Who is responsible for Zimbabwe’s present economic decay? Bulawayo South Member of Parliament Eddie Cross battles it out with former government minister Fay Chung.
Eddie Cross- IT is clear now that the ZANU-PF leadership is fully aware of the fact that the economy is contracting quite rapidly. The clearest indication of this statistically is the steady decline in VAT collections in the past three months and the fact this decline is accelerating and has continued into 2014. There are other indictors – just the general situation in business and the traffic in the main centres. The Ministry of Finance also reports declining revenues in all sectors of the economy.
Against the backdrop of a shrinking revenue base, the unsustainable demands of the Civil Service Unions and the growing pressure on the Party to deliver what was promised in the elections is creating a nightmare situation. At stand-still wages and salaries in the Civil Service, 74 per cent of total State revenues are being absorbed in labour costs. The State through the IMF SMP is committed to reducing this level of expenditure on human resources and increasing allocations to other areas of priority that would make a greater contribution to National welfare and growth, infrastructure for example. The actual target is to get staff costs down to 30 per cent of total State expenditure. We are now headed firmly in the opposite direction.
A consensus is developing in the country that we must get the economy moving again. Our history as a State in this respect is very uneven. In 1980 to 1990 the economy grew steadily at about 5 per cent per annum, but on an unsustainable basis as we were spending more than we made and the budget deficit averaged about 9 per cent per annum. Then between 1990 and 2000 we had wild swings in policy with predictable results – ESAP (Economic Structural Adjustment Programme) and then the payments to the War Veterans in 1997 and the entry into the war in the Congo in 1998. Growth accelerated under ESAP, but still on an unsustainable basis and then crashed in the last three years with the collapse of the local currency and the start of hyper-inflation.
From 2000 to 2010, we saw the economy shrink by 60 per cent, the currency collapsed completely and inflation wiped out all cash assets and the balance sheets of all local companies. By the end of the decade, even after two years of the inclusive government and rapid growth in State revenues, we were still the most impoverished State in Africa and were unable to pay our Civil Service a liveable wage.
As we entered our fourth decade since Independence, we had hope that all this was about to change – a National Government was in place, we were starting to re-engage the international community and markets and exports and imports were surging forward. Prices had stabilized as about 4 per cent inflation per annum and State revenues were expanding rapidly (they doubled in 2010 and 2011). The political parties were committed to a new Constitution, electoral reforms that would restore democratic legitimacy to our government in 2013 and it really looked as if there might be a future.
Then the wheels came off – ZANU-PF and the MDC were simply unable to put the national interest first and both sought parochial objectives. ZANU- PF saw economic recovery as not being in their interests and simply blocked all positive initiatives. In addition, the Indigenisation Laws that had been passed the last time ZANU-PF had the majority to do so (2007) were suddenly activated and the infamous 51 per cent for nothing demand came into the game. It simply froze all initiative and investment overnight.
Since then we have been going backwards in all spheres – reform, human and political rights, the rule of law, investment and overall confidence. In South Africa the Rand has been in free fall again and yesterday went through the 11 to 1 barrier. On the back of this and $500 million imports from South Africa every month, inflation in Zimbabwe has declined until now we have an economy where overall, prices are declining – a disaster in an economy where costs are by and large fixed and rising.
If we do not break out of the grip of this crisis then we are as, Biti said last week, “sliding backwards towards 2008”. Last time we were saved by external intervention in the form of the SA sponsored GPA process. This time I can see no possibility of external salvation as South Africa is already in the grip of another election that is going to be deeply divisive and damaging. So what will it take to get the economy growing again? It’s not rocket science and if you trace the history of other countries which have found the right mix, the answers are all there. I suggest the following: Respect for the rule of law and the enforcement of contracts associated with protection of all property rights; Strict adherence to the rules of the game in macroeconomic terms – live within your means, balance the budget and observe strict monetary rules; Provide a balanced and attractive fiscal environment for all enterprise and business and respect business fundamentals – no price controls, no exchange controls, security of tenure and access to human skills and capital; Establish an environment for enterprise that respects initiative and opportunity and allows an enabling situation for enterprise with few barriers to growth; Create the infrastructure required for growth; energy, transport, water and sanitation and a sound health and education system; and Deal with our debt overhang in a responsible manner and establish sound working relations with all other countries and all multilateral institutions.
At the December pre-budget seminar at the Victoria Falls last year in December, the Minister of Finance spoke at length about the issue of growth and stated quite clearly that two issues needed attention – indigenisation and tenure. He was spot-on but since then he also has paddled the canoe upstream in both respects. If we continue, as he stated in the budget statement to the House on the 19th of December, to insist on majority “indigenous” control of all enterprise and we continue to define “indigenous” as being a black Zimbabwean who was previously disadvantaged, then we are going nowhere but back into the wilderness. Local investors simply do not have the resources to invest, if they had we would not need Foreign Direct Investment (FDI) and no other country that has been able to grow rapidly in the past decade, has done so without FDI in large quantities.
Fay Chung– MDC-T legislator Eddie Cross published an article on The Need for a New Road Map before Christmas last year. In it he made a brilliant comparison between the economic changes over the past three decades between China and Zimbabwe, during which China has increased its Gross Domestic Produce (GDP) and per capita income and become the workshop of the world while Zimbabwe’s GDP and per capita incomes have shrunk. This is true.
He ended his article with a short paragraph where he appears to place responsibility for these developments on leadership, specifically the leadership of President Robert Mugabe whom he excoriates for being “cold and distant” and requiring “loyalty” from his followers. I find Cross’ analysis very superficial. Yes, China has done very well. Yes, leadership is very important. But once again, we have the MDC-T take that if Mugabe and ZANU- PF are removed, all would be well in Zimbabwe. This focus on a leader and a personality as the main problem in Zimbabwe is seriously misleading. The changes in China did not only depend on a personality.
Of course, we should judge cats on how well they catch mice. That phrase by Deng Xiaoping is true, too. But how can we simplistically say that “regime change” will change everything? One personality and one political party cannot change everything. What led to China’s success is a little more complex than just a change in leadership. Note, of course, that the political party in power did not change in China: Mao Zedong and Deng Xiaoping both belonged to the same party, and in many ways, their key policies remained the same.
What Deng managed to do is to apply those policies to the world economy, while Mao concentrated essentially on internal policies. Both were correct for their times. China’s success was due to the following: The Chinese modernised their industries. Their economy was one of the most backward in terms of industrial technology and management in 1979 when Deng took power. I can say they were more backward than Zimbabwe’s technologies in 1980.Deng managed to begin the process of modernisation, sending 10,000 students to the United States to bring back the best industrial technologies and introducing China to modern management systems. These 10,000 students did well, and they are the core of today’s industrial system. He applied the Singapore and Japanese model to China.
Zimbabwe’s problem is that our industries are still stuck in the technologies and management systems of the 1940s and 1950s. Zimbabwe is certainly not technologically or managerially competitive compared to South Africa and China, our key industrial competitors. China’s agricultural policy was based on food sovereignty and self-sufficiency from the 1970s onwards. Zimbabwe was self-sufficient in food in the 1980s, but this changed as a result of the Economic Structural Adjustment Programme in the 1990s.
Food production got worse under hyper-inflation when fertiliser, seeds and the guaranteed Grain Marketing Board failed. While the MDC and its supporters blame this on the land reform programme after 2002, actually the problems began a decade earlier. It should be noted that China had one of the most drastic land reforms. So did Japan and all the other East Asian countries that have done so well over the past three to four decades. Availability of cheap food for all has been a characteristic of all the East Asian economies which succeeded in industrialisation.
The US opened its markets to Chinese products. Today if you go to the US, almost everything in every shop is made in China. This was equally true for Japan and other East Asian countries when they industrialised some decades before China: they benefited from the US market which is the largest globally. Africa, and especially Zimbabwe, does not enjoy such open access to the US market. Sanctions, comprising closing of the US and European Union markets, and curtailing Western banking facilities, have affected Zimbabwe seriously.
Almost all African countries, including Zimbabwe, concentrate on exporting minerals and agricultural products. In Zimbabwe’s case, we are exporting raw ore and tobacco, both unprocessed. If Zimbabwe can persuade other mineral producing countries, especially our neighbours, to insist on beneficiation of mineral products, we can succeed. On our own, this is unlikely. China managed to get almost the whole population educated up to Grade 9 under Mao. The large population of China (1,3 billion) compared to the very small population of Zimbabwe (less than 13 million today) gives a very different labour market. China has a rich labour resource.
It also means that China has a huge domestic market. Zimbabwe is seriously short of labour, exacerbated by the exit of more than two million to South Africa and Britain. The minimum wage in the capital Beijing in 2012 was $150 a month, and it is much lower in rural areas. Better qualified Zimbabweans are demanding a salary of $500 per month. At almost every level from farm workers to top technocrats and managers, Zimbabwe is short of suitably qualified and experienced labour. Someone with a Master’s degree or PhD can be paid $150 a month in China, and $300 in India. Africa, including Zimbabwe, cannot compete internationally.
China benefited from its huge diaspora, which began leaving China in the 1850s. This diaspora was responsible for the initial modernisation of industry and the economy beginning in 1979. Zimbabwe has treated its diaspora badly, and has not benefited adequately from diasporan technical, managerial, industrial and financial inputs. Yet the diaspora can be praised for supporting families during the sanctions period from 2002: nearly every family in Zimbabwe benefited from diaspora support in terms of food and other necessities. But the Zimbabwean diaspora has not invested in the economy or in industrialisation. Not even in farming.
The Chinese government gave very favourable loans to productive enterprises, especially into helping build infrastructure. Zimbabwe has failed to support infrastructure adequately, yet the infrastructure is absolutely critical to development. Last but not least it is not only Zanu PF which must adopt economic growth policies, the MDC-T and MDC and all politically-minded people need to come up with policies and not only look at personalities and political rhetoric. We also need to look at these policies in a practical, pragmatic and implementable ways.
Zimbabweans are great on rhetorical policies, but most of these great policies have not been implemented. Government has been waiting for others to implement, for example, foreign investors and donors. It should look inwards too.