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The global and technological effect

05 Apr 2019 at 11:26hrs | Views
An extract from a book titled 'The next Zimbabwe'

The twenty first century has brought about the idea of globalization were interconnectivity is the new big idea being propagated by world organization and the current crop of world leaders. The developments in the internet, faster transmission, communication and efficient transport platforms have enabled the movement of people, products and news to be global in nature.

This global interconnectivity of today's world has brought about new opportunities and challenges to the modern world's population. Success for goods and services that was once regionally based within a particular country has now the potential of becoming global success.

The focus for countries around the world is on constantly finding better methods for solving world problems efficiently (innovation). Once a product has been produced to cover for a global need the next step for producer firms within a country is on getting as much revenue from its sales to other countries to cover for the imports on other global products that the country is not producing at its best or not producing altogether. If a country blindly trades on the global market whether consciously or unconsciously with its central government not setting parameters that ensure financial health, economies will ever fall into financial ruin and debt unnoticeably.

For an individual country like in the case of Zimbabwe it is essential to assess the effect globalisation is having on our economy in order for us to formulate ways of combating the financial and economic decline the country is currently facing. In the article I hope to explain more on how the global market operates and propose measures to help the country improve its economic and financial health.      

Free trade is the main characteristic of the global economy where the movement of almost any good or service to anywhere in the world is possible in no time with fewer restrictions. This phenomenon has given rise to two global markets that are of the commodities global market and the global market for final goods and services.

For the commodities market the goods (products) are somehow similar to each other globally. The market includes goods like crude oil, minerals, farm produce and other goods of such a class were differentiation is quite difficult. In nowadays of free trade when a country is reliant on such goods it will be competing with other similar commodities on the world market. It will not be an independent price setter but rather goes along with the global prevailing price which is determined by global demand and supply of these commodities. When the world producer's for commodity goods are producing more in comparison to global demand, prices on the commodities market are forced down. Countries for example that rely on crude oil as a source of revenue will have their revenues going down when the world produces more of this commodity.

The free trade phenomenon has shifted the focus for companies around the world on constantly bringing down production costs by being cost efficient. Being cost efficient is the bringing down of labour and other operational costs by using more innovative machinery (technology) to produce more with less input.

The global commodity price besides affecting the revenue flows of a country also determines the global industrial labour wage rate for all countries involved in the trade of a particular commodity. Where certain regions or countries of the world trading on the commodities market have their labour costs being lower; companies producing commodities in those regions will offer their commodities at lower prices leading to the other firms in the other regions following that prevailing price and cost structure. To maximise profits companies have to continuously invest in new technologies to produce more output with less labour and operational costs or else have their profit margins continuously falling.  Commodities don't really differ much in quality or form hence they evenly compete worldwide for the prevailing world price. In the case of Zimbabwe which bases its economy on commodities like Tobacco, minerals and other farm produce; exposure to revenue fluctuation risk is henceforth high.

The only ways for revenues to go up for countries with many companies involved in commodity trade is when certain parts of the world are not producing enough of a commodity goods thereby reducing global supply or were the global demand is higher than usually at a given time period thereby forcing prices up and by being cost efficient.

The biggest danger to a country with many companies involved in commodity trade is where commodities that it is heavy reliant on are replaced by newer and cheaper alternative commodities or innovative solutions for their use. If the country does not have the technical skills, resources and strategic foresight to shift to the prevailing alternative commodity trade, then total industrial decline, jobs and economic collapse would be imminent. The more a country is reliant on commodities the less control it has over its revenue flows and overall economic outlook in this global world.

Most African countries are at this level of trade with many basing their economies only on the commodities global market trade. This market exposes economies to the great problem of revenue fluctuation risks as it depends on global demand patterns which individual countries have little capacity to influence. A recession in a part of the world would also adversely affect a country trading on the commodities market.

The second market to consider is the global market for final goods and services. Final goods are processed goods that are now ready for human consumption. Services are intangible products which are provided to consumers for their satisfaction where there is no transfer of ownership to the consumers. Services are variable in their delivery and the level of satisfaction from their delivery depends on the owner's opinions and perceptions.      

The global final goods market is propelled by innovation of product, features on goods, excellence of methods to produce and excellence of equipment used in production that then affect the price and quality of these goods. Since the movement of products and marketing platforms like the internet are global in their nature the fight for companies around the world is on efficiently producing innovative products that are accepted globally. Examples of final goods are mobile phones, computers, cars, household appliances, furniture, jewellery, clothing products and many other processed goods which involve human or computer design and engineering to bring about a final good using various raw materials(commodities).

Services are in the form of holiday experiences to form the tourism industry, sporting events in broadcasting rights and venue experiences, music and movies to form the entertainment industry with pay to view platforms, education in the form of university admissions, professional course subscription and examination fees, banking and other services which are rated by consumer's perceptions and opinions on their quality and credibility. According to the level of branding, credibility, experience or ambiance in this global world services can form a major part of a countries export value by attracting foreign funds and creating the much needed jobs into a countries economy.            

For a country to progress economically companies within its borders must be innovative to produce some classes of final goods and services that are globally marketable to attract funds from other countries and create the necessary activity with it jobs into the country. The revenue inflows from this trade must be adequate to meet the country's needs from other countries on goods and services it does not produce on its own. The opposite and economically draining situation is that of having more being spent externally on acquiring much of these services and goods than what a country can produced and gained from trade when it fails to develop its own industries. Failure in a given countries productive sector to deter imports that would have accumulated extra costs in transport and servicing will led it to engage in international trade which when unbalanced leads to the adverse consequences of debt and unsatisfied needs.

The comparative advantages that exist by virtue of countries locations, capability creation techniques and resource distributions are the ones that determine the classes of productive sectors that a country has to regionally or globally excel at by being innovative or cost efficiency or product differentiation.

In the globalisation idea countries do not have to produce all goods and services for their populations needs on their own applying inefficiencies like subsidies and tariffs. Rather countries have to concentrate on what they can efficiently produce best in their regional or global markets. The global economic main for globalisation is to bring out true values of production on goods and services in the global market, with the best quality products being produced efficiently.

The ideal situation in the original plan for globalisation was for all nations to have certain sectors or products that they excelled in production and delivery for global trade to have benefited the entire world. This factor of production and delivery excellence in certain sectors balance was to make the revenue flows of all nations to have some form of sustainable growth from the free trade scenario brought about by free movement of goods, people and services. Rather this is different from the current situation where a few countries have grown in the ability to produce most of these goods and services leading to massive problems in migration to these producing countries.

Although globalisation meant a global approach to service delivery and goods production in free trade its major flaw was the lack of creation of global policy making boards or watchdogs tasked with ensuring even trade and equity of rewards to nations. Globalisation has now become a major threat to the individual countries' policy making capacity, economic wellbeing and sovereignty. In cases were countries have blindly singed of to international agreements without fully assessing their long term effects. Often these countries have found themselves in dangerously unsustainable economic positions of trade deficits and rising debt.

Globalisation and technological advancements have resulted in more units and variety of goods and services through high productivity ratios of machinery and innovation. The rewards from this upsurge in production has however been unevenly distributed. Since this upsurge is attributed to machinery and technological advancements the design and development of these is done by a few evolved individual and cooperation.  Rewards for these gains will be earned by these groups involved in this design and engineering of machinery. The human input previously required for production is now less valued, leading to lower incomes for the previously middle class worker.

Global production by virtue of having no international bodies ensuring even distribution of capabilities has also meant that reward from trade has been concentrated to a few production oriented countries. Progressive nations that have excelled in production, design of innovative goods and globally acceptable services have become the suppliers to the world alone. The fact that the world now has fewer producing nations; through in some cases multinational companies has given the bargaining power to these establishments to also control prices on the commodities market. This is the biggest danger to countries that rely on the global commodities market as the probability of it being rigged is now high as these commodities are only used as inputs in the production of final goods. Countries with education systems burnt on teaching innovative techniques for producing goods, delivery of world-class services and those that play around with their currencies to advance exports have benefited from the ideas behind globalisation.

Besides a country being innovative lead its companies can also be quick in adapting to changing trends in product design and delivery of services to meet a greater part of the demands of its population on its own using cost efficient methods. This is the way in which the Chinese economy grew by producing for the majority of multinational companies applying its low cost structures until it gained technical competences to create its own companies.

To enjoy some form of economic balance countries are now forced to lower their wage rates for technical expertises in particular fields to attract investments from these multinational cooperation. The issue of ease to conduct business in a particular country also comes to play with countries with favourable taxations rates, investor friendly policies and policy consistency enjoying investments from these multinational co-operations. What this foreign direct investment means is more incomes in the form of salaries and wages to then drive aggregate demand that can be used to jumpstart other industries. The selection of certain strategic sectors to jumpstart an economy is an important strategic decision to be made by a host government when aiming to stimulate economic growth.

A country like in the case of Zimbabwe; with its lack of industrial capacity and employment when foreign investments are made to certain sectors, this  will result in incomes to a part of the population with little or negative income presently. These incomes that this group now has will be used to drive demand for other goods in the economy. These injected incomes will increase the output and employment prospects of other local industries. The duty now for host policy makers will be on limiting these injected incomes from being used to buy foreign products (leakages) from the global market. If a host countries' policies are porous in allowing these injected incomes to just move out of the economy, economic balance and growth will be difficult to achieve.

In the course of the Global Political Agreement (GPA), where revenues were at their highest in Zimbabwe owing to commodities like Gold, Diamonds and Tobacco, opportunities to install and enact long term policies towards self provision where squandered  for short-term political gains. The September 2010 proposed bill by the then minister of environment and natural resources Francis Nhema aiming to ban the importation of second hand vehicles was rejected by parliament. The rejected policy has now lead to the total collapse of the local motor industry with it projected local jobs. Massive revenue leakages to the economy are still being experienced as Zimbabwe continues to import second hand final goods as opposed to the creation and expansion of its own local industries. The then mixed parliament made a strong statement against indigenisation and self provision by refusing these measures. The parliament damaged the legislative consistency to policy quality which is sought by prospected investors to these productive industries. No investor in his/her rightful mind can invest in the motor vehicles', clothing or  other productive sector without the countries legislative protection from substandard, cheap, counter fit and dumped product importation market.    

The other problem is the lack of strategic foresight and coordination of government's action and policy direction to the importance of investments in certain strategic sectors using other tools as opposed to the indigenisation share policies.  The other tools that the government can use are composition of labour force agreement for these industries, minimum wage rates and imposition of related supplies towards local companies in the investment deals.

The lack of governmental coordination can be seen in the Essar proposed deal for a stake in Zimbabwe's local Iron ore industry. The deal was for Essar an Indian company to take over operation at Zisco Steel breaking it into two operational companies were it would hold the majority share of around 80% with the government owning the remaining 20% stake in the companies. Although the deal was consummated in 2010, operations at the plant are still to commence owing to the various requirements made by the various ministries of government for the mining licence to be issued. In the period from 2010 to the end of 2015 were the mining licence was finally issued the requirements were still being processed by the various ministries which included the ministry of industry, finance, water, transport and mines. When all these ministries finally came to an agreement after 5 years the deal was no longer viable for Essar since in the deal it had to pay for ideal time for 5 years wages and salaries on non production for the workers it was to inherit from the old Zisco Steel Company.        

Iron ore production is an important driver to the productive industry of any country as steel is the backbone to all industrial proceedings. The continuous importation of this essential commodity (steel) is unsustainable to the development of Zimbabwe's industrial capacity and growth. This failed deal shows evidence of Zimbabwe's shortcomings. Firstly the failings of the education system towards the provision of final goods as Zimbabwean engineers failed in the re- alignment of the furnace at the Zisco Steel Plant. Secondly a deal that engaged the Chinese to rework this work continues to accumulate arrears and compounded interest as this debt is still to be paid for since production at the plant is yet to commence. The problem of governments' departmental approach to action and decision making is another problem in Zimbabwe. They are various ministries with their differing requirements that then complicate the whole investment process.  

This departmental approach of doing business and operating is not a governmental problem but also affects the operations of local companies and the education systems towards the provision of innovative goods and services. These institutions are based on this departmental approach of divisions and areas of study. This is quite divergent to the modern business and commercial setup of companies and institution of learning. More efforts are being made towards ailing the various areas and fields towards working together as teams for the accomplishment of common goals, sharing resources and knowledge to aid the accomplishment of targets through producing innovative goods and services that take into account many aspects. Modern final products and services are no longer produced taking into consideration only one area of expertise. Modern cars for example have the mechanical, interior decoration, electric, lighting, engineering, hydraulic and technological aspects all in one; henceforth the meeting and coordination of minds of these differing areas is the one that produces an innovative final product that competes globally.

Changes to the countries education and company setup towards the cross divisional approach and objective based style of working and learning must be done in order for us to start producing in this modern environment . This is the only way for the country to develop innovate and sustainable product and services.

I believe there is not much in terms of new policy that I can propose of the ideal Next Zimbabwe which has never being proposed before by the various political establishments. Zimbabwe already has many well drafted policy statements which in my opinion are all vital to the countries future success. The various policy statements when used and implemented strategically will address all the major economic challenges that I have pointed out.

In the short term the country has to inject some funds into the economy by attracting foreign direct investments to selected strategic industries. It has to apply the proper legislative policies to protect local production. For self provision long term plans to reform our education system towards the provision of goods and services, multi-disciplinary learning as opposed to the transfer on knowledge and non risk taking must be made.

Lack of policy implementation and cross party politics also hinders any actions, accountability and coordination of these ideas. The political system must be refined to deliver in a multi party system with a separation of party and nation programs.

Stay Blessed
Terence Simbi
Twitter @terencesimbi
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Source - Terence Simbi
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