Thursday, 25 August 2011


Privatisation of state utilities essential to aiding government performance
During the years of economic decline the country’s infrastructure and companies charged with maintaining these became out-dated, ramshackle and the economic consequences are now quite apparent. In most cases the decay in the nation’s infrastructure began well before the accelerated decline of this past decade and this decay had an effect of making the economy less competitive and less efficient.  Power generation, rail transport, telecommunication which are some of the vital services that aid economic prosperity yet in the last decade these were simply not provided for adequately or efficiently hence impacting greatly the economy’s competitiveness. For instance during its heyday the rail transportation system used to handle the bulk of the country’s and the region freight needs and given the rail road infrastructure, its vastness this undoubtedly made it the freighter of choice. In fact this was the preferred form of transportation because it was not only economical but efficient as well and ultimately these factors would eventually show in the final cost of production. However the obliteration of this important organisation is well documented and now the entire infrastructure is in a state of derelict and this of course continues to be a bane on the economy. Power generation has of course become the biggest obstacle to not only the smooth operations of companies but individuals as well though it used to be quite efficient, the best in the region. However since the late 90s virtually every other organisation whether public or private has been deeply affected by the rolling blackouts and again this has also been impeding the economy’s recovery pace. For instance at the launch of the Mid-term plan in July bankers intimated that power shortages were directly affecting their efficiency because according to them extra costs incurred in securing alternative power sources was passed on to consumers in the form of higher fees. Now according to consumer groups these high fees or charges are in effect driving people out of the formal banking system thus contributing to liquidity problems besetting the general economy. Clearly the inefficiency of some of these government owned enterprises contributed towards the collapse of the formal economy in the last decade and certainly continue to inhibit its recovery to this point. Refreshingly though the country’s telecommunication industry has been an island of positive development since the start of the coalition government .While indeed the country’s telecommunication system particularly the fixed line network owned the government suffered extremely during the past decade, the presence of private players in this industry has helped to ensure its lightning fast recovery. In fact the figures made available so far prove this. Now for instance according to figures released by the finance ministry the country now ranks fourth in the region with regards to mobile phone penetration at 66% while internet bandwidth usage has increased 400% since 2009. This has all happened while the state owned entities remain in a state of comatose thus driving home the point home that the only way the country can escape from this straitjacket is by disposing controlling stakes in these parastatals. Of course some officials might baulk at the mere mention of selling Air Zimbabwe for instance, yet disposing controlling stake or finding a partner is the only way the government can have it back in the air. Anything short of this will only help to exacerbate the deficit and debt problems and of course this will mean little left for civil servants. Fortunately the government Mid Term Plan mentions what is called public-private partnerships or PPPs as the best way to revive the country’s infrastructure though it’s not clear if everyone in government is on board with this. Clearly as testimony from Zambia’s Copperfields and the diamonds in Botswana shows private capital seems better placed at managing some of these than the state. Reluctance to embrace this will only ensure that the state will remain mired in this miserable state, high wage demands from a very low revenue base meaning the government will continue to operate in this state of technical bankruptcy.

Wednesday, 24 August 2011

R&D and competitiveness

Research &Development key to improving efficiency and competitiveness
Again we will have to acknowledge that the decade long recession has had far reaching implications on the economy because during this period companies could not invest in new technologies hence the inefficiencies and the poor quality products we see. Of course since the start of the dollarization era the business environment improved resulting in companies resuming operations though there is now a yawning efficiency gap between local producers and their foreign rivals. Now according to local producers protection or shielding of some sort is necessary to allow them to fully recover and compete with these. However historical evidence seem to suggest that calls for this form shielding is often motivated by other objectives like increased profits without a corresponding increase in quality or efficiency or something known as rent seeking. For instance now there are reports already that local producers in industries that recently got protection have effected price increases to match imports prices and ultimately it is the consumer who emerges the biggest loser. Now in a follow up to the last article I will try to explain what may be the missing link to attempts to unravel this problem; the role of research and development in improving efficiency and technologies and why this is an important function. Indeed a lot of people and companies are ignorant about the importance of research and development (hereafter R &D) however what may be interesting is the revealing statistics made available by organisations such as the UNESCO that tell quite a story around this R&D  function . We are all aware that the United States is the world’s largest economy yet not many people would be aware of the US’s R&D spending which is estimated to top $405billion in 2011 alone and that this constitutes about 2.7% of its GDP. These figures are quite staggering but also help people to understand how that country values R&D which inevitably gives it the edge in global trade and that is why sometimes and naively so we expect the US to produce the latest technologies, the latest computer software, or even movies. Japan another innovative trading nation is expected to top $144 billion and that roughly equals about 3.3% of its GDP and until recently Japan was the second largest economy in the world. In fact the top 10 list almost resembles the list of the world’s top 10 economies and thus clearly showing that R&D is essential in ensuring growth and sustaining it. One emerging economy that has really embraced R&D and whose results now prove this is China. China according to the same list now out ranks Japan with its spending expected to top $153 billion about 1.4% of its GDP and indeed China recently overtook Japan as the world’s second largest economy and again this simply highlights the co relationship between R&D spending and economic growth. Zimbabwean companies are constantly clamouring for protection from imports because they are inherently inefficient as they still use out-dated technologies and production methods. Evidently protecting or shielding them from competition is not the stimulus needed to change their attitude towards R & D as the tool necessary to gain a competitive edge. For instance American automakers lost ground to Japanese carmakers  some years ago due to the latter’s emphasise on new technologies and production methods and since there was no government protection the only way the former were going to compete was to spend more on R & D. Now it is the story of China’s growth that should help to realign the thinking and comprehension of R&D as the foundation of sustained economic growth by people, leaders and businesspersons in the developing economies. In Africa where most developing economies are including ours, R&D has not received its due attention because according to figures available R&D spending often falls short of the UNDP’s minimum threshold of at least 1%of a country’s GDP. According to the UNESCO R&D list South Africa ranks first on the continent with its spending estimated to reach $3.7 billion which translates to about 0.7% of its GDP on the other hand Egypt ranks second with its spending topping $910 million that’s about 0.23% of GDP and finally Morocco in third with its spending at $760 million which about 0.6% of its GDP. However none of these rank in the world’s top 30 with SA ranking 31st, Egypt a distant 45th and Morocco 47th and there was no other African country on the list perhaps suggesting that there is little or next nothing being earmarked for R&D on the entire continent. Evidently these figures make a strong case for increased funding on research and development because it is exactly this sort of expenditure that ensures that our exports compete very well on the global market and help in import substitution efforts. Competitive exports and reduced dependence on imports not only helps to improve the balance of trade in our favour but in the long term it helps to reduce the balance of payments deficit something very much akin to African and developing economies. Now instead of adopting blatant protectionism measures the government could aid companies facing extreme competition by encouraging or sponsoring innovation, research and development as an alternative. It is this kind of route that will ensure local companies will eventually become competitive again and compete fairly without having to go the way of imposing duties something that flies in the face of the envisioned regional integration. Most importantly this will be done without harming or disadvantaging the consumer as is the case now after the government imposed tariffs on the certain food imports. Now what is probably needed is a new approach, investment in advanced research facilities, increased funding for R&D both in public and private sectors and most importantly a change in the mind-set or in the appreciation R&D. It is only this way that we can set the economy towards a path of sustained growth just like what other previously developing economies did a few decades ago and now they are major trading nations like South Korea.
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Monday, 15 August 2011

cost of protectionism


While there was indeed a general agreement that the state had to intervene in markets by protecting certain industries from competition in it is nonetheless important to highlight the costs associated with such acts. Obviously Buy Zimbabwe enthusiasts will have been pleased with outcome of the recent of monetary policy review outcome which for all intents and purposes gave in to some of the protectionist lobby designs. In particular the food and agro processing industry which now enjoys protection in the form duty imposed on imports and it has been said that this could be the stimulus necessary to allow local producers to recover. In other words given the price sensitiveness of the products in question most consumers will be forced to buy local stuff regardless of any misgiving they might have and of course local producers will thus increase their production levels. No doubt this raises questions that must get answers. How will consumers be protected from purchasing poor quality products given that protection from competition often breeds mediocrity? Will this really result in increased capacity utilisation? How and who will determine that this modest protection has achieved its intended results? It is pertinent we have these answers because one cannot rule rent seeking by some of those that lobbied for this protection. However to be fair on businesses the last decade was very horrendous and as has what happened elsewhere to countries in or emerging from crisis or war the local industry has to be given protection allow it stand on its feet again. Certainly the rationale often is not purely an economic one but hybrid one because political considerations will be at play and certainly Zimbabwe is no exception from this rule. However there are two sides to this coin, consumers needs as well. In fact while companies struggled during the last decade consumers were hardest hit by inflation particularly as incomes were just decimated leaving a majority of the population in poverty. So in as much as we want to help companies there has to be a balance between these two groups and it’s not an easy one but certainly not an impossible one. Now if a certain industry is going to be protected, then this does not have to be a blank cheque as it were. The protected industry must reciprocate the benevolence extended to them firstly by ensuring that their products attain the same quality standards of imports (yet this can normally happen if imports compete unhindered). In fact this should be an undertaking local companies must commit to if they are to be given protection and certainly in this case it does not appear to look that way. Secondly most companies have been complaining that they cannot improve their reward or compensation to their workers due to low productivity levels among other problems. Now by being shielded from competition as happened here then these must be pressured to improve wages offered to their workers as demand and possibly production will improve. Protectionism here should be seen as a double edged sword; those calling for it should be made to understand that getting government protection comes with responsibilities as well not just an increase in to their revenues or profits.  Ultimately the responsibility of the government is not only to businesses but to consumers as well hence the need for the balance. Now in the absence of such counter measures then this apparent capitulation by government to lobbying by business groups will only embolden these to lobby for further protection so that they can ostensibly compete on equal footing with imports. For instance most companies are facing liquidity problems, out-dated capital equipment and infrastructure which unfortunately factors heavily in the costs, costs which ultimately mean higher prices hence they cannot compete with imports from more efficient economies. Clearly shielding local industry from more efficient producers will harm the interests of consumers more than the increase in profits to a few large producers. It is not the business of the government or any government for that matter to inhibit competition by penalising more efficient foreign producers regardless of the heavy lobbying by locals. In my other instalment on this topic I said it is only when the competition is unfair that the government can with some justifiable economic reasons impose counter measures. For instance it has been argued widely that subsidies given to particularly farmers in North America and Europe give an unfair advantage to their farmers and the currency manipulations by giant Asian economies give their producers an unfair advantage on the global stage. In addition if the majority of the imports are composed of counterfeit and pirated merchandise then that is clearly unfair and illegal competition. Under such circumstances actions to shield local producers will be justified though protectionism is really hard to endorse. So far I believe this argument may be applicable in clothing and electrical products where there are considerable illegal products competing with our limping producers. For the rest of companies the government simply has to find other ways to assist without hindering the working of the market and this can be done by securing lines of credit, tax breaks among other tools. Of course the government has already set the duties on selected imported products what it can do now is to monitor the companies earmarked for that protection. A cost benefit analysis of this protectionhas to be undertaken after a certain period to determine if the protection is having the desired effect. In any case we have to understand that if we start imposing duties on certain imports then our trade rivals will most certainly retaliate resulting in this vicious cycle where everyone ultimately loses.That is why many great economists of old have consistently averred that protectionism only works in the short term and normally benefitsa few rent seeking business people. In the long run it hurts everyone consumers, the businesses and the government because ultimately protectionism will beget protectionism. Whatever the reasons for protecting industry such a policy should only be short term and we should strive to have a more open and free economy an assured path to sustained economic prosperity in the long run.
Terence Zimwara is an economic analyst you can contact him on

Thursday, 11 August 2011

restoration of property rights key

We have heard a lot of lamenting of the lack of foreign direct investment into the economy by mainly government officials and businessman alike claiming that this is happening despite the country carrying out enough reforms to warrant a change of heart by potential investors. Clearly the intent to do what is right has been manifested quite adequately by some in the government however it is the action or the walking the walk that is lacking so to speak. In other words we are promising investors the most ideal investment climate yet we are evasive when it comes to issues that really concern investors security of their investments. Events in the last decade did a lot in constructing an image that this country had no respect for property rights as the so called land reform for instance resulted in the confiscation of farms owned by white farmers without consent and compensation. Notwithstanding the violence that was associated with these reforms, it is instructive to note that this trampling on property rights was well publicised throughout the world courtesy of the now globalised media. Now it is against the backdrop this new found infamy that the country has been trying court foreigners to come and invest in its untapped natural resources. Now with such an image we I have to emphasise it is very detrimental to any economy particularly for a developing economy like ours and normally take years to totally eradicate. For instance an investor in Luxembourg or South Korea still views Zimbabwe as a very risky investment destination because the coalition government has not done anything concrete to recompense farmers who had their rights violated. Unfortunately unlike politics property rights are sacrosanct for any country that wishes to endear itself well with investors and risk rating agencies hence religiously defending these rights is paramount. That it is why after hosting a pretty successful investment conference a few months ago there has not been the translation of the enthusiasm shown there into actual investment. Investors are still nervy about investing because there is a great degree of uncertainty concerning security for of their investments which in normal circumstances is their primary concern when making decision to invest. The presence of elements of the previous regime in this government and the recurring threats of further violation of property rights in the mining industry this time has not helped to douse the perception that we do not respect property rights. If investors are never going to be sure if they are going to be in control of their investment then holding back from pouring their money would be quite logical. It will not count for much that we have huge reverses of platinum, coal, and diamonds and so on. We will remain poor as long we allow politics and populism to interfere with the pillars of a market system namely the rights of property owners hence we need to learn from the likes of China. China a previously strict communist state has recently changed tact allowing citizens and foreigners to own property and the results are quite clear to everyone now. China now ranks amongst the top 5 destinations for foreign direct investment in the world and last year as much as $400 billion of such investment found its way into China. It is fast moving away from poverty in part because it now offers the standard safeguards to foreign investors who in turn invested significantly and of course China is now the second largest economy in the world. A lesson we learn from this is that communist policies or nationalisation and foreign direct investment are mutually exclusive. The country’s record as well as political leaders’ rhetoric provides investors with ample proof that the country is not yet ready to embrace the tenets of property rights and in effect it is signalling that foreign direct investment is a mere luxury. Therefore unless the state really deals with this issue regardless of the political ramifications then we could well remain in this quagmire of not getting the investment which we desperately need.

Tuesday, 2 August 2011

agriculture and mining and the dollarisation story

Throughout the history of this economy mining and agriculture industries have always been the mainstay of the economy contributing significantly towards the GDP and providing employment for thousands. In fact prior to the land reform we had a thriving horticulture industry; we were the second largest producer of tobacco in the world, major producer of lint, tea, coffee and flowers. On the mining front we were one of the largest producers of gold on the continent as well as steel and coal. Now it is instructive to note these industries are naturally labour intensive something which really helped to maintain relatively normal rate of unemployment for a developing economy. Unfortunately the politics of this country between 2000 and 2008 played a substantial role in the decline of these two important pillars our economy. In addition our currency took repeated blows starting from the Black Friday back in 1997 eventually collapsing around 2007 and 2008 and not forgetting the hyperinflation which reached record highs. On agriculture after the so called land reform was carried out, the new inexperienced and unfunded farmers could simply not maintain the production levels of the outgoing farmers. Even when resources were availed to them the whole exercise of farming was simply not worth it because in the end farmers would be paid in the increasingly valueless currency, the Zimdollar even as the crop itself was bought in foreign currency. Records high prices were registered during this turbulent period yet this did not translate into increased production of this crop. Mining on the other hand also underwent its most difficult period as foreign exchange regulations at the time simply made it impossible to continue operating optimum levels. In some cases the prices for the minerals were determined by officials here, who pegged the prices in local currency something which resulted in losses as the local receipts could not cover the foreign currency expenditure made by the miners. Now as the local currency’s collapse went into overdrive a few years before the new government production levels in mines and in the farmland dropped quite drastically as evidenced by major food shortages that ensued. While politics and poor decision making were at the centre of everything, what has happened since the country adopted the so called multi-currency system or dollarized indicates to some extend that the collapse in production levels may have been linked more to wrong economic policies than anything else. In fact since the start of the multi-currency regime mining and agriculture have led the way in recovery. Tobacco production which dropped to under 50 million kgs during this lost decade has however been on a growth path and looks set to surpass the record high of 210 million kgs achieved in 2001 in a few years’ time. So far about 130 million kilogrammes has been sold earning farmers nearly $350 million and according to Tobacco Marketing Board (TIMB) thousands of additional farmers have registered to grow the crop this coming season as the price and of course the currency we are using makes it very viable to grow this. Cotton production has been improving as well as farmers who had previously discontinued growing this crop are returning as the prices are now lucrative and importantly the currency is stable and maintains value. Obviously it is still a long way before we match the previous highs but it is evident from these figures that dollarization has really stabilised the agricultural sector. The mining industry is one which has really benefited from the introduction of the multi-currency system because it no longer has to deal with the exasperating regulations like foreign currency surrender requirements or multiple exchange rates. Prices that miners get are more or less the same as the international market prices thus miners are getting full value for their resource.  Now with China, India and other members of the emerging economies expected to continue registering such phenomenal growth, it is the economy and miners who will benefit as these countries will need our minerals for their development. This means that in the short to medium term prices for such minerals as chrome, steel, platinum will remain in the high levels and this will not only encourage miners to increase production but it will entice new miners to start production as well. In fact there is evidence of this already in such areas like Lalapanzi, it has rich and large deposits of chrome ore.Now this high global demand for chrome for instance has really transformed this town and created opportunities as well as employment in the last 3 years. A lot of small scale miners have been encouraged to go into mining not only chrome but gold and other highly sought minerals and this has been made possible courtesy of the dollarization of the economy. The message which all this is conveying to everyone is that on the economy front our economy now functions as a normal one hence investors particularly local have been encouraged to invest. To this end the mining and agriculture industries are expected to grow by 47% and 19.3% respectively way above the national expected rate of 9.3%. According to Frost and Sullivan mining consultants the mining industry in Zimbabwe is expected to grow by that much primarily because of the exchange control policies and the dollarization of the economy. In both industry cases, the growth in number of small scale miners or farmers aptly sums up the just how important the decision to dollarize the economy has been. Of course the mining industry could do a lot better if the current controversies surrounding mining ownership reforms are cleared to everyone’s satisfaction as well as the improvement in the political environment. Therefore this currency regime has to be given the right timeframe to enable not only full recovery but actual growth. It is the hope that this is increasingly becoming clear to decision makers hence we anticipate less talk of the local currency’s return.
Terence Zimwara is an economic analyst and you contact him on or visit