Open Economy: Finance Minister sets sail in the right direction!

I am consistent in my belief that our greatest economic flaw is that our economy is overly dependent on State enterprises.

With a highly efficient and systemically disciplined Government, this would not really be a problem.

However, we have consistently been inadequate on those fronts.

As a result, the only solution would be to reduce this State enterprise dependence. Minister Chinamasa seems to be warming up to this idea.

Addressing the Institute of Chartered Accountants of Zimbabwe at a recent conference, he suggested shutting down non-performing State enterprises. He conceded that these entities were indeed burdensome to the economy and questioned their sustainability.

A reduced role for State enterprises inherently creates space for greater private sector involvement.

It would serve us well then to consider a few points with regards to our perspectives on the private sector.

First, a fundamental benefit that the private sector has over State business is that private enterprise has an unlimited growth ceiling. Where a State enterprise has a defined infrastructural and service provision absolute, private enterprise is only bound by the extent of imagination, creativity and ingenuity.

Hence, for an economy desperate for growth avenues, it would only make sense for economic activity to be highly leveraged on private enterprise.

Second, our current national entrepreneurial drive should be reassessed in regards to whether it should be State led. I believe it must exist as a self-sustaining sector led by private industry; or at least led by industrial interest groups like the Confederation of Zimbabwe Industries and the Affirmative Action Group.

In that way mentorship would come naturally because of a vested interest for businesses.

If industry is directly invested in human capital development programmes, youths will be under direct guidance and tutelage of industrial participants. Such proximity would help youths conceive business solutions that attend to actual market gaps.

This is why one finds that most youth ideas are theoretically sound but do not play out so well in realistic market conditions.

The State is currently expending resources training large numbers of youths on skills that are theoretically good, but are proving to lack space in the real business environment.

Third, many opponents will fright at the prospect of greater private enterprise and label such ideals as neo-liberal. They must chill out.

There is need for State involvement.

The greatest impact that Government can have right now is in providing a conducive macro-environment for business. That means being less of a participant but more of a regulator.

Indigenisation and empowerment laws, environmental laws, operating licences and so on, are means of regulation that retain ultimate discretion of our economy to the state. Regulation, however, not only gives Government control, but when done properly creates an environment where private entrepreneurship can thrive.

Fourth, I think we should start calling the informal sector for what it really is – the marginalised private sector.

“Informal” carries a connotation that such enterprise is unlawful and indecent. Maybe if we expressed this sector for what it really is, then we would be able to acknowledge that we are letting down participants of that sector by not creating a better environment for their operations.

I have always been curious why we have never invested around centres of informal activity such as Mbare Musika. If it is true that at its peak, more than US$5 million circulated every day, an entrepreneurial savvy State would invest around this centre point.

Roads, toilets, refurbished trading stands, security and a cleansed environment to attract greater numbers to join the economic activity should be the focus. Such steady investment in surrounding infrastructure is all that is needed to create order that formalises economic activity at such a trading point.

For example, registered trading booths where participants would pay a fee to conduct business would become an income source for the state. An ever-growing informal sector suggests Government is not guileful as an industrial identifier and is ineffective as an economic enabler. Government must appreciate economic activity for what it is, invest around it, and it will reap the benefits. Let me tell you a little story.

In 2005, two gentlemen by the names of Logan Green and John Zimmer took a trip from the Unites States to Zimbabwe. At the time fuel shortages caused a breakdown in public transport.

Trying to find his way around the city, Green came across a group of locals who ran an informal carpool business. The local group used phone referrals to build their network of clients. Inspired by the simple idea, Green went back to the US and designed a website called Zimride that had the same business model that he had seen in Harare. Today, Zimride, now called Lyft, is the largest ride share community in the United States. It is worth US$250 million.

This is just one idea that was born in our informal market. One can only wonder how much value and potential industry lie within our informal market – I mean marginalised private sector.