Failure to read the signs: Curse of a generation

30 Sep, 2018 - 00:09 0 Views

The Sunday Mail

Doomsday critics are having a field day, especially on social media.

For them, signs of an imminent economic implosion they predicted – which they believe is a direct result of having a Zanu-PF Government in power – are everywhere.

For the first time last week, US$100 was being exchanged for $210 bond notes, as the latter continued to lose ground.

Prices, especially of basic commodities, continue to creep up.

And, yes, the critics also point to a growing negative trade balance too.

By June this year, the country’s trade deficit had widened by 44 percent to $1,4 billion from $1 billion in the same period last year.

All this, they say, is a sign that the sky is falling.

And how this is possible, where tobacco production has risen to a remarkable 250 million kilogrammes – the highest ever recorded since commercial production began in 1894; and maize production has jumped to more than 1 million metric tonnes – guaranteeing food security and reduced imports – is difficult to reconcile.

During the 2018 marketing season, cotton deliveries have also risen the most in five years at 130 000 tonnes from 70 000 tonnes last year, a 76 percent jump.

It is difficult to also reconcile how an economy can tank when gold production, which has headlined a stellar performance in the sector, has since matched last year’s output of 24,8 tonnes, with four months to go before year-end.

So, overall, it is unconscionable to have an anemic economy at a time when it is receiving critical lifeblood from agriculture and mining.

Failing to read the signs

That the economy is not in good shape cannot be disputed, but that it is collapsing, particularly when the economic fundamentals are getting even stronger, is implausible.

A nuanced interrogation and interpretation of the numbers can prove quite helpful.

While the country continues to import more than it exports, the consumption patterns have shifted towards the import of capital goods.

The pro-business drive of the new administration seems to be resonating in industry.

In the six-month period to June 30, the import of consumer goods fell by 34 percent.

The trend continued in July, where energy imports – fuel and electricity – rose to $143 million, which is 42 percent of the monthly import bill.

Most notably, machinery imports jumped to $15 million from $1 million in the same period a year earlier.

It is not surprising that as industry recovers, it is developing a gluttonous appetite and demand for hard currency, which ordinarily is not readily available on the formal market.

It therefore becomes clear that the parallel market rates are mainly being driven by companies.

Demand for fuel, according to energy regulator Zimbabwe Energy Regulatory Authority (Zera), has also been progressively rising since the beginning of the year.

In the January to March period, diesel and petrol consumption rose 8,5 percent and 22 percent, respectively, from the same period in 2017, while consumption of Jet A1 fuel soared by 35 percent.

The exponential growth in demand has since forced the Reserve Bank of Zimbabwe (RBZ) to increase foreign currency allocations for fuel importers from $12 million to $20 million per week.

According to the time-tested law of demand and supply, where mismatches of demand and supply occur, arbitrage naturally kicks in and, in our case, the premium that continues to be placed on the scarce US dollar continues to rise and, with it, the price of commodities.

Proven economic phenomena

The paradox of seemingly conflictual economic variables, where growth – as evidenced by production and exports (which has risen 16 percent in the January-June period – co-exists with raw material shortages and price increases has been studied and noted by development economists.

Coincidentally, it is the same disease that affected China when it embarked on a mission to lift its people out of poverty.

Similar to the current path that is being taken by President Mnangagwa, Deng Xiaoping tried to open up China to investment and drive and ambitious agenda of economic growth when he took over in March 1978.

Economic conditions progressively improved, but in 1985, barely seven years after sweeping economic reforms, the Asian country ran into exactly the same problems that the Zimbabwean economy – with the added inconvenience of sanctions from the US – is presently grappling with.

As Chinese companies imported more raw materials and machinery for industry, the country trade balance deteriorated markedly.

In his book “China Emerging: How thinking about Business Changed” (2008), author Wu Xiaobo aptly captured this trend.

“Throughout Europe, Chinese delegations can be seen with their hands clutching lists of things they want to buy, looking for second-hand factories and equipment. . . By the end of 1985, China’s negative trade balance stood at a record $13,78 billion, about 52 percent of its exports.

“Due to overheating, enterprises soon were facing shortages of raw materials. In order to protect the interests of State-owned enterprises, the government finally settled on a policy of a “two-track pricing system”. This decision was to lead China into a cataclysmic upheaval,” noted Wu.

It got even worse three years later, in 1988, when an American economic expert Milton Friedman (a Nobel prize winner in economics), who visited China in the same year, managed to convince Beijing to remove price controls and disband the two-track pricing system, which prescribed different prices for raw materials for SOEs, on the one hand, and private enterprises on the other.

Adds Wu: “The policy and its repercussions quickly rippled across the entire country. Starting in May (1988), the prices of pork and other meats in the major urban centres rose by an average of 70 percent, and the price of small items rose swiftly on the heels of food prices.

“According to contemporary reports, “People started buying whatever they saw in front of them, as if in a daze.

They bought durables, but they also bought consumer goods and even what had previously been unsaleable items.

If a television screen showed any kind of image, they bought it. If a fan could rotate, they bought it. . .”

China’s State Price Control Bureau noted that prices rose by over 95 percent among 383 commodity prices.

In October, China reversed the decision, but continued with its reforms, which have since transformed the country from an economic backwater to the world’s second-biggest economy and a global superpower within three decades.

Staying the course

It should be noted that this took place 10 years after the country began its reforms.

China’s example is fitting because it is one of the countries, if not the only country, which has pursued its own course of economic development that is unique to its own circumstances.

Despite ill-will from the West, who champion capitalism as the only practicable ideology, China’s economic miracle is also instructive to developing countries such as Zimbabwe.

Again, the Chinese example outlined above shows that there is nothing peculiar to the circumstances that the country currently finds itself in.

There are inherent speed bumps in Zimbabwe’s journey to create an upper middle-income economy by 2030.

Mindset

Instead of expending energy on unnecessary causes, it is time for Zimbabweans, as President Mnangagwa has implored, to put all hands on deck.

As philosophers have often noted, any major change in history must be preceded by a change in the people’s conceptual framework.

Deputy Chief Secretary to the Office of the President and Cabinet (Presidential Communications), Mr George Charamba made the same point in an interview with Capitalk FM on January 11 this year.

“A new era is not made by declaration, but by change of mindset and routine.

“This is exactly where we’re lagging behind. We have people who are proclaiming a new era but still have an old mindset.

“We just have to re-invent ourselves, not only as Government but as the private sector and every citizen of this country so that we make the new era a reality on the ground,” he said.

Just as the country has decided to prioritise ease of doing business reforms, both the public and private sectors should also prioritise reforming the way we do things.

Restoring the nation’s work ethic and getting rid of sloth is an ideal starting point.

Much is talked about the work ethic of the Chinese, but it should be noted that this is not an inborn attribute.

Suffice to say, it is not by nature, but it can be nurtured.

In his book, Wu Xiaobo tells a story of a Hong Kong scholar who visited Guangzhou in 1979, a year after the reforms.

He noticed from his hotel room that it took three people to repair a plaster on a nearby wall. One held the bucket, another applied the plaster and the third stood to watch.

Attitudes cannot change on their own accord, but it takes a conscious effort to change them.

Walk our own path

It is very encouraging that President Mnangagwa has made a commitment to deepen reform and base his policies on scientific- and evidence-based formulas.

At a time when advise is being volunteered from every quarter, including from suspicious quarters, the country has to chart its own path as dictated by its own circumstances.

How China’s economic development almost unraveled based on advice from Milton Friedman – an economist who believed in “economic freedom” and “free markets” and was known for his work on “price theory” and “monetary theory” – is quite instructive.

Of late, there have been growing calls for the bond note to be scrapped supposedly because it is losing value on the parallel market.

But this conveniently fails to address how it can be unwound from the market since the surrogate currency was rolled out as a export incentive.

For example, is it possible to scrap it and still maintain the export incentive of 12 percent for both tobacco farmers and gold producers, and afford to pay it in US dollars?

Isn’t the increase in gold deliveries and output of small-scale tobacco producers not linked to the incentive?

The bottom line is, there is need for a white paper to propose the most scientific and practicable method to implement local currency reforms.

And I have no doubt that Finance and Economic Development Minister Professor Mthuli Ncube, given his competencies and track record, is the right person to moderate this key debate.

But there is no doubt that we are definitely on the right track. However, more still needs to be done.

It won’t be easy, but this doesn’t mean it can’t be done.

Science and technology, as has become evident through the Fourth Revolution, makes it possible to improve efficiencies and the effectiveness of our national systems, and can help the country leapfrog development.

A generation that cannot read the signs ultimately curses itself.

We owe it to ourselves and to posterity to live Zimbabwe a better and prosperous State.

It is, therefore, a historical expectation for this generation to rise above political tribalism to build our own country.

Share This:

Survey


We value your opinion! Take a moment to complete our survey

This will close in 20 seconds