12 May 2017

Zimbabwe: Is Zimbabwe's Economy More Advanced Than 'Rest of Africa?'

opinion

President Robert Mugabe's comments that Zimbabwe was the next most advanced country after South Africa caused a lot of debate in social media and other social circles. The president admitted that the country was facing economic challenges nonetheless.

Today, it is not easy for Zimbabweans and other observers to agree with Mugabe prima facie. It would take a deep analysis not jingoism, for some to eventually realise that he may not have been way off the mark depending on the perspective from which one is looking at.

Modern-day judgment of the level of development is based on statistics and country data. When one looks at the data and statistics, Zimbabwe would in no way be near South Africa in terms of development. For it to be considered to be close to South Africa, then one has to go way back in time towards Rhodesia or in the early Zimbabwe for such a judgment to be near-accurate as far as statistical data is concerned.

Parasuraman, a famous research methods author, once said figures lie and liars figure. Be that as it may, we have to rely on some form of measure for us to draw comparison between one country and the other.

In recent times, multinational companies that have a footprint in Africa have tended to divide their operations into South Africa and "Rest of Africa". This description is meant to help the organisations manage their operations effectively by geographical segments.

In many cases, South Africa tends to be larger, in business terms, than the rest of Africa or it tends to be a very significant business that requires attention separate from that of the rest of Africa. The geographical definition into African businesses of the multinational entities has also gone a long way in showing that South Africa is more advanced than the rest of Africa.

According to the World Bank, a low income economy is defined by gross national income of less or equal to US$1 025, while a lower middle-income economy has gross national income of between US$1 026 and US$4 035. An upper middle-income economy would range between US$4 036 and US$12 475, while any country with income beyond US$12 476 would qualify as a high-income economy. These figures apply to the fiscal year 2017 and are based on the 2015 gross national income levels. Using this classification, Zimbabwe is in the league of Malawi, Ethiopia, Haiti, Somalia, Tanzania and Democratic Republic of Congo and the newest country in the world, South Sudan, which is in the middle of a conflict, among others. Ghana and Zambia are in the lower middle-income economies.

Interestingly, Sudan is in this category, meaning it is doing better than Zimbabwe. Sudan had been marred with conflict, leading to its split into Sudan and South Sudan. Swaziland, who years ago would not stand to be counted when Zimbabwe was called, is also in this category. Botswana and South Africa are in the upper middle income economies class. This is where the gigantic China is. It is a very important classification as countries in this group are a step shy from being in the high-income category. Using the statistical data, it would be more appropriate for Botswana and Namibia to claim to be a step closer to South Africa than Zimbabwe given statistical proximity.

This picture could change when we use what I call the "eye test" approach to judging development. This seems to be what the president has used to assess the development of the country relative to the rest of Africa. This test includes other measures like the "resource barometer", which includes how much resource a country is endowed with.

Interestingly, one of the richest countries in the world, Japan, is not well endowed with flat land while the major gold trading centre, the United Kingdom, is not well-known for mining gold. This points to the indication that resource endowment is not sufficient to qualify a country as advanced. Resources need to be exploited profitably to be of value to people. We have seen this in Botswana where diamonds have changed the face of the country for the better just as mining in general has done well for South Africa.

While Zimbabwe is well-known for its educated and literate population, it has suffered unique problems which should ideally be associated with lack of education. It should be imagined that because Zimbabwe is educated, then it should be the most advanced economy in Africa and be highly competitive in the world. Regrettably, this is not the case.

This means education, like the factors I have just highlighted above, cannot be sufficient to qualify a country as advanced. Skill set is more important than education when it comes to economic advancement. These point to the failure of the "eye test" approach.

Yet income per capita is not foolproof evidence that the people of a given country are developed. Gross national income per capita is an economic measure that is based on a simple average. It assumes that everyone in the country shares the cake equally. Of course, economies are not made up that way because there are poor people and rich people.

This means that some will have far much more income whereas others will have far much less. This is what is called income distribution.

In 1905, Max Lorenz devised a mechanism of measuring income or wealth distribution. What came out of this is known as the Lorenz curve. Today the Gini index or coefficient is a known measure of income distribution. The index shows the extent to which households' income deviates from an imaginary distribution. This imaginary distribution is a line that cuts in the middle of both axis, the Y and the X starting from point zero. The line is a symbol of perfect equal income distribution.

In many cases the Lorenz curve is below the imaginary line. The Gini index is thus an expression of the area in the middle of the Lorenz curve and the total area below the imaginary line. An index of zero entails perfect equality.

This is unachievable in modern economies that are driven by insatiable wants. Thus the further away an index moves from zero, the more a country moves towards inequality. This is one of the rare moments when zero is desirable and 100% is undesirable.

The statement by Mugabe presents a challenge to statisticians and economists and analysts. Interpretations must be contextual for any data to make sense. While the Lorenz curve and the Gini coefficient sought to answer some of the weaknesses of income per capita, they are not foolproof, although they provide a useful economic measure.

Empirical evidence also shows that it is possible that the coefficient of a given country may be rising while the level of absolute poverty declines bearing in mind that the Gini coefficient simply shows the level of inequality and therefore relativity rather than absolute poverty or wealth. A simple Lorenz curve is depicted in the sketch above:

Further it needs to be noted that in judging living standards, one can use either the income approach or the consumption expenditure approach. It has been observed that the distribution of income tends to be more unequal than that of consumption. This is because there is a minimum expenditure required for one to live while at the same time two households, one earning US$2 000 while the other earning US$4 000, are not likely to spend too differently. Thus in less advanced economies, consumption is a more reasonable guide of welfare than income. Of course, in making comparisons between countries it would be necessary for one to ensure that the definition of income is on the same basis.

When Mugabe referred to Zimbabwe being well-educated as justification that his country was the next most advanced after South Africa, I was inclined to think that he was trying to use the human development index (HDI) as a measure of development. The HDI uses the matrix of literacy, life expectancy and standard of living. Principally, the impact of economic policies on a country's people reflects in the HDI.

To begin with, Zimbabwe's economic policies have had a terrific effect on its citizenry, resulting in the mass exodus, but more appropriately Difaqane, into neighbouring countries and far field. Difaqane is Sesotho word for forced migration. The policies have resulted in the bucket system being very popular in the city, including swish suburbs which are now characterised by the absence of running water leading to the flourishing of the water delivery companies charging as high as US$60 per 5 000-litre tank. The cost of living in Zimbabwe is high whereas sources of income are dry. This cannot translate to development.

Zimbabwe is not in the top 10 most developed African countries of 2014 where Namibia is number 10 whereas Seychelles is on top followed by Libya. So in what way would Zimbabwe be considered the most advanced African country after South Africa? It could be through the "eye test" approach.

The problem with this approach is that it is highly subjective and more often than not ineffective. In addition, it is hard to convince citizens and residents in Zimbabwe as they have to dodge potholes every few metres' drive. Added to that is the police pandemic that has gripped the highways and residential roads. When these few things are fixed, Zimbabwe may be able to claim the glory of being just after South Africa.

Anyway, using the HDI, South Africa was number nine not one. I am not sure how an economy whose banks cannot dispense cash to depositors can be said to be developed. What is certain is that in more than a decade, the country has incurred a huge opportunity loss. Zimbabwe would have been miles ahead with the right mix of policies.

Ngwira is a chartered accountant, former bank treasurer and former university lecturer. He holds finance and business qualifications. -- daniel.ngwira@gmail.com/ cell: +267 73 113 161.

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