The Sunday News
Dr Bongani Ngwenya
Preamble:
ECONOMISTS suggest that consumers are rational beings. It does not require any rocket science to demystify the behaviour of consumers towards certain economic stimulus.
Naturally, when the prices of goods and services change for example in either direction, consumers will rationally, and almost sub-consciously act and behave in certain predictable manner.
When the price goes up, the quantity demanded will fall, and vice versa. There is absolutely, nothing “bookish economics” about what I am talking about. I have always wondered where this notion comes from, that Zimbabweans belong to a world of their own, where both economic planners and consumers are able to devise and concoct their own economics that does not exist anywhere else in this world. When are we going to stop experimenting with the economy, stop tinkering, and stop moving forward and backwards. What pains the most is that when we move a step forward, we tend to move hundred steps backward.
Notable rational economic behaviour
The reaction by Zimbabweans to the intended introduction of bond notes should not be surprising. Since the announcement of the planned bond notes introduction, the rate of liquidity shortages has escalated. It is clear that, the reaction by consumers, overnight like that has been panic withdrawal of the US dollar denominated bank deposit balances. Consumers were reminded of what used to happen during the hyperinflation era, when the central bank used to liquidate the foreign currency account balances that remained outstanding after the 20th of every month. Depositors were then given the equivalent of Zimbabwe dollar notes.
This rational behaviour says a lot about the problem of lack of consumer confidence in the banking sector and in the economy in general. In addition, depositors in general lost huge amounts of life savings through currency value depreciation. These are painful memories that have been reignited by unending experimenting with the economy. The question is what kind of a medium of exchange or currency is bond notes?
The first chaotic situation at the Beitbridge Border Post, a couple of weeks ago, resembled another rational economic behaviour by the households and consumers. Yes, it may be true that the cross border traders were taken by surprise to learn that they could not bring in some of their wares and goods because they fell within the “banned” import commodities, bearing in mind that they had incurred costs on these items and commodities. I am not advocating for anarchy at all, but the economic rationality is clear here — have we as an economy recovered enough from the hyperinflation era, have we reached that level of import substitution as an economy, that can allow us to engage in protectionism.
If we were to wake up the next morning, find the shop shelves empty of import goods, are we sure that before the end of the day the empty shelves could be filled up with locally produced goods — from such a high cost of doing business environment.
I reiterate the question I asked sometime — do we have a real industry to protect at the moment? Banning of import goods would not, overnight, sort out the problem of ease of doing business in this country, would not alleviate the problem of high costs of production in this country.
Zesa for example is contemplating on increasing power tariffs — and this will push costs of production even much higher — would not sort out the problem of product competitiveness, would not improve domestic production capacity, would not even improve domestic investor confidence.
Is it really true that domestic companies are failing to perform because of the influx of cheaper imports? Do we have a real influx of cheaper imports in this economy, or we are importing because there is a supply gap? Can the local industry be able to fill that supply gap without need for imports?
The immediate rational economic behaviour would be to see prices of domestic products go up in an effort to equilibrium with high demand for goods. These are some of the simple pertinent economic questions that we needed to ask ourselves before deciding to engage in protectionism.
The country has let its formal industry die a natural death, with the belief that in turn a new model of businesses emerges.
In the process we have fuelled the informal sector that we are failing to manage and hence a challenge of bank exclusion and liquidity pilferage. With the challenge of lack of confidence in the banking sector, the informal sector which by default and design has become the “economy” in this country, has become more and more bank excluded.
The informal sector is economically rationally behaving in the best interest of its economic survival. Unfortunately, some of the strategies are — retaining as much or hoarding as much cash as possible by keeping it outside and away from the formal banking system. In the process an informal and parallel financial system exists in the economy.
This is a financial system that does not require financial intermediaries, such as banks. Today the same informal sector that we have deliberately created, some of our ministers are blaming it for the shortage of cash in the economy. Zimbabwe’s GDP is about $14 billion and currently running a fiscal budget of about $4 billion, with huge cumulative budget deficit. If this economy could have accounted for the $15 billion value of diamonds, we wouldn’t be in this state.
The $15 billion injected into the formal economic system could even have resulted in an upward economic value re-basement, such that we wouldn’t be talking about a GDP of $14 billion, but much higher than that. That would have been a phenomenal economic growth leverage.
In conclusion, have we at some point just thought what could have happened if we did not decide to abandon the Economic Structural Adjustment Programme (Esap)? China in its quest for economic reform embarked on economic structural adjustment programme and other reforms as well. It is where it is today economically because of perseverance and consistence in economic reform. When are we going to stop flip flopping, when are we going to start addressing the root causes of our economic problem, and just let the symptoms guide us?
Let’s sort out corruption and embark on sustained economic reform, move on and forward with the reforms that we would have decided to institute without looking back and fainting along the way.
Dr Bongani Ngwenya is Bulawayo-based Economist and Senior Lecturer at Solusi University’s Post Graduate School of Business. mailto:[email protected]/[email protected]
