Zimbabwe 2013/2014 Budget: Taking lessons from Latin America.

ZIMRAYS

Economic development broadly defined is the process of creating wealth by mobilizing human, financial, physical, natural, and capital resources to generate marketable goods and services.

Economic growth, as defined in standard economics textbooks is an increase in the production and consumption of goods and services which consequently results in an increase in real gross domestic product (GDP).

However, it must be noted that economic growth does not necessarily translate into economic development, and economic development does not necessarily translate into social development.

For instance, during the four-year tenure of Zimbabwe’s inclusive government, the country’s positive economic growth was not matched by adequate socio-economic development, although some development was registered.

Socio-economic development is commonly measured by the Human Development Index (HDI) which is based on these four criteria: Life expectancy at birth, mean years of schooling, expected years of schooling and gross national income per capita.

Now, as Zimbabweans anxiously await the national treasury’s 2014 budget presentation, the question at hand is: how will the government create economic growth that is matched by socio-economic development? Simply put, will treasury translate government’s economic policy paper (Zim-Asset) into a reality?

While the increasingly pious Tendai Biti predicts economic Armageddon for the nation, the more sanguine among us wonder whether there are international examples that treasury officials could learn from as they deliberate the nation’s economic direction for the coming fiscal year.

After all, in the words of Cicero, history is the witness that testifies to the passing of time; it illumines reality, vitalizes memory, provides guidance in daily life and brings us tidings of antiquity.

Now let’s look at Costa Rica.

Zimbabwe and Costa Rica (a country in Central America bordered by Nicaragua to the north and Panama to the southeast) have interesting commonalities.

Firstly Costa Rica and Zimbabwe both have national literacy rates of over 90%. This is of critical importance because education raises people’s productivity and creativity and promotes entrepreneurship and technological advances.

Secondly Costa Rica, like Zimbabwe, has experienced significant economic disorder in the past.

For instance in 1980 Costa Rica was mired in an economic crisis characterized by epidemic inflation, currency devaluation, soaring oil bills, sinking coffee, banana, and sugar prices (the country’s major exports at the time) and the disruptions to trade caused by the Nicaraguan war. When hefty international loans became due, Costa Rica found itself burdened overnight with one of its region’s greatest per-capita debts. As of 1986, Costa Rica owed international lenders USD$4-billion.

Finally, Costa Rica’s ongoing discourse with respect to agrarian reform is arguably comparable with Zimbabwe’s.

Now, what’s interesting is that in 2013 Costa Rica ranks 47th in the world in terms of its Human Development Index; this is ahead of Brazil (63rd), China (85th) India (128th) and Zimbabwe (146th). South Africa is ranked 121st, Zambia is ranked 167th, and Mozambique is ranked 169th.

Furthermore Costa Rica has the highest standard of living in its region with an unemployment rate of less than 10%. The question then arises: how did they achieve this in 30 years?

Research reveals that “Costa Rica has experienced steady economic expansion over the past 25 or so years. The post-1980s economic growth is the product of a strategy of outward-oriented, export-led growth; openness to foreign investment; and gradual trade liberalization.”

Nevertheless an extraordinary aspect of the Costa Rican economy is that 30% of its Gross Domestic Product (GDP) comes from its informal sector. Now remember that 30% of a GDP of USD$45 billion is a cool USD$13.5billion.

This brings me to the core of my argument.

In its attempt to ensure that the government achieves its goals as laid out in Zim-Asset, surely the Finance Minister’s team has acknowledged the need for austerity and Foreign Direct Investment in Zimbabwe.

Surely they have acknowledged the need to curb corruption which costs the country some USD$400 million per annum.

But I wonder if they are seriously considering the informal sector.

A close look at Zimbabwe’s informal sector reveals that most of the goods sold on our streets are imports. Furthermore, a single day at Beitbridge border post will expose that most of the goods entering the country are smuggled. I say smuggled because most informal sector traders would rather bribe immigration officials to allow their contraband into Zimbabwe than pay the state its due in the form of import duty.

Doesn’t it therefore make sense for the treasury to directly tax the informal sector? One might ask how we can go about this. Here are some suggestions:

∙ Everyone in the country who is not formally employed but is economically productive should register with the government. This group of people would include domestic workers, touts, hairdressers, barbers, makorokoza (illegal miners) etc.

∙ The government should then compel everyone in the informal sector to purchase an operating permit from ZIMRA. This will liberate some of these businesspeople from the regular bribes they pay to council officials and police.

∙ This permit should be renewed on a monthly basis and the money should be paid directly to ZIMRA.

∙ A lesser fee should be charged to vendors who trade in local products, for instance fruits and vegetables.

∙ Illegal gold (and other mineral) panners should purchase operating licenses from ZIMRA which they renew every month.

Of course, such measures should be applied alongside sound policy and good governance, and the revenue accrued should actually translate into tangible social services which improve the country’s human developmental ranking.

While I acknowledge that more methodical research needs to be conducted in order to reveal the true value of our informal sector, I am also of the opinion that as long as a developing economy like Costa Rica can extract so much revenue from its informal base and transform itself within 30 years, we can do the same.

As the African Development Bank correctly postulates: “organizing the informal sector and recognizing its role as a profitable activity may contribute to economic development. This can also improve the capacity of informal workers to meet their basic needs by increasing their incomes and strengthening their legal status. This could be achieved by raising government awareness, allowing better access to financing, and fostering the availability of information on the sector.”

Tau Tawengwa

Executive Director

 

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