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Investment and not aid could transform Zimbabwe into a middle income economy by 2030

30 Sep 2018 at 10:15hrs | Views
As the country embarks on a journey to economic revival and development having set herself the lofty, but attainable, goal of attaining middle income economy status by 2030 it is incumbent upon Zimbabwe's policy makers to interrogate the possible pathways that could lead to real and significant economic growth. Attaining middle income economy status for Zimbabwe requires double digit annual economic growth figures to be recorded and sustained over the ensuing period. That will be difficult but not impossible to achieve. I am of the persuasion that any easily attainable goal is not worth pursuing at all. Setting ourselves lofty aspirations is always a great motivator if ever there was one such motivator.

The Zimbabwean economy, for a long time now, has been bedevilled by ever dwindling foreign aid inflows, not much foreign direct investment, initially encouraging diaspora remittances which as always also respond to the performance of the countries hosting our over 3 million human capital abroad as well as small scale domestic investment. The picture of the economy given the foregoing background appears to be a gloomy and almost invariably a miserable one.

The beauty of an economy such as the Zimbabwean one is that with the right policy framework instituted such an economy can only rise seeing it has experienced such lows as have never ben experienced by others that achieved significant growth in the not so distant past. What is required is for Zimbabwe to document the traps that ensnared her in the past and critically analyse that which has led to the demise of others' economies with a view to avoiding all such pitfalls.

Zimbabwe needs to learn from her own past mistakes and those of others first then interrogate how others have managed to extricate themselves from demeaning poverty. The country's aim in this analysis should be to craft a roadmap that will red flag as many of the danger zones as possible so as to avoid them and point to the paths the country should follow.

Economists the world over are always seized with explaining how economies may optimize the employment of scarce resources. When the laser precise analyses of the economists are focused on economic growth or development, a number of explanations are proffered by development economists in their bid to elucidate the crucial hence critical models and theories that expound how economies are developed optimally. There are various schools of thought among African development economists on how African economies may achieve real growth. All credible development economists are agreed that investment is the backbone of sustainable economic growth. Some though believe that foreign aid has a crucial part to play in African economies' attainment of significant economic growth.

All the countries that have achieved significant and sustained levels of economic growth have managed to do so through investment. Such investment could be of the domestic or foreign type or both.

A lot of studies have revealed that where domestic investment is combined with foreign direct investment, economies tend to register greater levels of economic growth than when an economy solely relies on domestic investment or foreign direct investment.

I posit that for an economy that has been battered for a long period through policy incoherencies and inconsistences like the Zimbabwean economy to register significant growth in the shortest possible time frame, domestic investment must take the lead. Charity begins at home seems to have a significant meaning in investment in economies such as Zimbabwe's. What better investment allure is there to a foreign investor than massive amounts of domestic investment?

Significant domestic investment signals a safe investment destination for capital to any foreign investor. Why would someone invest in an economy where the locals are scared of investing in?

The appeal of an economy for investment purposes to foreign investors lies in the level of vote of confidence passed on it by its locals. When locals would rather invest their significant amounts elsewhere that tends to point foreign investors to those destinations as well. For Zimbabwe to attract real investment of the foreign direct type she must start by treating her own local investors with the utmost respect that fosters their massive investment in the country.

Such initiatives as Special Economic Zones must actually be fully operationalized with significant budgets devoted to them. How about granting tax holidays to real exporters that would be earning the economy certain thresholds of foreign currency as a starting point? Working on the ease of doing business initiatives could witness the ushering in of simplicity and speed in the processes of setting up of businesses in the country. Such simple initiatives as enabling the processes of registering a company to be simple and not encumbered by unnecessary costs like costs for name searches could go a long way towards making it easy for any enterprising economic agent to start a company in the country.

The challenge with an ever dwindling fiscal crucible is that those tasked with mobilizing finances for the ever ballooning recurrent expenditures will invariably resort to more and more taxes as the key source of government revenue.

The more taxes that a government collects from its economic agents the more the government would be constraining investment potential. Expansionary policies require some concessions on taxes for certain economic players with the capacity to ultimately generate more as a result of the concessions.

The government, for instance, could formulate tax systems that encourage beneficiation in the mould of a significantly reduced tax rate for every stage of processing of products by players in the extractive industries as a way of encouraging job creation along the value chain as opposed to the exportation of raw products for beneficiation abroad as is generally happening in the mining industry.

Encouraging domestic investment will not only create jobs for the locals but could also reduce the import bill hence improving the country's balance of trade if the domestic investment will result in a greater reliance on domestically available inputs.

Foreign direct investors are more likely to come to the party when domestic investment has grown to significant levels. Foreign direct investment has the advantage of unlocking already available technological advancements that could naturally have taken the country some time to acquire. Foreign investors may bring on board business models that could prove beneficial to the economy in the shortest period of time.

Foreign investors tend to have deep pockets as well and if the country is an attractive destination for capital the moneyed investors may in no time transform a hitherto comatose economy into a vibrant and enviable economic hub.

The key to attracting such investors is to work on the ease of doing business and dealing promptly and decisively with endemic corruption. No real investor will risk their money investing in a country characterized as one infested with corruption. Dealing with corruption is within the country's power to do. One thing I have learnt about corruption is that it is like a demon which needs to be exorcised once and for all.

If the corrupt are left to spread their dirty tentacles through unacted upon threats to bring them to book, they tend to become hardened criminals who not only proceed to practice their corruption in an unfettered manner but even employ blatant ways of proving that they are the untouchables.

Once their fellow corrupt pals discover that no legal peril is visiting their corrupt idols, they will themselves also take it upon themselves to at least emulate their icons and before we know it, stemming the cancer will become a mammoth task that is way bigger than before the pronouncements that the corrupt will be dealt with.

In my personal life, I have had the unfortunate experience of having to deal with corrupt people and I must say the more nothing was done to them by way of being brought to book for their corrupt deeds, the more emboldened they became. No investor is willing to risk their money by investing it in corrupt countries. Corruption is not too difficult to deal with.

Those who are corrupt should not be left to continue practising corruption and giving the country such a bad name. It is heartening that courts dedicated to fighting graft have been instituted. The question that begs answers on this count is: will there be sacred cows in the prosecution of corruption?

Granted investment is a universally agreed upon transportation mechanism to sustainable economic growth, could foreign aid also achieve that lofty feat as a key contributor? Aid, by its nature, is a form of relief or succour or support. I postulate that support can only make meaningful contributions to economic growth if and when it is brought to bear on a robust business framework, that is, if there is no real structure in place then support will always call for more support. Foreign aid usually comes with strings attached.

Some of the strings will no doubt be pulling the policy makers to some destinations that could be at variance with their aspirations. Aid should be there to support policy makers as opposed to making it one of the pillars that the developmental thrust of the economy ought to be hinging on.

Relying overly on foreign aid reduces a country to the lot of beggars. Beggars aren't choosers so goes the adage. The begging mentality reduces the policy makers' planning ability. Economic growth is a product of resolute planning. Economic growth, unlike natural biological growth, is not natural. Work has to be done for economic growth to result. I propose that more concerted efforts should be expended on attracting investment than in attracting foreign aid. Aid, at best, should just be used as a buttress on investment.

Debt could also be used to extricate the economy from the current doldrums. Here, is where the country ought to be most vigilant. Some debt givers are a version of what I would like to term the white tooth black heart kind of people.

I was reading, not so long ago, that one of our northern neighbours has lost some assets of strategic importance to some debt givers that seem to be quite a hit among African governments these days. In negotiations with debt givers, our negotiators should always draw the line between mortgaging our resources and getting money from usurious lenders. It is much better to keep on scouting for better lenders than jump onto the current African bandwagon as far as debt sourcing is concerned without much thought.

It is better to engage more in build own and transfer (BOT) or even build own operate and transfer (BOOT) schemes with some of the new lenders to African economies than merely getting debt with heavy encumbrances attached to it. Without mentioning names of countries, it goes without saying that not every country that claims to be an all-weather friend is indeed an all-weather friend. Every country in its dealings with others will always be looking out for its own interests when they advance debt to Zimbabwe.

Zimbabwe's negotiators ought to be looking out for Zimbabwe's own interests as well in the negotiations with debt givers.

The rule of thumb should always be: if it is not good for Zimbabwe then Zimbabwe should not engage in it. It is better to develop at a reasonable pace while a country is not mortgaging its natural resources and strategic assets than to appear to be developing faster than normal when all a country would be doing is selling its valuable assets to foreigners for next to nothing.
Zimbabwe has so much potential for growth and she has so much highly developed human capital. What the country needs is a recalibration of its business model and prompt eradication of corruption which will no doubt attract both domestic and foreign direct investment.

 Massive investment will lead to potentially higher levels of economic growth! Becoming a middle income economy by 2030 is definitely no easy feat but it is a possibility within Zimbabwe's ability to achieve!

Prosper Munyedza MSc Bus Analysis & Finance (Uni of Leicester), BSc Econ (Hon) (Uni of Zim).
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Source - Prosper Munyedza
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