The Sunday News
Economic Focus Dr Bongani Ngwenya
Preamble
ZIMBABWE has experienced economic problems before, that is during the pre-dollarisation era. The question is, are we learning from the past experience? My argument is purely academic, and I am arguing from a classroom situation and setup, sharing this conversation with my MBA students in Harare. 
Our monetary authorities and economic planners have become so popular and well known of coming up with homegrown economic solutions, economic policies and monetary instruments, ranging from bearer’s cheques, bond coins to bond notes now.
Are these not symptoms of the economic challenges we are facing? Do we need to address symptoms or causes of the problems? After having been so innovative and come up with these policies and monetary instruments, the Government ministers and policy makers would spend their energies on trying to demystify, that is, explaining and making simple the understanding of these things.
There is confusion surrounding the bond notes right now, there was confusion surrounding bond coins and other policies. So much time was spent in an effort to demystify these policies and innovative instruments, while little attention was given to the real causes of the problems.
We just need to ask from the past if bearers’ cheques work? Will the bond notes work? I have no answer to these questions, but what I know is that certainly, these are just symptoms of deep rooted problems of the economy.
Zimbabwe needs a decisive raft of economy reforms now.
Economy reform has tremendous potential for the economic growth of a country. Economic reform helps enhance the living standard of a country’s people. China has been the most successful of all countries in terms of development from economic reforms. During the reform period of 1979 to 2005, China has registered an average GDP growth rate of 9,6 percent.
In 2002, per capita GDP in China neared US$1 000. These are clear indications that China is at the crossroads of a new period of economic growth. There are speculations that China, in the near future may assume the status of the largest economy of the world. China’s economic reform that started in 1978 for example, was initiated to generate surplus funds for modernisation of the Chinese economy. At the beginning, the economic reform was initiated to incite workers and cultivators of China to grow larger surpluses and eradicate economic imbalances.
The economic reform in China has helped millions of Chinese people overcome poverty. In 1981, the poverty rate in China dropped to 53 percent. In 2001, the poverty rate in China was eight percent. Economic reform can also help Zimbabwe to emerge strong from the economic crisis. Zimbabwe needs to initiate some economic reform now. Every country goes through some economic performance cycle.
There are times for a recession and times for economic boom.
What matters is how the economic planners respond to each phenomenon, and aim at lasting economic solutions. It is quite encouraging to learn that Zimbabwe’s foreign debt payments are on track towards the success of the Lima Agreement, signed between the Government and the International Monetary Fund (IMF) last year.
Government had committed itself to this debt clearance strategy by the first half of this year (2016). The economic activity in Zimbabwe is being severely constrained by tight liquidity conditions that have resulted from limited external liquidity inflows (commodities export earnings and diaspora remittances), the country has also seen inflation remaining in the negative phenomenon because of the appreciating US dollar.
The clearing of debt arrears and the rationalisation of public expenditure by implementing the recommendations from the 2015 civil service audit are positive measures that would unlock foreign direct investment and lines of credit that the country needs to resuscitate its productive sectors, in order to reduce heavy dependence on imports in order to meet domestic consumption demand. However, in addition to these measures highlighted above the lasting solution to the country’s economic challenges is a raft of economic reforms such as further liberalisation of the economy to attract both domestic and foreign investment; encouragement of privatisation of Government parastatals; promotion of value added export oriented growth; encouragement of foreign capital inflows (international financial lending) and technologies; safeguarding of intellectual property rights; initiating a sound climate for implementing legal contracts (bilateral and multilateral arrangements and agreements); and ensuring respect for private property rights.
Although African countries have lagged behind in reaping the benefits of economic reforms, yet significant development has been made in recent years, after the onset of the 21st century.
In Sub-Saharan Africa for example, the economic reform programs were instituted with the aid of International Financial Institutions (IFIs), 5,1 percent growth in GDP has been registered in 2004. One-third of the non-oil producing African countries for example, including countries like Ethiopia, Gambia, etc., have grown by more than five percent in terms of average real GDP.
Per capita real GDP has grown by 2,8 percent. Countries like Uganda, Sierra Leone, Tanzania and Ghana have continued their high growth. Zimbabwe is a country in Africa, the country cannot survive economically in isolation.
When China was still a closed economy, that is, with an inward looking and command economic system, it suffered serious recession and stunted growth, until sanity prevailed. Inward looking economic policy may be good for the reason that it affords the indigenous people economic opportunities to participate in the economic development of their country.
However, if the policy becomes the main focus to drive the economic growth of a developing country like Zimbabwe, the policy becomes counter-productive. Every developing economy needs international financial support. Zimbabwe cannot be an exception. Zimbabwe needs to some sort of economic liberalisation.
Economic liberalisation is one of the most important step in economic reform. Many developed countries around the world have adopted economic liberalisation through privatisation.
The Government has allowed to privatise, partially or fully, its properties and assets. Economic liberalisation is characterised by low corporate tax rates, less restriction on foreign and domestic capital, and labour market flexibility. In the developing countries, like India, China, Brazil etc, the term economic liberalisation focuses more on opening their market to the foreign or national big investors. Through economic liberalisation, these countries have achieved a sustained economic and financial growth. In conclusion, there is need to guide the economy and avoid measures which will see the economy getting worse.
Dr Bongani Ngwenya is Bulawayo-based Economist and Senior Lecturer at Solusi University’s Post Graduate School of Business [email protected]/ [email protected]
