Economic Focus: Economic challenges require multi-faceted approch

14 Feb, 2016 - 00:02 0 Views

The Sunday News

 

Dr Bongani Ngwenya

Preamble
ZIMBABWE’S economic challenges are multi-faceted, as such require a multi-faceted approach to solve them.

The challenges range from low investor confidence among potential foreign investors and even among locals, high cost country compared with the rest of the Sadc since dollarisation, ease of doing business, lack of monetary policy sovereignty, budget deficits, limited fiscal space, low domestic output, negative balance of trade and payments, high levels of sovereign debt burden among others.

Need for economic reform and transformation
Emerging economies like China have embarked on economic reforms and they have never looked back. After maintaining policies that kept the economy very poor, stagnant, centrally-controlled, severely inefficient, and relatively isolated from the international community and global economy, China has become the pride of economic growth and prosperity, because of the economic reforms embarked on barely 36 years ago.

Since the decision to open up to foreign trade and investment and implementation of free market reforms in 1979, China has become the world’s fastest-growing economy, with real annual gross domestic product (GDP) growth averaging about 10 percent through 2014. This is a living testimony that economic reforms do work.

Finance and Economic Development Minister Patrick Chinamasa, last week on Monday vowed more economic reforms to attract FDI, in acknowledgement of the fact that FDI is the panacea for economic growth and recovery of the economy.

Minister Chinamasa reiterated the need for the revision of the indigenisation laws, clearing of the debt arrears, and improving ease of doing business and cost of doing business in Zimbabwe.

“All our challenges are largely to do with confidence; confidence in our own people and in what we do,”he said. “We need to gain confidence of foreigners who may want to come and invest in our country and that confidence can only come if we create an environment that induces confidence”.

Foreign Direct Investment:
In order to attract FDI, Zimbabwe has to make conditions attractive to FDI. FDI inflows are a strong leverage for economic development across the countries. It serves as an important source of supply of liquidity and funds for domestic investment, ie they promote capital formation and conditions for knowledge transfer into the host country.

The ability of Zimbabwe to attract FDI is key to economic growth and poverty alleviation, notwithstanding the need for indigenous ownership of resources and factors of production. Multinational Companies (MNCs) that intend to invest abroad often have choices in terms of which country to invest in. They are most likely to invest in a country that offers them the most favourable conditions in the region.

The argument here is that FDI is the most factor that can unlock economic growth for Zimbabwe.

Zimbabwe should look everywhere in its quest to attract FDI inflows. That is, the basis for being part of the global economic family. China’s investments in infrastructural development in the form of loans is quite commendable, however, that should be strongly supported by enterprise-led innovation to boost the production capacity of the economy, turn commodity driven exports into value added exports.

We need to have more of the like of the Dangote investment model, that is, enterprise development driven investments. Let’s have more enterprises created by both local participants and foreigners.

Our economy at the moment is minerals export and agricultural commodities driven and dependent. We have all seen the challenges of commodity dependence in an economy. The volatility of the commodity prices and erratic weather conditions and patterns are not doing us any good. In the long run, commodity dependence can not be sustainable for economic growth and development.

The Monetary Policy Statement
I was seriously taken aback when the RBZ Governor Dr John Mangudya suggested that, I quote, “The issue is not necessarily that too little money flows into Zimbabwe. Rather it is what consumers and businesses do with that money . . .” Not that I am suggesting that there is no need for prudent management of the liquidity in the economy through the “plugging the leakages approach”. The truth is that there are too little money inflows into Zimbabwe compared to money outflows, legally or illegally.

Our heavy import bill on its own is a conduit for “exporting liquidity”. Zimbabwe needs to more than double its effort to “import liquidity”. We are a dollarised or multi-currency regime economy, without a sovereign currency, limiting our capacity to exercise full monetary policy control. As a result attracting FDI inflows is not an option, but by default a necessity for liquidity importation.

Quoting the Governor verbatim from the Monetary Policy Statement, “The strategies and prudential policy measures in this statement are intended to transform the economy through rebalancing it away from being a consumptive or supermarket economy to a productive one; and away from the high incidence of capital flight characterised by the externalisation of export sales proceeds to one that safeguards its hard earned foreign exchange resources”.

Rebalancing an economy such as Zimbabwe from being a consumptive (have import bill) or supermarket economy to a productive one would certainly require Zimbabwe to not only focus inward for solutions, but outward as well, i.e. through attracting as much FDI as possible.

Dr Mangudya has come up with a cocktail of measures to harness and plug the economy from illicit financial flows (IFFs). We strongly commend the Governor for such positive direction. It has been long overdue, and it is high time perpetrators are brought to book. At the moment, the market supply of our liquidity is heavily skewed towards banked export commodity receipts and diaspora remittances. If we remove or factor out diaspora remittances, the situation can be appalling, with the worst source being FDI, since the adoption of multi-currency regime in 2009.

On the monetary policy front, yes there has been positive measures taken, that is, in the development of non-conventional monetary policy tools such as the African Export Import Bank Trade Backed Facility (AFTRADES) which has a lender of last resort characteristics, the Zimbabwe Asset Management Corporation (Zamco) which has stimulus package characteristics, interest rate guidelines, introduction of small denomination coins (bond coins) and demonetisation.

However, my argument is that the cocktail of these measures are more of stabilising ingredients than catalysts and leverages to stimulate economic growth. Zimbabwean economy needs a more concerted effort towards economic reforms and transformation that will address these structural problems highlighted above and in the previous economic focus columns. All this hinges on an environment that is conducive to attract FDI inflows, a lot of it for that matter.

In conclusion, Zimbabwe’s economic problems are multi-faceted, and as such require multi-faceted approach to the solutions. That is, deliberate economic reform and transformation, creation of a conduce investment environment to boost and attract both domestic and foreign investment (FDI), building investor confidence accordingly, stimulation of aggregate demand in order to plug the economy from deflation, resuscitate production capacity to reduce the importation bill and ultimately have a favorable balance of trade and payments. The list can go on and on. If Zimbabwe could rally behind Minister Chinamasa’s efforts, we can turn around our economy.

Dr Bongani Ngwenya is a Bulawayo-based economist and senior lecturer at Solusi University’s Post Graduate School of Business. mailto:[email protected]/ [email protected]

Share This:

Survey


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

This will close in 20 seconds