OPEN ECONOMY: We must grow our own capital markets

15 Feb, 2015 - 00:02 0 Views

The Sunday Mail

These capital contributions can be through savings into financial institutions, investments into stock markets, or contributions to insurance, pension, and wealth funds.

True sovereignty is a privilege of the wealthy. When you make your own money, you can call your own shots. This is the harsh reality of the global economy and the simple truth about capitalism on a global scale.

It then follows that the main functional objective of national economic management for a country like ours should be to provide increased opportunities for citizens to create wealth!

A significant portion of our economic efforts should be focused on this one indisputable priority. Thus, when we evaluate our economic condition, we should always do so with an inquisition on what it tells us about the level of our citizens’ wealth.

Reserve Bank of Zimbabwe Governor Dr John Mangudya gave his Monetary Policy Statement last week.

It was a prudent statement with sound decisions and aspirations as well as some debatable issues.

The greatest take though, is that the monetary policy statement revealed that as a sovereign nation, we are limited in terms of what we can practically do to stimulate our economy.

The reason is simple: Zimbabwe is deprived of its own source of financial capital.

Without a currency of our own and facing heavy debt burdens, the best a Central Bank can do is to stabilise the economy.

This explains the governor’s focus on rebalancing price levels with cost structures and his emphasis on regulatory compliance to instil order within the financial sector.

These are all corrective measures aimed at achieving stability. Beyond this scope, there is marginal discretion and tight room for monetary policy that stimulates long-term growth.

As a nation, this predicament should force us into introspective reflection. If, in fact, we are serious about our ethos of empowerment and self-determination, we must really start to consider creating our own capital markets.

We cannot create an economy of our own manifestation while depending on external funding to do so.

To acknowledge this reality, all it takes is close scrutiny of the two predominant sources of our past national financing.

Firstly, foreign aid is predominantly political in nature. This is also how it is always offered with the caveat of structural reforms of the design made by agencies such as the World Bank and the International Monetary Fund (IMF).

It, therefore, concerns me when our Finance and Economic Development Minister grows an affinity towards Bretton Woods institutions.

Upon deciding to follow our chosen national ethos, we inherently became a philosophical anti-thesis to these international financial institutions’ monopoly within the inequitable global finance system.

Secondly, global capital markets are only marginally less political than aid.

Western regulation of its institutional investors (the greatest contributors and funders of capital markets) is used to influence the flow of capital across the world. A practical example of this type of regulation is the implementation of sanctions on Zimbabwe.

Western regulatory requirements isolate us from institutional investment and global interbank platforms as a source of financing.

It follows that as long as a nation is dependent on foreign finance and conformist to the global financial system, economic self-determination is difficult to achieve.

This is why I believe that creating opportunity for wealth should be our biggest priority.

By increasing our citizens’ wealth, the country is also increasing the availability of capital to fund its own economic expansion. As wealth levels rise and greater inclusion into economic participation is achieved, a derivative is that citizens are able to contribute to local capital markets.

These capital contributions can be through savings into financial institutions, investments into stock markets, or contributions to insurance, pension, and wealth funds.

I might add that there is nothing wrong with our pursuit for foreign direct investment, but we must be careful to perceive it as the only means of capital accumulation into the economy.

If anything, our sometimes over-emphasis on FDI should be recognised as evidence to our lack of self sufficient capital. The thesis of this presentation is not to indict any fault or incompetence on our economy.

Instead, the realisation of our foreign capital dependence and resulting economic restrictions — as revealed by the Reserve Bank of Zimbabwe Governor’s Monetary Policy Statement — should help us decide the next pertinent step towards empowerment and self-determination.

We need to work on developing our own capital markets, but are we wealthy enough to do so?

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