The Sunday Mail
Capitalism is good, especially if you carry socially-conscious elements with it.
In fact, you cannot separate the two. Adam Smith once said: “It is the entrepreneur’s duty to take care of society.”
I’d further argue that it is essential for the entrepreneur’s own interests not only to take care of society, but to add onto that society’s wealth.
It is that society’s increased wealth that will sustain business into the future.
This fundamental relationship has been the reason for many economies to grow, and societies to develop into what we now call high income markets; predominantly the Western hemisphere, Europe, and parts of Asia.
Enter the enthusiasm behind the “Africa Rising” theme.
Has this optimism ever been explained, or have we ever found clarity as to why there’s hope that it’s finally Africa’s time?
The explanation is simply; consumer demand.
Africa is positioned very well to provide a huge base of consumer demand over the next few decades.
Across the continent, some countries are lifting millions out of poverty into middle-income status.
This is in sharp contrast to already high income markets.
Imagine it as a pyramid.
There is greater room for economic expansion when there is a wide base of people with low income. As you go up the pyramid and that base becomes smaller as people acquire greater income, there is less room for economic expansion.
The higher you go up the pyramid, stagnation appears leaving stunted consumer demand to drive further growth.
This, in effect, is what is happening in high income markets; stagnation.
Because incomes are not getting any higher, there is no consumer demand to incite more productivity. Hence, companies are sitting on cash reserves simply because there are no growth prospects to motivate investment. Likewise, this explains the hike in unemployment in these high income markets.
Businesses do not hire because of profits or strong balance sheets. They only hire to meet demand.
The global recession in 2007 was caused by high-income countries trying to go about stimulating their economies with specious demand. More specifically, inflating their economies with unbacked credit packaged as derivatives.
Their biggest financial institutions were packed with phony wealth; not tangible, sustainable, real consumer demand.
In terms of real wages, the average worker in the United States is earning 23 percent less today than he was in 2007.
In the United Kingdom in 2005, three in five people could start buying a house before the age of 30. Now only one in five people manage.
These figures indicate sharp declines in wealth, resulting in lower consumer demand in developed economies.
Now, if one can appreciate the implications of these facts, perhaps then Africa’s allure to big corporations becomes more evident. If there is a present-day “gold rush” by mega corporations and influential nations, it’s not just for resources; of equal priority is the availability of potential markets.
Coming from a background of poverty and deprivation, Africa is creating a growing middle-income population.
This presents prospects of attracting all the good things for our economies; capital, infrastructure, information, productivity and such.
The stuff that makes us happy.
Yet, Zimbabwe is missing out on this prosperity. We are not doing a good job of increasing our citizen’s wealth. We are actually regressing.
There are two main reasons.
First, we are not diversifying our economy. Our economic mindsets are narrowly dependent on primary commodities and already-existing industry.
While the importance of mineral resources is indisputable, they are finite.
Likewise, extraction and refinement are a small proportion of value (between 10 percent to 20 percent) of the final capital goods produced by developed nations.
For many capital goods, we cannot compete in value-addition; both in cost and quality.
In terms of relying on traditional industry, almost 70 percent of the companies listed on the Zimbabwe Stock Exchange were formed in the 1960s and 70s.
Is that not shameful?
The formula for diversification is innovation.
Resisting satirical appeal, it is not a definite sign of a sick economy when the top two companies in our country are a mobile operator and a brewery, especially if the mobile operator is doing very well.
Instead, it is evidence that with invested infrastructure, a demanding market and possessing a competitive advantage, specialisation is still very much a desirable factor for economic growth.
China Mobile once contributed revenues as much as 56 percent of GDP in Hong Kong. Nokia contributed a quarter of Finland’s growth for over a decade.
This is all specialisation, led by indigenous enterprises.
For us the question is: What else can we specialise in? We will never know until we adopt a culture of innovation!
Moreover, just because we have an advantage in one industry today, with globalisation as fast-paced as it is that one industry may not sustain our economy in future.
Continuous diversification is necessary.
Second, we are unwilling to open economy. We need to work on investor percepections regarding our indigenisation laws. Policy-makers must show an ability to comprehend that economic benefits of transnational industry go beyond equity ownership.
The most profitable auto-maker within the US is Toyota, which repatriates most of its revenues back to Japan. Almost 80 percent of stock equity in Finland is owned by foreign-registered entities.
Locals own an insignificant amount of equity of businesses in their country. Does this make these countries not sovereign?
Quite the contrary, they enjoy the increased standards of living that come with jobs, infrastructure, information and private service delivery.
We will derive similar economic benefits if we refine our approaches.
Furthermore, we are under the misconception that our industry is uncompetitive simply because of lack of capital.
A more precise truth is we have lagged behind in familiarity with competitive industrial technology.
Our steel mills, manufacturing plants, and other productive infrastructure are outdated.
Sure, capital will help local companies retool, but we have been idle for so long, are we familiar with cutting-edge modern industrial processes altogether?
With our closed economy, our greatest self-inflicted harm has come from increased debt within our economy.
It has trickled down from our national debt and state structures, banking sector, private sector, ultimately depressing the average citizen’s wealth.
The majority of citizens have become less wealthy over the years, and millions are struggling to live on US$350 a month.
If our own aggregate demand cannot sustain our shrinking economy, how can we dream of attracting business from outside?
What global markets are saying is true; it is Africa’s moment in the sun.
Some nations are basking in the new dawn.
Unfortunately, as we continuously fail to raise consumer demand, Zimbabwe is stuck on midnight.
