The Sunday News
Dr Bongani Ngwenya
Preamble:
FOR the past two Economic Focus instalments, I have been worried and seized by the situation and state of our industry. Firstly, I argued that the prevailing economic challenges are attributable to the de-industrialisation that has taken place for more than a decade now, as a result the economy is paying the price for that. Last week’s instalment posed a question: “will local industry get protection through Statutory Instrument (SI) 64 of 2016?”
My argument here, is that the revival of the ailing industry is the only realistic and long term solution to the challenges of low domestic production capacity in order to meet full domestic demand and exports to alleviate the liquidity crisis and continued economic degradation. In the process, reviving the industries will create jobs and empower the people through the creation of a strong and viable economy.
We need to develop strategies aimed at reviving our ailing industry. In other words, the business of the Government should be to promote private sector-driven economy as it has been seen across the world that most governments are not good managers of industries.
The Government’s economic blueprints such as the Zim Asset should have been crafted with a clear and deliberate bias towards promoting a private sector-driven economy, bearing in mind where we were coming from, that is, the era of economic meltdown and hyperinflation.
The economic meltdown era had seen industry grounding to a halt, when the industry could literally produce nothing.
The abandonment of the local currency ushered in a phase of economic recovery, which we failed to exploit effectively. This is the time we could have seriously shifted our economy towards a private sector-driven one.
Instead we all got carried away about legalisation of the foreign currencies that had been always a taboo to transact in, in the first place. Mind you, we had a strong reserve of these foreign currencies by then, especially the US dollar. The Government made it its official transaction currency for example.
Reviving the ailing industry is key to sustainable domestic product growth and investment:
To treat an ailment, we need to diagnose the problem properly, so that the right treatment is administered. The first place to start from in our economic recovery phase, is supposed to be industry. We should remember that industry did not suddenly die overnight like that, because of hyperinflation. It started showing the symptoms of ailment way before the economic meltdown. After abandoning the Zimbabwe dollar that had become useless, and adopting multi-currencies, shop shelves were once again filled up with goods, but imported goods.
Complacency crept in, instead of appreciating the economic fact that importing was not going to be sustainable in the long run, hence there was a need to then focus on the revival of the industry to quickly reverse the trade deficit trend that started building up from that time to date. As the imports continued to drain the multi-currencies in circulation, whose major source became commodities export earnings and diaspora remittances, the liquidity problem crept in.
Unfortunately, the export earnings were and are still vulnerable to price volatility and drought. As one company after the other shut down as a result of unabated de-industrialisation, throwing hundreds of workers into the informal sector, the fiscal capacity of the Government continued to shrink. The Ministry of Finance woke up the next day, only to discover that it could no longer be able to pay civil servants salaries on time.
Basic book economics says that just one economic fundamental not sitting right can cause a chain reaction in an economy. In addition to the de-industrialisation phenomenon that started way before the hyperinflation era, the adoption of multi-currency regime, while it brought in economic stability, it brought in some challenges too — loss of monetary policy sovereignty, high cost of doing business, mainly as a result of lack of small denominations of the currencies, that is, coins. The turnout of all these events has complicated the economic situation. In the process there has been a lot of concoctions — suggestions for internal devaluation for example, adding more currencies to the multi-currency basket, local industry protection by imposing import ban, just to mention a few.
A proper diagnosis of the problem could have started with the industry, that is, the backbone of the economy, to try and deal with the problem of de-industrialisation and the challenge of high cost of production and cost of doing business, compared to regional trading partners. Industry by its nature is power consumption intensive.
Persistent power blackout and shortages seriously disrupted domestic production of goods, at the same time when available, the cost of power was too high compared to the industry’s production capacity. It is still too high, even today, although there is supply stability. However, the improvement on the supply of power can easily be largely attributed to the declined industrial power consumption as a result of the de-industrialisation.
A consented effort and strategy to revive our ailing industry will require a collaboration between Zesa and the industry to work out a comprehensive and workable strategy aimed at reviving the ailing industry. The strategy can include a periodic or term tariff path and a comprehensive technical investment framework towards power supply service improvement to the industry.
It is noted that electricity forms a significant portion of the operational expenses of the manufacturing industries and therefore it could be necessary for this collaboration between Zesa and the manufacturing companies in the industry as they on the other hand pay the bulk of the revenue being generated by the power company. In other words, the re-industrialisation plan should be well articulated by Zesa as well in the form of some cost-reflective tariff structure necessary to allow the manufacturing companies to make reasonable gains from their business. The tariff structure could be designed along a fashionable tariff path that will allow for industrial investment planning covering, say for argument’s sake, the next five years.
In addition to seriously looking at streamlining strategic input costs such as power as discussed above, and other strategic input costs, I strongly believe that re-industrialisation may not be achieved without reconsidering a financial rescue plan in the form of an intervention fund similar to the $40 million Distressed Industries and Marginalised Areas Facility (Dimaf), although some analysts feel that the strategy is synonymous to flogging dead horses.
I beg to differ. In my opinion, like any other economic policy and economic blueprint, Dimaf failed because of lack of will. I am envisaging a similar rescue plan targeted at both reviving ailing companies and creation of new ones as a deliberate strategy of promoting a private-sector driven economy, because a public-sector driven one has failed.
In conclusion, if we are failing to boost domestic investment confidence through promotion of private sector-driven economy to improve our domestic product and economic growth, foreign direct investment will continue eluding us for a very long time to come. Maybe we have not yet burnt our fingers enough.
Dr Bongani Ngwenya is a Bulawayo-based economist and senior Lecturer at Solusi University’s Post Graduate School of Business.
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