The Sunday News
Dr Bongani Ngwenya
WHEN I read the article titled, “Zimbabwe goes for homegrown economic model”, I said wow, are we still entrenched in the past political economy ideologies that were anchored on the inward looking economic policies.
I had thought that “Zimbabwe is open for business” meant that the country is indeed moving on from its economic past.
My worry is that we seem to be contradicting ourselves here because entertaining ideas of developing an own homegrown economic model and not copying what other jurisdictions are doing, at the same time hoping to open Zimbabwe for business is certainly a contradiction of economic policies.
The idea of a homegrown economic model is synonymous with inward looking.
Inward looking has failed in the past. There is no guarantee that it will work now or in the near future.
The argument here is that Zimbabwe cannot drive the “it’s open for business” initiative by use of inward looking policies and strategies. Outward looking policies can only see the success of the “open for business” initiative and attraction of the Foreign Direct Investment inflows (FDI) that have eluded the country for years now.
There is argument for Special Economic Zones (SEZs) that has been put forward as the basis for coming up with the homegrown economic model. It will certainly be an economic suicide to tie the proposed Special Economic Zones to the contemplated homegrown economic model with an inward looking focus.
Special Economic Zones would do well as a vehicle for driving the “open for business” initiative and not as a basis for inward looking strategy. In fact, there will be a need to attract a lot of FDI into investing in the proposed SEZs as well as in the entire economy.
While it may be true that in the past inward looking policy worked for China and India, the history of its success elsewhere has been close to none. The two countries later, especially China, abandoned the inward looking policy and initiated reforms and opened their economies for business. That is, they began outward looking to drive their economic growth trajectory.
What is inward looking and outward looking and their relevance to the “open for business” initiative?
Both these policies are used to gain economic growth and industrialisation, however, they are very different in their essence.
That is why policymakers have to consider various factors and decide which policy would best fit their economy.
As I have indicated above, countries like India and China successfully used inward looking trade policies in the past, while other countries such as South Korea have effectively followed the outward looking policy.
However, after the discouraging results of inward looking policy in Latin America, direction has shifted from inward looking policies that support import-substitution to outward looking policies among the less developed countries.
In other words inward looking policy works well for the economy if the objective is to achieve an import-substitution industrialisation, while outward looking policy does well for export-oriented or drive industrialisation. When the past political economy and its political dispensation embarked on an inward looking strategy, the fundamental reality of the failure of the strategy lay on the impression that inward looking would be the solution to economic recovery from the hyperinflation era and economic meltdown. That never happened, and has still not happened.
The question is why? The answer is simply that import-substitution would not work in an economy with low capacity utilisation. In essence import-substitution industrialisation means that we are replacing foreign imports with domestic production.
To achieve that, the country requires sustainable industrial capacity utilisation. The country’s industry is still falling short of achieving that. There is still a huge gap that can only be filled naturally by imports. When we adopted the multi-currencies in 2009, we saw the country’s economy recovering from dead industry experience during the hyperinflation era to marginal increasing industrial capacity utilisation.
The argument is that even now industrial capacity utilisation has not increased enough to justify import-substitution. That’s why I have argued in the past that import restriction measures such as SI 64 of 2016 would not work with the prevailing industrial capacity utilisation levels in the economy. All what they can do best is to kill consumer sovereignty in the domestic market. Zimbabwe cannot grow its economy by killing consumer sovereignty and lowering the standard of living of its citizens.
Outward looking policy is opposite of inward trade or business policy. It focuses on international trade that is, trade, and trade, like the President has always said, focuses on lifting subsidies and restrictions and increasing FDI inflows.
Singapore, Taiwan and Hong Kong are successful examples of implementations of outward policies, which they adopted because of the limited scope of their small domestic markets. Zimbabwe can borrow a leaf from these success stories as it also has a limited scope of domestic market and focus on exporting more goods and services in which it has a competitive advantage and hence more export revenues to alleviate the cash crisis.
The idea is to focus more on export promotion and developing competitiveness in the international market.
The argument traces the historical challenges that Zimbabwe has faced in its economic performance in general by examining the home grown economic models and economic blueprints of the past political economy and political dispensation.
It particularly examines the inward-looking policy including the attempt to build an import-substitution industrialisation, the debilitating effects on the industrial and economic competitiveness of the country and the centrality of the inward looking policy in the impoverishment of the country.
This article draws the conclusion that export-oriented industrialisation through outward looking policy is the way for Zimbabwe. Outward looking policy augers well with the ‘‘open for business’’ initiative. We are looking towards Canaan as a nation but at the same time still remembering the small pots of meat in Egypt.
We need to really move on as a country from the influences of the past political economy and its political dispensation, forget about the notion of own homegrown economic models that tie us to inward looking when the whole world is looking outward and really opening for business and thus increasing FDI inflows.
-Dr Bongani Ngwenya, is currently based at the University of KwaZulu-Natal as a Post-doctoral Research Fellow. [email protected]