using the US dollar as a unit of account and as legal tender. This has been explained by its proponents as the way to improve the competitiveness of Zimbabwean exports on a pricing basis by using a weaker currency, the reinvigorated Zimbabwean dollar. Now, all we have to do is produce to stabilize the economy. Not so fast!
First, let’s look at the factors that have constrained Zimbabwean production and led to a lack of competitiveness. It’s easy to explain away our problems with the US dollar being an expensive currency but let’s look deeper into the actual problems.
Firstly a dire lack of investment in infrastructure. Due to strained relations with Western powers which in turn soured relations with international financiers Zimbabwe’s foreign direct investment plummeted. This is only half the story of course. A look at two of the fastest growing economies on the continent, Ethiopia and Rwanda reveals that infrastructure investment in these two countries is actually spurred by government and ruling party related companies. Zimbabwe, in contrast, has invested only 11% of its government expenditure in infrastructure development.
The result of this particularly when you look at our energy constraints is relying on dilapidated infrastructure that produces at less than 30% capacity.
Apple CEO Tim Cook explained that the company prefers to use Chinese manufacturers for reasons beyond lower labour price as the partners also have design input capabilities that make their offerings better than many around the world. The skills flight in Zimbabwe over the years has seen an effective brain drain due to lost expertise and knowledge share. This ultimately means our production methods are also hampered by this. A look at grain farming reveals that European farmers despite a less favourable climate for grain produce 8 to 11 tonnes per hectare while in Zimbabwe we estimate 4.5 tonnes per hectare.
Well, this needs little explanation as in the course of the last 5 years Zimbabwean businesses have had to go from US dollars to US dollars plus Bond Notes at parity, to US dollars and bonds without parity to the RTGS dollar/Zimbabwean dollar. This, of course, wreaks havoc in terms of investment planning. And it’s not just monetary, indigenisation policy and other industrial policy have come in, been chopped and changed them gone out. Investors are happy to take a risk but shy away from uncertainty.
Weak domestic competition
Without much going on in the country, the battleground is fairly smooth. However, when exporting our products they meet tough competition, competition they are not accustomed to. As such they do not stand up to international pressure. Contrast with the competitiveness in domestic markets for German automobiles, Chinese manufacturing, Asian mobile technology and French fashion design. The domestic competition makes them stronger.
So it as not as simple as drop the price and produce but rather many many other factors still need to be fixed. Yes, the country needs a monetary system which can be manipulated to suit our needs. Without addressing the other factors involved we have not yet started on the road we need to go down. Reserve Bank Governor and Finance Minister Professor Mthuli Ncube spoke at length yesterday about the fact that Zimbabweans were not investing in production as it was cheaper to buy and resell not to mention the faster turnarounds and degree of certainty associated with this strategy. This should serve as a signal to the custodians of our economy that the fundamentals are not in place. For surely if it is cheaper and more viable to eat out than cook at home the rational mind will choose to eat out every time.
As much as we would love to have a knockout punch of an economic policy that deals a deathblow to our economic problems life rarely works like that. Much more and deeper reforms are needed if we are to yield anything from the return to a local currency unit. Confidence is not a fundamental, confidence is a result of the feelings about the fundamentals.