28 April 2017

Zimbabwe: Exploring Zim's Economy 37 Years On

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(File photo).
opinion

April 18 2017 marked 37 years of the country's Independence from colonial rule. The definition of Independence in 1980 included freedom from the white minority regime, freedom of expression and freedom to prosper.

Massive printing of money by the Reserve Bank of Zimbabwe drove the economy into hyperinflation between 2007 and 2008.

The black majority did not have freedom in their own country. The country was not even named after anything truly and originally Zimbabwean. It was named Southern Rhodesia, after Cecil John Rhodes.

The nearest the country was named after any Zimbabwean symbol was when it was briefly named Zimbabwe-Rhodesia under the brief leadership of Bishop Abel Muzorewa in 1979, a far cry from the freedom ever dreamt about by any ordinary Zimbabwean.

In the literal sense, Zimbabweans took to the liberation struggle to retake their land. This was way before technology swept this world. At that moment, land represented the major ingredient in the economic well-being of the people.

While land remains quite paramount of capital, labour and land, the traditionally most important factors of any productive economic system, it is now possible for anyone to make money or be wealthy without investing in or owning land. This is as evidenced by the rise of the technology firms globally. The "tech" firms have proven the importance of labour as the world is fast shifting to a knowledge economy.

In advanced economies, we have seen economic players creating enormous wealth without land but with knowledge; what I would call wealth from the air. This is exemplified, in modern times, by Mark Zuckerberg, and, before him, Bill Gates, wherein as a college student came up with an idea to connect people throughout the world. This was an extrapolation of the campus people connection network. As people hooked onto the network, the business attracted revenues through advertising income and the huge acceptance of Facebook and the listing of the firm on the bourse saw Mark's wealth rise from nothing to several billions.

This is the modern world -- very little land was involved in the rise of Facebook -- yet so much wealth has been created. Zuckerberg is worth close to four times the size of the Zimbabwean economy. The market capitalisation of Facebook, at US$416,29 billion as at April 21 this year, is larger than the GDP of South Africa which stood at US$315 billion in 2015.

Wealth creation is everyone's and every nation's dream. A wealthy nation is a healthy nation and, according to Adam Smith, the great economist who wrote The Wealth of Nations, wealth helps a country fight wars to defend its territorial integrity and interests. A wealthy nation can sustain wars for a long time in order to protect its interests. We have seen the United States sustain long and expensive wars in a quest to defend its interests. This would not have been possible if the US were a poor country.

So when Zimbabweans fought the liberation struggle they were fighting for land and, by inference, economic well-being.

At Independence when Prince Charles, then 32, took down the Union Jack, and we raised our own flag, we saw freedom; we saw prosperity coming our way.

This after Ian Douglas Smith had said not in a thousand years would blacks rule the then Southern Rhodesia.

The Zimbabwean dream of freedom was attained at Independence. This day saw the reggae icon Bob Marley come to Zimbabwe for the commemoration. It was historic; a song Zimbabwe was sung by the icon, this song co-written by Gibson Mandishona. What a way to celebrate such an important day! Hats off to Marley and Mandishona for Zimbabwe.

In 1980, Zimbabwe's GDP was US$6,6 billion with per capita level of US$916. At that time, China's per capita income was US$194. In 2015, Zimbabwe's GDP per capita was US$924, achieving a growth of 0,9% over the period compared to China's US$8 000 or a growth of 4 023%.

This indeed qualifies China as a developing countries, whereas Zimbabwe as a less developed country.

During the Unilateral Declaration of Independence proclaimed by the Smith regime on November 11 in 1965, Zimbabwe went through rapid industrialisation. The country had well-developed infrastructure at Independence.

The Zimbabwean economy has been characterised by volatility and hence stochastic GDP distribution since 1980.

In the years 1982 to 1984, the country was stricken by drought. This severely affected its GDP, which had peaked at US$8,54 billion in 1982 to bottom out at US$5,64 billion in 1985.

The effects of the drought were far-reaching. Following a good rainy season in 1985, there was a steady rise in the GDP. The surge in the national income continued until 1990 at a peak level of US$8,78 billion.

The devastating drought of 1992 resulted in a sharp decline of the country's national income. There was untold economic hardship in the years that followed, this at a time the country also implemented the hugely unpopular Economic Structural Adjustment Programme. In the years 1995 to 1998, the economy grew again, but did not reach the peak of US$8,78 billion which had been recorded in 1990.

Between the years 1998 to 2000, the economy suffered because of two main issues; firstly; the 1997 decision to appease the war veterans by awarding them Z$50 000 payouts which had not been budgeted for. The country could not afford this award. As a consequence, the country's currency suffered a huge depreciation on November 14 1997 in what has become known as "Black Friday" in economic and financial circles.

Ironically, Prince Charles was born on November 14 1948 and "Black Friday" occurred in the year Princess Diana perished in a car tragedy. The local currency depreciated nearly 72% against the greenback, while the stock market crashed nearly 50% as investors scrambled out of the dollar.

In addition to that, in 1998 the country got involved in the Democratic Republic of Congo (DRC) war. This worsened the situation as the country could not afford that war. In 2000 the country embarked on a haphazard, spontaneous and unplanned land redistribution exercise which saw the disenfranchisement of commercial farmers. What followed was economic turmoil.

From 2001 to 2008, the economy tumbled from US$6,78 billion to US$4,442 billion. The decline of the economy in the 2000s is largely attributed to the land grab which was followed by years of less productive farming, thus further relegating the economy from its status as the breadbasket of southern Africa.

The Reserve Bank of Zimbabwe (RBZ) did not help the situation either as it engaged in massive printing of the dollar thus driving the economy into hyperinflation.

For the first time since Independence, the country lost its national currency, which was then replaced by bearer cheques. In 2003-2004 there were massive closures of local banks and financial institutions as the central bank engaged in a crackdown of errant institutions.

This seemed to work for a while, but what ensued was a bigger problem which no governor, acting and substantive, since that time has been able to deal with: confidence in the banking sector.

On many occasions, the RBZ removed zeros, but in no time they would creep back as the apex bank resorted to the printing press to run the economy. Part of the fiscal policy had moved to the central bank in what may be novel to modern economics.

In 2008 the centre could not hold anymore and the RBZ licensed some selected companies to transact in foreign currency.

However, the unlicensed companies followed suit as it was difficult to enforce selective monitoring. The fate of the Zimbabwe dollar was sealed.

In the meantime, a new political dispensation was brewing. This resulted in the formation of an Inclusive Government in 2009 which despite being shaky resulted in more confidence in the economy, as well as better management of the same than in the years after former RBZ governor Leonard Tshumba at the central bank and Simba Makoni as Finance minister.

With Inclusive Government Finance minister Tendai Biti in the driving seat, the RBZ played a less visible role, not only because there was no more local currency to print, but because CBZ Bank was allocated some of the functions which the central bank had implemented in the past, that is, being a banker to government.

Following a new political dispensation, the economy almost doubled in 2009, recording GDP of US$8,16 billion.

Subsequently, exponential economic growth was witnessed in the years up to 2013 when the inclusive government ended.

At the expiry of the Government of National Unity, the country experienced stagnating growth and unprecedented cash shortages which had last been seen at the introduction of the bearer cheques.

In 2017, more people are out of employment than ever before. The country has been characterised by massive company closures and failure by government to pay its employees on time. Government is struggling to pay bonuses, while revenue collection has slowed down. The country now uses bond notes as medium of exchange.

Despite this, cash shortages have persisted, leading to the authorities resort to enforcing a section of the law which compels businesses to bank takings to allow for currency circulation. While the law promotes bank use and seeks to deal with money laundering, the context of implementation is unique in that when businesses bank money in the prevailing environment, they are not guaranteed of having it should they need the cash.

The outlook for the economy is bleak in the absence of any meaningful policy and capital interventions or change of governing structures to enable the economy to attract confidence of investors and the domestic economic players.

What is clear is that the country still has a lot to learn from the way it has run its economy. While there is evidence the country has been hit by natural disasters like drought, which negatively affected the economy, the country has not built more reservoirs to collect water for use in case of drought. Investing in national irrigation systems would help the country even out production in the absence of rains.

In addition, the country has not learnt to live within its means as evidenced by the payouts to war veterans which clearly were not budgeted for, neither did the country learn as evidenced by the involvement in the DRC war.

After that war, there has been no economic benefit to the country. This is similar to the case where the country played a key role in stabilising Mozambique, but later on failed to seal economic deals post-war.

South Africa has managed to benefit from the rebuilding of Mozambique's post-war economy. Between 2009 and 2013, the country managed to eat what it gathered, a concept popularised by Biti during the inclusive government. Today the country is spending beyond its means as evidenced by its struggling to pay wages, yet it is steadfast regarding its desire to pay bonuses when it is clear it cannot afford.

Banks have collapsed amid overwhelming evidence of wrongdoing and amassing wealth at the expense of depositors by directors and shareholders, yet there has not been any arrest or attempt to recover from the wrongdoers to offer restitution to the said depositors.

In the history of banking, it is unimaginable that one deposits money into a bank, but when they go to withdraw it, the bank says they do not have that money and the RBZ does nothing about it, while those banks continue to operate.

Yet this is the new reality 37 years into independent Zimbabwe, the reality of sleeping in queues to withdraw US$20 and to be blamed for not using plastic money despite the authorities knowing that a number of people are now informal traders who must import their goods from neighbouring countries or China in the absence of local production.

We are living in the unprecedented reality that one cannot afford to bank money and go to bed anymore for fear that charges will swallow all that has been saved.

Not to mention the reality that building a pension is of no consequence as one is not guaranteed; they will receive it when they need it most. Pensions were wiped out during the money-printing circus, with the loser being the poor pensioner, while insurance houses continue to have properties on their balance sheets.

This is our independence 37 years on.

Ngwira is a chartered accountant, former bank treasurer and former university lecturer. 

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