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The Zimbabwe economic puzzle

24 Sep 2019 at 19:18hrs | Views
The Zimbabwe economic turmoil it seems is giving many economist a hard time, especially the others I personally consider the leading thinkers on the land and abroad.  After a coup that toppled Mugabe from the position, about a month or so, there was a surge in optimism. People started to speculate and everyone including the average person became a bull on everything about Zimbabwe. Maybe except for me because there was always these unanswered questions stuck in my heard.

The question was, is really this time different? And if history is an indication, is Zimbabwe an exemption? What will happen to the so called targeted individuals and companies by sanctions?

Since they are the ones that are inducing the sufferings in Zimbabwe, will America and other powerful economies let go and give Zimbabwe a fresh start? To this question I thought maybe it will depend on the first policy choices, but deep down my thinking I knew given the time, any positive policy was going to kill Zanu-PF but somehow I asked myself what if they implement these policies at a faster rate?.

After all the odds of convincing people that they were really different were not against them. I thought about this when I remembered what my grandfather used to say when I feel overwhelmed especially by expressing myself, he could say "you will be shocked about what they believe" that moment I could know people are not really rational as economist take them to be, but instead   they use their heart beat to decide complex issues. If heart is beating faster means they like and if it is slow the otherwise. The last question, was is the problem political or economically or both (political economy)?  

To be frank even me I was and still perplexed about the magnitude of problem to both sides. Whenever I find myself in a discussion about the issue, it seems I am the only one every time who advocates for economic solutions and maybe I am not yet in touch with reality or maybe economics is my area of study so maybe I understand economics more than I understand politics. Thanks that we are alive and future has got all the answers we think we know.  Here I will shortly, try to answer those questions and give some of the recommendation to what needed to be done and what needs to be done.

What went wrong and how?

There is much history to read about what went wrong out there, so I will not spend your time boring you with history. Instead let me go straight to the point, when global recession that started in USA in 2007_2009 ensued, Zimbabwe it seemed, was not equipped with recession management tools. The evidence is the steps taken both at the start, middle and at the end. Can we talk about the end? I don't think so because both RBZ and their money where out of the game by then. But to me the ousted of RBZ from the game was the start of the monetary problem, which is what Zimbabwe is facing right now.

It was self-fulfilling profess because I consider Gono as possessing less of what it took to fight the recession. I think both presidents never learned hard lessons. Yes the problem of employing wrong people to the important job. The problem was printing more zeros instead of more money, the problem was inability to bail out failing banks and companies and main street, the problem was inability to understand the deference between bad politics and recessions, the problem was misunderstanding other countries actions in fighting recessions, the problem economist where expecting Gono to do something extraordinary when even the odds were against. The problem was, we thought Mugabe was wrong.

The problem we did not want to coordinate with other countries and follow the same policies. The problem we did not want to do the currency swaps with other banks. Instead we opted to play it safe â€" dollarize me and do the monetary thing for me. As for me I am out. Just like that we were out.

The MDC fallacies

In 2009, it was the end of the global recession the so called Great recession. Other central banks were still injecting money into the markets to increase aggregate spending. And the interest rates were still historically low if there were not zero in many countries. Meaning the money was cheap, easy to find and was given to undeserving. So where was the money going? The law of diffusion says to the area of low concentration. Where exactly? In countries like Zimbabwe with no money of their own but with many investment opportunities.

In economic term that is what they call spillover effects, positive spill over. It was by coincidence that it was the year of GNU. Everyone was blinded by the facts and people seemed to think that it was MDC that made the dollarization work. Some say the dollar worked in 2009 with sanction in place. Before GNU the GDP was -13%, 2009 it gained 44%, in 2012 it was 21.37% and in 2013 It was 11.55% a plunge of 54% what explained this fall.

Some say politics some say it was drought and other explanation. But the answer is obvious other big economies were pursuing contraction monetary and fiscal policies and Zimbabwe was vulnerable to those actions. Why? because we had no RBZ to inject money when the economy needed it most. In 2015 economy grew 2.14% and in 2016 it grew 0.46% Zimbabwe was dry again.

The whole country started to blame Mugabe for the situation because nobody was there to tell the nation that we have no central bank, let alone central bankers. You all know what happened in 2017, just like that Mugabe was gone. But was Mugabe really the problem? The answer is no, still we had no central bank and central bankers.  

The change. Was now the situation different?

Albeit, the word deferent is always subjective, as an economist or someone who advocate for economic solutions, "This time is deferent" was not one of my favorite phrases on the 2017 aftermath. The reason is simple the whole country was focusing on the wrong side.  Since 2017 I was in many debates with many deferent people, we disagreed and with some we agreed and I foretell all the situations until 2020 and it seems I was right and I am still right, it is happening as per my prognosis. It's not politics, its economics.

We don't have central bank and we don't have central bankers. It's that simple. With exuberant people surrounding me It was not foreseeable when will they realize that they were being "irrational exuberant". One morning my friend came to me running I knew he had something exciting him, I waited him to tell me whatever it was that was making him happy.

"We have a new minister of finance and is a great guy, a professor", he said. And I don't remember some of the word but I managed to quote these few. I wanted to be a good friend so I didn't tell him that it was still a wrong move. Instead I said, "Ohh its' a great move and a great guy indeed but do you know that we still don't have a central bank" that moment I ruined his mood. But I was right. Nothing was deferent because still 2008 recession needs a fight today in 2019.

Sanctions. The individual and companies   

Who will remove the sanctions? America or Zimbabwe, my answer is the latter but many of my folks they say the former. Why I say it is Zimbabwe? Because the sanctions are targeting not aggregating. Which means buy removing the companies and individuals on the economic map, Zimbabwe shall remove sanctions on its own. But is removing the companies, individuals and rules that support their operation feasible?

To everyone it is very impossible, to me it depends on the rents from "game of bargains" between political players and companies. And the fall of one will cause other to fall, for that reason the situation will be what it will be mostly by design. It is going to be difficult to remove these companies until we have what I call a central bank. Removing them will involve mass unemployment, shortages of many basic goods and worsening of money shortages, and the result will be social unrest.

Mthuli's policies

Was Mthuli's policies right or wrong? This is the question many people ask me whenever we discuss about economic issues. And my answer is it depends. As a lender to Zimbabwe, domestic or foreigner, the policies are quite good. Though I consider this view voyeuristic. In sovereign debt studies, there is a problem of enforcement what the scholars of sovereign government debt like to call "enforcement problem". This problem is what gives international lender the incentives to form cartel like and stop extending credit (money) to the borrower nation. And it will make hard for borrower nation to bargain because it cannot act opportunistically, for that reason the borrower nation has no leverage.

The option a nation face is two sided, repudiate or take the IMF Prescriptions and repay the debts. IMF will prescribe no other policies except for austerity (raise taxes, reduce government aggregate expenditure and use the taxes to pay external debts. With no central bank and no government spending all door of injecting money into the market are closed. Next thing you know you have a contracting economy, more failing business, prices going down in us dollars, local currency is depreciating value and you wonder what is it that is really happening? Some will say it's more money chasing too few goods, the reason of inflation.

Some they say government should support the economically important companies, but why? if we have more money chasing fewer goods? It is clear money and goods are not the problem the problem is financial repression. The rules of the game are not permeating the average person access to money, and the answer is volatility, when the government attempt to increase money in the market, because of the design of rents seeking channel, there is always a misconception problem where at first everyone with access to money will want to increase prices of goods not production but when they realize no one other than them is with money they start to decrease prices. The result is this endless fast booms and busts.

To someone who is not a lender or investor in government bonds, policies are dangerous, they carry with them every incentive for war or regime change. Why someone who is very educated and so sophisticated can do such policies? The answer is that, it is what his job affords him to do. Will he make the situation good? the answer is not without a central bank, because it's hard to dismantle the poverty structure, it is bigger than any individual, if you try to put it into you own pocket it will burn you. So why the central banks is not contributing, to many Mangudya is clueless but now I will extend little sympathy, and my answer is the design doesn't allow them to think because they are not independent, so theirs is not a central bank but an extension of a fiscal committee.

The half implemented policy    

I said previous about the euphoria of 2017 but my exuberant was when the Zimbabwe government try to ban US dollar. Yes try because they did not successfully remove it. So they tried and failed. The move was great but half implemented maybe because of lack of human resources, why I say half? Because the full policies was going to involve the ban of use of USD in any market except for banks, government was supposed to refuse any payment that involve US domestically meaning even tourist were not supposed to pay with USD, simply because its taxes, credit and fees only that drive money and anyone who consume local products have directly or indirectly the obligation to pay taxes and fees or take a bank loan.

So if the government insist on accepting their money whenever one's obligation is due it will drive the growth of money. And with no financial repression credit will help to drive money and continue to burry people in debts should to be paid in local currency. That is how money works, every dollar you have whether America or Bond notes it's someone's credit and his government is insisting that he/she should pay in that money. Why? To keep that currency's wheels turning. The other important but not last was to join hands with courts. With courts refusing to settle any issue that involve the use of USD effect from the day of ban onwards.

People would feel insecure and insecurity was going to show them the right money, although it was politically infeasible but eventually everyone was going to accept the situation. Though there was going to be informal legal system where contracts enforcement where going to be based of reputation it was not long after other were going to consider the worst adversary. Lastly, the other option was to completely remove bond notes, but skillful. Why? Everyone is not sure how the government is going to solve the puzzle, because of the 2008 situation, people still think their money will be worth nothing overnight. So I suggest they could have instructed people to make deposit at their banks, since banks make deposit to central banks, central bank could have just printed new money with varying denominators and replace banks deposits then bank would honor their depositors with new money. Just like that they would have made long lasting impression and solved the lingering confidence.

Money or company first?

What comes first money or company or industry? Answering this question, especially this dump one, involves critical thinking and great knowledge of business. To this convectional question my answer is money first? It sound true even in small business, medium size business and too big to fail business and to the country as a whole. No money no business. Simple. No matter who you are and how great is your hunches, how great is you technology, either you are from sun or moon. Without money the world of business remains imaginations.

As simple and clear as it may sound, 99% of business people, economists and professionals keep on telling the nation that lets revive industries first and letter on we shall deal with money. Even if you own everything needed to make production, one thing I can assure you is that you are going to have more inventories and sell only when you introduce butter trade. In finance term we say your products are illiquid, your business is insolvent and courts are expecting you to file for bankruptcy. But unlike business a country's products will be illiquid, the nation will be insolvency, but courts will not expect bankruptcy papers because it cannot be closed. What will happen? People still need money and the obvious it to change the management team. But we already passed the time to change the management team. Then what?  The team should better be aware of the issue because it's a nation not a company where there is leverage buyout. As a nation we need our money and we better be bulls on it.  

Conclusion  

The life could have been better if we had a central bank that had done what it could to fight the recession. I wish if all Zimbabweans know that Zimbabwe problem is economical, evidence is clear and traceable to 2008 when our central bank went out of the game when the economy needed it most, when they make the blunder of printing zeros instead of money. To this day this problem is hunting us and it needs us. By adopting others currency we are only worsening the situation not making it any better. Those nation will never assist us on a plastic cup, their assistance is a debt that will be repaid with full austerity. Though I advocate for economic solutions I think it worth saying that the politics that is dividing us needs people from both side to compromise. I wish my paper will make a difference.  

About me
I am Tashinga Kamusupai. I live in Chegutu. An owner of a bachelor of Economic Development and a masters of finance. I am an entrepreneur, I own my small business. My contact number is 0735944005 or tashingatashinga99@gmail.com  


Source - Tashinga Kamusupai
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