Opinion / Columnist
Unlocking Growth Potential
23 Sep 2016 at 20:40hrs | Views
The Government of Zimbabwe is targeting an average economic growth rate of 6.6% over 2016-2018 and the growth is going to be driven by manufacturing and agricultural sector. Finance and Economic Development Minister Patrick Chinamasa had initially forecast the economy to expand by 2, 7% this year, but revised the growth target to 1, 2% on account of failing global commodity prices and the negative impact of drought.
In Zimbabwe, the major problem hasn't been on policy formulation but policy implementation. The whole economy needs to come together and work in order to achieve these set goals. The major binding constraint on the co-operation of economic agents to boost the economy of Zimbabwe is on the failure to burry our political differences and to a larger extent being reluctant to swallow our political pride. For government policies to work well, they need to complement each other from one stage to another so as to achieve the ultimate goal. I have seen much development and efforts from the Ministry of Finance and Economic Development and from Reserve Bank of Zimbabwe in trying to craft policies that will increase future economic growth. However these policies are doomed to fail if other ministries, stakeholders and economic agents fail to comprehend and uphold the importance of those policies to achieve our ultimate goal.
There are quite a number of binding constraints that the government should be geared at removing in order to achieve the targeted goals for economic growth. As much as our country is struggling under economic sanctions but I strongly feel that much blame should come back to us, it's high time we stop blaming economic sanctions and try to craft policies that will uplift our economic situation in Zimbabwe.
Zimbabwe is estimated to be endowed with resources that are worth trillions of United States dollars if they are exploited well and put into good use. However the country lacks the much needed technology and knowhow to exploit those resources. The only source of this technology and the needed capital is through Foreign Direct Investment (FDI). Our country is failing to attract the much needed FDI mainly due to poor foreign relations and unattractive investment policies e.g. Indigenisation Policy. This has forced many investors to shun the country. The government have so many times threatened to cancel Telecel's operating licence due to its failure to comply with indigenisation policies until recently when the government had to take over the institution by purchasing 60% stake worth US$40 million from Vimpelcom. In a time when the government should be attracting and allowing many investors in the market but that's when it is expelling investors. The government is failing to efficiently manage its own telecommunication company, Netone yet it is taking over another one. That move is counterproductive and development.
Our country should be aimed at increasing growth in physical assets that include plants, machinery, raw materials etc. that are central to production. This investment will obviously require financial capital that might be even in the form of FDI or in the form of domestic private investment. There has been much preaching on the need and benefits of value addition on raw materials and on the Buy Zimbabwe campaign that saw the Minister of industry and Commerce, Mike Bimha launching Statutory Instrument 64. The country's primary sector should support the manufacturing sector through producing the needed raw materials. Our agricultural sector is letting the economy of Zimbabwe down as it is failing to provide the raw material to the secondary sector. This has forced industries to import raw materials and concentrate on value addition but more benefits can be exploited if the country manages to fend for its needed raw materials. This has seen the government now geared at promoting contract farming by companies. Sound policies should be crafted in order to promote our agricultural sector. The government should quickly address issues of security on land tenure in order to allow and promote private investment in agricultural sector.
If the monetary authorities are given the liberty, without any political influence, to defend, support and fully implement the export incentive scheme that is going to come in the form of bond notes, there is going to be positive response from the private sector in terms of production and investment to boost exports. These export incentives will also help to reduce gold smuggling into neighbouring countries as traders will be keen to follow the formal way so as to be able to redeem the incentive. This will help in expanding employment opportunities through increased production. Increased exports will also help to reduce Balance of Trade deficit and to solve the currently looming cash crisis. For this RBZ policy to work, other sectors e.g. agriculture, need to craft policies aimed at increasing production for exports. However, poorly targeted subsidies have the capacity to hamper economic growth by redirecting capital away from where it is most productive.
National Financial Inclusion Strategy that was launched by the RBZ is also seen as a good move to promote savings, investment and access of economic agents to financial products. The RBZ managed to reduce transactional costs and the cost of borrowing in the financial market as well as promoting institutional and process innovation in the market through legalising agent banking; encouraging e-banking; retail banking; mobile phone based systems; ATM and Point of Sale (POS). This strategy is helping to increase access to finance, particularly for small and medium-sized enterprises and for the informal sector. A fully functioning financial sector enhances economic growth by ensuring that capital is directed to its most efficient uses.
The government needs to ensure that the returns of investment will be collected by investors and those who are legally liable to benefit from such investments. Political instability, corruption and crime can all threaten potential returns and make investments unattractive and thus damage the prospects for growth. Recently the country lost around US$15 billion from diamonds due to suspected fraudulent and corrupt activities by the mining companies. These practices destroy the growth potential of the country apart from plunging the economy in great poverty. Strengthening the capacity of relevant public institutions for protecting property rights is therefore of paramount importance as poor property rights might divert potential investments elsewhere and this may reduce the scope for technology transfer that will increase productivity and ultimately growth.
Investors make decisions based on the rate of return they expect to receive and the riskiness of the investment project: the higher the risk, the higher the required rate of return. A stable macroeconomic environment is crucial to reducing the risks associated with investment. In human capital, the current unemployment rate in Zimbabwe is above 89%, this might reduce people's willingness to invest in education if it is evident that they will be unemployed on completion. A stable macroeconomic environment includes monetary policy that delivers low and stable inflation, effective management of government tax and spending to deliver public services; and an exchange rate regime that is not excessively distorted or volatile.
The country need to be also open to trade and investment. Openness of a country's goods markets enables growth, facilitate technology transfer, increase competition and benefit the consumers through provision of quality and cheaper products. However trade restriction in other sectors of the economy can also promote growth of industries, industry diversification and increase employment opportunities.
The government should also invest substantially in education and health. Labour is an important factor that stimulates economic growth but it should be understood that labour supply is also affected by consumption of education and medication. The government has neglected our health care facilities as many hospitals has been evidence to be going without medication, erratic electricity and water supply, a very low doctor to patient ratio etc. High death rates and unhealthy population might also impact negatively on production and economic growth. Much funding has been evidenced to be directed to defence at the expense of other priority sectors. Highly spending in defence in times when there is no war or any threat does not increase economic growth and standard of living.
Lack of investment in infrastructure is also another binding constraint in Zimbabwe. The country's major roads are potholed, poor service delivery by National Railways of Zimbabwe due to obsolete equipment and technology, poor performance by Air Zimbabwe, erratic and inadequate electricity and water supply are also other factors that are dampening economic growth and investment in Zimbabwe. Electricity tariffs are very high and yet the state owned monopoly enterprise is pushing to further raise the tariffs. The government should invest more in public utilities in order to attract and boost private investment.
The government also need to be transparent with its national policies that might include investment, fiscal and monetary policies. Inconsistency and uncertainty in policy formulation and change might destroy investor confidence as was recently evidenced when the Minister of Finance and the Minister of Youth, Indigenisation and Economic Empowerment clashed over the indigenisation policy on the financial sector.
Blessing Machiva is an Economist and he writes in his own personal capacity. Any comments and criticisms can be forwarded to the following email address machiva.blessing@gmail.com or WhatsApp number +263 773 836 435
In Zimbabwe, the major problem hasn't been on policy formulation but policy implementation. The whole economy needs to come together and work in order to achieve these set goals. The major binding constraint on the co-operation of economic agents to boost the economy of Zimbabwe is on the failure to burry our political differences and to a larger extent being reluctant to swallow our political pride. For government policies to work well, they need to complement each other from one stage to another so as to achieve the ultimate goal. I have seen much development and efforts from the Ministry of Finance and Economic Development and from Reserve Bank of Zimbabwe in trying to craft policies that will increase future economic growth. However these policies are doomed to fail if other ministries, stakeholders and economic agents fail to comprehend and uphold the importance of those policies to achieve our ultimate goal.
There are quite a number of binding constraints that the government should be geared at removing in order to achieve the targeted goals for economic growth. As much as our country is struggling under economic sanctions but I strongly feel that much blame should come back to us, it's high time we stop blaming economic sanctions and try to craft policies that will uplift our economic situation in Zimbabwe.
Zimbabwe is estimated to be endowed with resources that are worth trillions of United States dollars if they are exploited well and put into good use. However the country lacks the much needed technology and knowhow to exploit those resources. The only source of this technology and the needed capital is through Foreign Direct Investment (FDI). Our country is failing to attract the much needed FDI mainly due to poor foreign relations and unattractive investment policies e.g. Indigenisation Policy. This has forced many investors to shun the country. The government have so many times threatened to cancel Telecel's operating licence due to its failure to comply with indigenisation policies until recently when the government had to take over the institution by purchasing 60% stake worth US$40 million from Vimpelcom. In a time when the government should be attracting and allowing many investors in the market but that's when it is expelling investors. The government is failing to efficiently manage its own telecommunication company, Netone yet it is taking over another one. That move is counterproductive and development.
Our country should be aimed at increasing growth in physical assets that include plants, machinery, raw materials etc. that are central to production. This investment will obviously require financial capital that might be even in the form of FDI or in the form of domestic private investment. There has been much preaching on the need and benefits of value addition on raw materials and on the Buy Zimbabwe campaign that saw the Minister of industry and Commerce, Mike Bimha launching Statutory Instrument 64. The country's primary sector should support the manufacturing sector through producing the needed raw materials. Our agricultural sector is letting the economy of Zimbabwe down as it is failing to provide the raw material to the secondary sector. This has forced industries to import raw materials and concentrate on value addition but more benefits can be exploited if the country manages to fend for its needed raw materials. This has seen the government now geared at promoting contract farming by companies. Sound policies should be crafted in order to promote our agricultural sector. The government should quickly address issues of security on land tenure in order to allow and promote private investment in agricultural sector.
If the monetary authorities are given the liberty, without any political influence, to defend, support and fully implement the export incentive scheme that is going to come in the form of bond notes, there is going to be positive response from the private sector in terms of production and investment to boost exports. These export incentives will also help to reduce gold smuggling into neighbouring countries as traders will be keen to follow the formal way so as to be able to redeem the incentive. This will help in expanding employment opportunities through increased production. Increased exports will also help to reduce Balance of Trade deficit and to solve the currently looming cash crisis. For this RBZ policy to work, other sectors e.g. agriculture, need to craft policies aimed at increasing production for exports. However, poorly targeted subsidies have the capacity to hamper economic growth by redirecting capital away from where it is most productive.
National Financial Inclusion Strategy that was launched by the RBZ is also seen as a good move to promote savings, investment and access of economic agents to financial products. The RBZ managed to reduce transactional costs and the cost of borrowing in the financial market as well as promoting institutional and process innovation in the market through legalising agent banking; encouraging e-banking; retail banking; mobile phone based systems; ATM and Point of Sale (POS). This strategy is helping to increase access to finance, particularly for small and medium-sized enterprises and for the informal sector. A fully functioning financial sector enhances economic growth by ensuring that capital is directed to its most efficient uses.
Investors make decisions based on the rate of return they expect to receive and the riskiness of the investment project: the higher the risk, the higher the required rate of return. A stable macroeconomic environment is crucial to reducing the risks associated with investment. In human capital, the current unemployment rate in Zimbabwe is above 89%, this might reduce people's willingness to invest in education if it is evident that they will be unemployed on completion. A stable macroeconomic environment includes monetary policy that delivers low and stable inflation, effective management of government tax and spending to deliver public services; and an exchange rate regime that is not excessively distorted or volatile.
The country need to be also open to trade and investment. Openness of a country's goods markets enables growth, facilitate technology transfer, increase competition and benefit the consumers through provision of quality and cheaper products. However trade restriction in other sectors of the economy can also promote growth of industries, industry diversification and increase employment opportunities.
The government should also invest substantially in education and health. Labour is an important factor that stimulates economic growth but it should be understood that labour supply is also affected by consumption of education and medication. The government has neglected our health care facilities as many hospitals has been evidence to be going without medication, erratic electricity and water supply, a very low doctor to patient ratio etc. High death rates and unhealthy population might also impact negatively on production and economic growth. Much funding has been evidenced to be directed to defence at the expense of other priority sectors. Highly spending in defence in times when there is no war or any threat does not increase economic growth and standard of living.
Lack of investment in infrastructure is also another binding constraint in Zimbabwe. The country's major roads are potholed, poor service delivery by National Railways of Zimbabwe due to obsolete equipment and technology, poor performance by Air Zimbabwe, erratic and inadequate electricity and water supply are also other factors that are dampening economic growth and investment in Zimbabwe. Electricity tariffs are very high and yet the state owned monopoly enterprise is pushing to further raise the tariffs. The government should invest more in public utilities in order to attract and boost private investment.
The government also need to be transparent with its national policies that might include investment, fiscal and monetary policies. Inconsistency and uncertainty in policy formulation and change might destroy investor confidence as was recently evidenced when the Minister of Finance and the Minister of Youth, Indigenisation and Economic Empowerment clashed over the indigenisation policy on the financial sector.
Blessing Machiva is an Economist and he writes in his own personal capacity. Any comments and criticisms can be forwarded to the following email address machiva.blessing@gmail.com or WhatsApp number +263 773 836 435
Source - Blessing Machiva
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