Economy: New Govt, New Policies

ZIMBABWE: NEW GOVERNMENT,

NEW POLICIES, NEW PERSPECTIVES SUMMIT

Presented to a meeting hosted by the CCL Consulting Group

by John Robertson

Robertson Economic Information Services, Zimbabwe

17 September 2013

EXTRACTS

In facing the challenges of settling on new policies, many basic facts have to be recognised. One of these is that past policies caused enormous damage to our productive capacity. For far too many years, Zimbabwe has been absorbing economic resources much faster than it can replace them.

We have therefore been destroying wealth-generating capacity….

But in any proposals to bring about Zimbabwe’s economic recovery, it is not only the massive handicaps now affecting the country that need to be addressed. We also have to deal with the reasons why these handicaps were created. This is because the reasoning itself has to be challenged if we are to have any chance of preventing the same handicaps from coming back….

In less than a century, the pace of transformation generated one of the most industrialised countries in the entire Third World. Its shortcomings cannot be denied and the transformation had its costs, but many of its achievements were remarkable….

However, after all the years since independence (in 1980), the majority is still struggling to get by, and we still have a small minority that is making incredible fortunes. Measures that were adopted to overcome disparities, injustices and hardships led to new disparities, injustices and hardships. However, this time the process was more consumptive than productive.

It is my contention that far too many of the measures adopted were supposed to fix errors of the past, but often we did not correctly identify the real errors. If we had properly identified them and had corrected our behaviour for the present and the future, our lives today would be completely different. Instead, we tried wealth redistribution in an effort to change history. For reasons we must now examine closely, we ended up badly affecting our immediate surroundings and our prospects.

Can we enter the next phase of our lives in Zimbabwe and improve on our performance? Without question, we can do very much better and without question we should set ourselves much higher goals. But a change of plan is needed. The confiscation and redistribution of existing assets has done

nothing at all to increase the country’s capacity and we can all point to the evidence that production has fallen.

We must now redirect our efforts into helping the country to really empower the people. For most people, real empowerment comes from employment. The people who create the jobs that matter are investors and the people who acquire the jobs that matter are among the many who benefit from the investment process. In getting a job and being trained to do that job properly, the people who become skilled become the proud owners of skills that will serve them for the rest of their lives.

The process of confiscating and redistributing other people’s assets, whether these are farms or company shares, is frequently described as a wealth redistributing process. It is not. Wealth is not money. Wealth is the ability to make money. So real wealth comes from ability. And for very nearly

all of us, our abilities were developed in the workplace. We all owe huge debts of gratitude to the investors who created our jobs.

For all of us, it is important that we recognise that empowerment is not achieved by confiscating and redistributing what was already there. Redistributing what was already there adds absolutely nothing to the amount that can be produced…..

Indigenisation demands are now isolating the banks from the sources of international finance that are needed to recapitalise our entire financial services sector. The manufacturing sector is starved of the longer-term finance needed to modernise and many are struggling to survive because they no longer have access to essential agricultural raw materials.

The country’s main hopes of economic growth have been pinned on mining, but since 2011, the value of mining output has been falling….

And the downturns in all of these productive sectors have led to the loss of hundreds of thousands of jobs…. We cannot pay our international debts, or even our domestic debts….

I would also urge to dismiss attempts to draw you into pointless discussions about sanctions.

Whatever your feelings about them, it was the eviction of large-scale farmers that forced our agricultural output to be cut by more than half; it was the reduced foreign earnings that left the country unable to meet its debt obligations and also unable to properly maintain operations like the power stations or the National Railway system; it was the forced closure of thousands of farming companies that caused the loss of hundreds of thousands of farm-workers’ jobs and it was the loss of agricultural inputs that forced hundreds of factories to reduce output or shut down….

By avoiding the quicksands of emotional debate and going straight for our fundamental needs and what has to be done to satisfy these needs, we can save considerable amounts of time. Whether we talk of people’s basic needs, such as for food and shelter, or the needs of a country, such as its ability to compete in international markets, the most important thread running through every topic at every level is efficient, cost-competitive production.

To get to the heart of the matter, we have lost productive capacity, and this is because of reactions to measures that were taken to achieve a transfer of economic power from a minority population group to the majority. A point to bear in mind is that throughout history, the investors in productive capacity have always been a minority…..

Please allow me to challenge the almost spontaneous, knee-jerk reaction people have to any reference to a minority being able to wield their influence over the majority. Where does this hostility come from? What must surely matter most is whether that minority is delivering what the majority wants….

Since the transfer of economic power from the minority to the majority, we now have less of all of these very valuable benefits. To me, this calls for a return to the beginning: what is wrong with a minority being in control if these people can deliver what the majority needs?

A tiny minority of Zimbabwe’s population are motor-mechanics. Should we be claiming that their service equipment should be confiscated and scattered among the majority so that we can all service our own cars, trucks, tractors and busses? We can look at dentists, brick-layers, printers, orthopaedic surgeons and a host of others who form productive minorities and ask the same dumb question. And if the question is dumb when we are talking about those minorities, why did it become a clever question when it was applied to commercial farmers?

For all of them, the much more important issues is whether they are there and doing the job well enough for the rest of us to get on with our lives, safe in the knowledge that all these specialists are attending to our specialist needs. In the process, if they are generating jobs that will provide us with training and give us steady incomes, their value to us should be all the more convincing.

Initially, Government concentrated on agriculture, the principal economic activity that pre-dated the country’s colonisation, and the transfer of economic power entailed the transfer of ownership of land from the farmers to the State.

However, world-wide developments in agricultural technology in the past century made production processes dependent on the use of expensive capital-intensive methods. In this country, farmers who had access to finance were able to adopt and adapt all of these brilliant ideas and were able to build up the very wide range of skills needed to keep up with world developments.

Between them, this minority turned commercial agriculture into Zimbabwe’s biggest and most important business sector. It employed the biggest labour force, it earned the most export revenues and it supplied most of the manufacturing sector’s raw material inputs. It also generated demand for the services of retailers, wholesalers, bankers, insurance companies, transport companies, construction companies, lawyers, engineers, fertiliser and crop chemical factories and a wide range of agricultural and veterinary scientists.

The Land Reform Programme brought this huge structure of inter-related business activities to its knees. And because this composite of business activities generated the bulk of government’s tax revenues and generated the foreign exchange revenues needed to support applications for international credit, when it collapsed the whole country came down with it.

As the majority had become dependent on that collection of productive processes and as it was now being given the land so that the majority could be in charge of all the same productive processes, everything was supposed to be set for the promised surge in agricultural output.

But it did not happen. Now the majority is dependent on imports. Paying for the goods, whether they are imported or produced by local suppliers, calls for a steady flow of wages. Unfortunately, today only one person in every fifteen has a steady job. The number that is lucky enough to have a job today is the same as the number of formal sector employees this country had in 1970, when the population was less than half the size it is today….

… the country’s most valuable resource is not its farmland or its mineral reserves….  Zimbabwe’s most valuable resource is its people. This resource can best be developed and turned into wealth-generating capacity by the most empowering process of all: the creation of jobs from which skills, work experience, resourcefulness and business initiative emerge. And these most valuable assets become ours to keep for the rest of our lives…. Given a reasonable chance, the work experience our population can acquire will soon become much more valuable than tonnes of crops or metals….

The new dispensation faces a simple challenge:  accept only ideas that work.

To read the full report: 

/images/John Robertson New Govt + Policies paper Sept 13.pdf

http://www.robertsoneconomics.com/2013/09/19/new-government-new-policies-new-perspective