ZIMBABWE: WHERE TO NOW?. Tony Hawkins Graduate School of Management University of Zimbabwe. MYTH No. 1. That until 2000, Zimbabwe was one of Sub-Saharan Africa’s best performing economies.
Graduate School of Management University of Zimbabwe
Inflation has escalated from 7 250% when the price freeze was launched a year ago to 100 000% in January and 11.2 million percent in June 2008.
No-one believes the current estimate but then neither does anyone KNOW what a realistic number is.
There is an enormous range of guestimates – from 15 million to 30 million percent.
None is accurate – because no-one is measuring accurately
2. The system, the economy, works for the elite, as a a milch cow, that is the means to the end of power retention.
3. Seek foreign aid to restructure the domestic debt, while negotiating a debt-forgiveness package for foreign debt.
4. Immediate liberalization of food and agricultural markets, while seeking emergency food aid and agricultural inputs for 2009/10.
Whoever comes out on top in the current stalled negotiations will have to take drastic, radical measures – along the lines just indicated – to turn the economy around.
The immediate priority will be reducing inflation.
That will require substantial foreign funding of both the budget and the balance-of-payments.
Fortunately, successful – and that word is key – anti-inflationary policies work remarkably quickly.
But from so high a rate as 20 million percent (or worse) the dislocations are bound to be traumatic and the process certain to take longer.
Zimbabwe is likely to have hyperinflationary conditions – inflation of over 50% monthly through 2009, possibly even into 2010.
Any dilution of the anti-inflation package – for social or political reasons, which is very likely with a weak, coalition government – will just prolong the agony and delay the recovery.
Clearly much will depend on politics – on the government being able to win over and maintain popular support.
On the upside inflows of foreign aid – balance of payments and budgetary assistance – will ease the forex bottleneck.
Imports of fuel, food and electricity will increase, and
Exports will recover as inputs become available.
Over the next 3 (possibly even 5) years the Zimbabwe dollar will drift lower because inflation will remain way above the global average.
What happens in the medium-term will depend on whether inflation gets stuck on a plateau of 25% or so, or falls under 10%.
Strong rebound as spare capacity is brought back into production
But severe supplyside constraints, mostly infrastructure and skills, as well as forex
Take 10 - 12 years (minimum) to regain 1998 per capita income levels and 15 years plus to get back to where the economy would have been without the downturn of the last decade.
The main growth engines are likely to be mining, construction, tourism and services (real estate, banking, retail).
Agriculture is likely to evolve – over a long period – from an inefficient low-technology small-scale sector through gradual, slow, consolidation to more medium-scale operations.
Some white farmers will come back, but few as investors, and most as managers and professionals.
Having been badly burned once, they are not going to risk their own money again.
The real bottleneck is going to be soft infrastructure.
The skills will not come back quickly and, in many cases, not at all.
We have lost the capability to regenerate skills – educational institutions, trainers, lecturers.
Most importantly because the middle class is the platform from which property-owning capitalists that save and invest can kickstart the economy.
Take that away, and you are left with the “communalized” (i.e. state-dependent, rent-seeking) economy mentioned earlier.
It is just too easy to believe that foreign aid and foreign investors will somehow close the gap
Billions of dollars of aid do not build a sound institutional base but an aid-dependent community reliant on drip-feeding from abroad.
Economies that do not have that strong institutional base are unable to absorb aid and investment efficiently.
They become increasingly reliant on expats who take decisions that should be made by the indigenous people.
My point is a simple one.
Capital without skills, without infrastructure and without efficient, well-oiled institutions such as an efficient and incorruptible civil service, will have a very low rate of return.
If you don’t believe me, just look around Africa.