Opinion / Columnist
Zimbabwe economy needs free-market policies to grow
28 Jul 2019 at 17:59hrs | Views
Harare CBD
The introduction of the foreign exchange interbank market by the Reserve Bank of Zimbabwe (RBZ) in February 2019 was a major milestone towards free market economics. Even though there are fears of government manipulation, the foreign exchange market provides the basis upon which currencies can be valued or traded freely by all market players instead of it being an unsubstantiated proclamation as was the case with the Bond Notes to US Dollar rate of 1:1. Zimbabwe has traditionally been an overregulated or command economy with the government playing overstretching roles in key economic sectors such as energy and petroleum, agriculture, mining, banking, media and broadcasting, telecoms, health and transport services among others. It did not matter whether the roles were conflicting or not; from legislation, regulating, business ownership (competitor/supplier), consuming, financing and tax collecting at the same time or in the same industry.
Typical cases of excessive regulation can be observed on how Zimbabwe Electricity Supply Authority (ZESA), Zimbabwe Broadcasting Corporation (ZBC), National Railways of Zimbabwe (NRZ) and Grain Marketing Board (GMB) play conflicting roles in their respective sectors. The services offered by these organizations speak volumes about the demerits of command policies to the economy. The conflicting roles have nurtured inefficiency in resource allocation thus creating market shortages, limited innovation and growth, high levels of unemployment, corruption and limited private sector investment to the detriment of economic development.
A free market economy is a system based on supply and demand with minimal or no government controls. Supply includes goods and services, natural resources, capital and labour. Demand includes purchases by consumers, businesses and the government. Free market economics compel corporates to grow and innovate so as to satisfy demand with a clear motive of attaining economies of scale and profit maximization. A key feature of a free market is the absence of forced transactions or conditions such as price controls, property seizures, government threats and dictatorial economic policies. In essence, production and consumption of goods and services is voluntary. Individuals are free to acquire, consume or produce as much as their own needs require. While there are no pure free market economies in the world (even in first world countries) with most countries practicing different levels of mixed economics. However, the degree of freedom in the economy relates positively to growth in private sector investment and economic prosperity.
A classic example of how free market policies develop the economy can be found in the unbundling of an inefficient Postal and Telecommunications Corporation (PTC) in the year 2000 to form NetOne (mobile telecoms), TelOne (fixed telecoms) and Zimpost (postal services). The sector was liberalized soon after, resulting in the licensing of Telecel, Econet, Africom and TeleAccess. A host of other private sector investors also got operating licenses for Optic-Fibre installations, internet service provision, mobile financial and technology services. Today telecommunications in Zimbabwe is a highly competitive, multi-billion dollar sector which contributes close to 10% of Zimbabwe's GDP and is highly integrated with financial services. The sector has churned out innovations in mobile payments, internet and data services which have improved financial inclusion even in the remotest parts of the country and creating jobs thereby lifting thousands out of poverty. Zimbabwe's payments ecosystem is one of the most digitalized in Africa, with over 95% of national payments being done through electronic means.
The telecommunications sector is still regulated to ensure that the consumers are protected and to prevent unfair business practices but there is no question about efficiency in the industry. The ongoing efforts to privatize selected players in the sector will go a long way in unlocking private sector investment and inducing competition. Free market policies could have happened to electricity generation, broadcasting services, railway transportation, aviation and grain marketing thereby unlocking multiplier effects to the whole economy in terms of enterprise growth, direct and indirect employment creation, tax revenues and innovation.
Recently the government enacted Statutory Instrument 145 of 2019 (Grain Marketing Control of Maize Regulations) which bans the buying and selling of maize among unauthorized persons in Zimbabwe. The law further prohibits any person or entity from buying or acquiring maize from producers other than through GMB. The Statutory Instrument also bars the transportation of bulk maize from one area to another and limits producers to transporting a maximum of 5 bags not exceeding 50 Kgs per bag, from one area of the country to the other without any authorized person or police officer confiscating the maize. Simply put, the government is legally the sole buyer and seller of maize in Zimbabwe.
This has massive repercussions to the milling industry as it creates artificial shortages and price increases for a basic commodity that is key to every household in Zimbabwe. The country is facing starvation with a grain shortfall of more than 1 000 000 metric tonnes this year and requires over $300 million to import maize from the region and beyond. Such a restrictive laws have affected market maize supply in the past and will lead to poor production of the staple crop as more farmers divest to less restricted cash crops.
The economic growth witnessed in the late 20th century by Asian countries such as South Korea, Taiwan, Singapore, Hong Kong, Indonesia, United Arab Emirates (UAE), Qatar, China and Malaysia can never be explained without the role of free market economics in those countries. Free market policies have allowed these economies to close the gap with yesteryear economic giants such as United States, Germany, France, Italy and Russia in a space of less than 50 years. Free market policies have demonstrated that a country can be an economic powerhouse regardless of its limitations on natural resources, area or population size.
The biggest constraint to free market economics in Zimbabwe is political interference on the operations of State Enterprises and Parastatals (SEPs) especially regulatory bodies. Political interference leads to short sightedness in policy formulation or implementation, bureaucracy in the awarding to licenses or permits to new entrants (blocking competition), lack of transparency, artificial shortages, mismanagement and inefficient service provision of public goods and services. Other constraints on the local market include implicit or explicit threats of force by the government, prohibition of specific exchanges, strenuous licensing requirements, fixed exchange rates, unsustainable subsidies and quotas on purchases of goods. Free market policies require strong institutions such as rule of law, protection of property rights, enforcement of contracts and an independent judiciary.
Globalization and the need harness private sector investment has brought to the fore the need for government to deregulate the economy, provide independence to state entities and allow market forces to play their part. In addition, the collapse of industry defining state entities such as Air Zimbabwe, NRZ, ZimGlass, ZBC, Hwange Colliery, Kingtons, CSC and ZiscoSteel has demonstrated that government cannot play all economic roles at the same time without creating market inefficiencies. Over regulating the economy has dented Zimbabwe's economic recovery path and there is a cause more than ever to let free market policies lead in the allocation of national resources instead of government interfering in every industry. This does not mean the government absolving core responsibilities of providing a safe and stable business environment, providing public goods and managing the negative effects of economic growth such as pollution or environmental degradation among others.
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Victor Bhoroma is economic analyst. He is a marketer by profession and holds an MBA from the University of Zimbabwe (UZ). For feedback, mail him on vbhoroma@gmail.com or alternatively follow him on Twitter @VictorBhoroma1.
Typical cases of excessive regulation can be observed on how Zimbabwe Electricity Supply Authority (ZESA), Zimbabwe Broadcasting Corporation (ZBC), National Railways of Zimbabwe (NRZ) and Grain Marketing Board (GMB) play conflicting roles in their respective sectors. The services offered by these organizations speak volumes about the demerits of command policies to the economy. The conflicting roles have nurtured inefficiency in resource allocation thus creating market shortages, limited innovation and growth, high levels of unemployment, corruption and limited private sector investment to the detriment of economic development.
A free market economy is a system based on supply and demand with minimal or no government controls. Supply includes goods and services, natural resources, capital and labour. Demand includes purchases by consumers, businesses and the government. Free market economics compel corporates to grow and innovate so as to satisfy demand with a clear motive of attaining economies of scale and profit maximization. A key feature of a free market is the absence of forced transactions or conditions such as price controls, property seizures, government threats and dictatorial economic policies. In essence, production and consumption of goods and services is voluntary. Individuals are free to acquire, consume or produce as much as their own needs require. While there are no pure free market economies in the world (even in first world countries) with most countries practicing different levels of mixed economics. However, the degree of freedom in the economy relates positively to growth in private sector investment and economic prosperity.
A classic example of how free market policies develop the economy can be found in the unbundling of an inefficient Postal and Telecommunications Corporation (PTC) in the year 2000 to form NetOne (mobile telecoms), TelOne (fixed telecoms) and Zimpost (postal services). The sector was liberalized soon after, resulting in the licensing of Telecel, Econet, Africom and TeleAccess. A host of other private sector investors also got operating licenses for Optic-Fibre installations, internet service provision, mobile financial and technology services. Today telecommunications in Zimbabwe is a highly competitive, multi-billion dollar sector which contributes close to 10% of Zimbabwe's GDP and is highly integrated with financial services. The sector has churned out innovations in mobile payments, internet and data services which have improved financial inclusion even in the remotest parts of the country and creating jobs thereby lifting thousands out of poverty. Zimbabwe's payments ecosystem is one of the most digitalized in Africa, with over 95% of national payments being done through electronic means.
The telecommunications sector is still regulated to ensure that the consumers are protected and to prevent unfair business practices but there is no question about efficiency in the industry. The ongoing efforts to privatize selected players in the sector will go a long way in unlocking private sector investment and inducing competition. Free market policies could have happened to electricity generation, broadcasting services, railway transportation, aviation and grain marketing thereby unlocking multiplier effects to the whole economy in terms of enterprise growth, direct and indirect employment creation, tax revenues and innovation.
Recently the government enacted Statutory Instrument 145 of 2019 (Grain Marketing Control of Maize Regulations) which bans the buying and selling of maize among unauthorized persons in Zimbabwe. The law further prohibits any person or entity from buying or acquiring maize from producers other than through GMB. The Statutory Instrument also bars the transportation of bulk maize from one area to another and limits producers to transporting a maximum of 5 bags not exceeding 50 Kgs per bag, from one area of the country to the other without any authorized person or police officer confiscating the maize. Simply put, the government is legally the sole buyer and seller of maize in Zimbabwe.
This has massive repercussions to the milling industry as it creates artificial shortages and price increases for a basic commodity that is key to every household in Zimbabwe. The country is facing starvation with a grain shortfall of more than 1 000 000 metric tonnes this year and requires over $300 million to import maize from the region and beyond. Such a restrictive laws have affected market maize supply in the past and will lead to poor production of the staple crop as more farmers divest to less restricted cash crops.
The economic growth witnessed in the late 20th century by Asian countries such as South Korea, Taiwan, Singapore, Hong Kong, Indonesia, United Arab Emirates (UAE), Qatar, China and Malaysia can never be explained without the role of free market economics in those countries. Free market policies have allowed these economies to close the gap with yesteryear economic giants such as United States, Germany, France, Italy and Russia in a space of less than 50 years. Free market policies have demonstrated that a country can be an economic powerhouse regardless of its limitations on natural resources, area or population size.
The biggest constraint to free market economics in Zimbabwe is political interference on the operations of State Enterprises and Parastatals (SEPs) especially regulatory bodies. Political interference leads to short sightedness in policy formulation or implementation, bureaucracy in the awarding to licenses or permits to new entrants (blocking competition), lack of transparency, artificial shortages, mismanagement and inefficient service provision of public goods and services. Other constraints on the local market include implicit or explicit threats of force by the government, prohibition of specific exchanges, strenuous licensing requirements, fixed exchange rates, unsustainable subsidies and quotas on purchases of goods. Free market policies require strong institutions such as rule of law, protection of property rights, enforcement of contracts and an independent judiciary.
Globalization and the need harness private sector investment has brought to the fore the need for government to deregulate the economy, provide independence to state entities and allow market forces to play their part. In addition, the collapse of industry defining state entities such as Air Zimbabwe, NRZ, ZimGlass, ZBC, Hwange Colliery, Kingtons, CSC and ZiscoSteel has demonstrated that government cannot play all economic roles at the same time without creating market inefficiencies. Over regulating the economy has dented Zimbabwe's economic recovery path and there is a cause more than ever to let free market policies lead in the allocation of national resources instead of government interfering in every industry. This does not mean the government absolving core responsibilities of providing a safe and stable business environment, providing public goods and managing the negative effects of economic growth such as pollution or environmental degradation among others.
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Victor Bhoroma is economic analyst. He is a marketer by profession and holds an MBA from the University of Zimbabwe (UZ). For feedback, mail him on vbhoroma@gmail.com or alternatively follow him on Twitter @VictorBhoroma1.
Source - Victor Bhoroma
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