Zimbabwe: The Development Dilemma

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As the World Economic Forum commenced in Davos, it was surprising to observe the Iranian leader Hassan Rouhani relay his judicious address at the prestigious symposium. Rouhani used the opportunity to explain Iran’s energy programme, and to invite the world to invest in Iran. A first indeed.

 
In Zimbabwe, local commentators recently congregated at the Mandel/Gibs Economic Outlook symposium to discuss the Zimbabwean economy and to proffer possible solutions to the prevailing liquidity crisis.

 
While Zimbabweans have unanimously acknowledged the urgent need to mobilize funding for all sectors in order to arrest the economic stagnation that is currently gripping the nation, there seems to be a discrepancy in terms of how this will be achieved.

 
Zim Asset declares that  during the period 2013 –2018 the Zimbabwean government will see to:

improved revenue collection from key sectors of the economy such as mining;  increased investment in infrastructure (power development, roads, rail, aviation, telecommunications, water and sanitation) through acceleration in the implementation of Public Private Partnerships (PPPs) and other private sector driven initiatives; increased Foreign Direct Investment (FDI).

 
However it remains to be seen, if and how these goals will be achieved.

 
Nonetheless, while trying to understand the complexities around accessing multilateral funding, I came across some material that may be of interest to the Zimbabwean public.

 
Firstly, a work published by the World Bank entitled:  “Aid and reform in Africa: Lessons from ten case studies” is notable. In this work, the World Bank former director, James Wolfensohn, makes the argument that any development programme has to be country-owned and not owned by the donors.

 
In other words, in order to achieve sustained growth, development and poverty alleviation, the development programme of each country should be initiated and executed by that country. He argues that if reforms are imposed, they are sure to fail.

 
In the Zimbabwean context, Zim Asset is the government’s development programme, and its cornerstone is the indigenization policy.

 
Now, after decades of analyzing aid, development, and policy reform experiences in ten different countries in Africa (Ivory Coast, Democratic Republic Congo, Ethiopia, Ghana, Kenya, Tanzania, Uganda, Mali, Nigeria, and Zambia) Wolfensohn makes the following statement: “foreign aid has a strong positive effect on a country’s economic performance, if the country has undertaken certain policy reforms.

 

“Aid cannot buy reform; aid should be based on actual reforms, and not on promises of reform. Foreign aid can deliver critical support when the receivers are seeking reform, it cannot buy it. These lessons are of special importance to Africa, where most aid is received, and where policy reform is weakest. Further, the background studies indicated that financial aid is working in a good policy environment, there it leads to faster growth and poverty reduction.”

 

While I appreciate that the World Bank initiated Structural Adjustment Programmes (STPs) enacted in Zimbabwe in the 1990s had adverse economic effects and consequently made African states suspicious of Bretton Woods related institutions, I also appreciate that in this particular instance, James Wolfensohn makes the argument that any development program has to be “country-owned, not owned by the donors.”

 
In other words we have to create the environment that attracts foreign capital ourselves. As it stands, our indigenization policy framework seems too frigid; it must be relaxed. Looking at Iran, it seems that in recent months Iran’s relations with the international community are improving steadily, owing to a shift in policy and rhetoric towards the West.

 
Also, it is notable that Zambia, Zimbabwe’s northern neighbor, attracted foreign direct investment (FDI) worth US$10.1 billion in 2012; the highest ever recorded in the history of that country. This is owing to three main factors:

 
●The Zambia Development Agency Act offers a wide range of incentives in the form of allowances, exemptions and concessions to companies investing in Zambia
●General incentives to investors in various sectors are provided in an assortment of legislation that governs the Zambia Revenue Authority (ZRA)
●The Zambian Companies Act of 1994 attracts foreign investment. Although In 2012, proposed changes to the Companies Act invited the imposition of indigenization requirements ranging from zero to fifty-one percent on foreign-invested companies, those changes to the Act, remain in draft form.

Tau Tawengwa

Executive Director

 

 

 

 

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

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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

 

The Politics of Elections

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With the hangover of the Zimbabwean July 31 2013 harmonized elections still taking its toll, it has been interesting to observe the various commentaries and analyses surrounding the poll result. For instance, there have been recurring allegations of excess ballot papers and fake voter registration slips that were allegedly used to rig the poll. Even Tendai Biti through his make-believe ‘Wanachi’ posts has made allegations that irregularities in Harare East almost lost him the constituency. However, it should be understood that the politics surrounding elections and voter behavior is complex, and therefore, that a national election result cannot be dismissed as ‘farce’ on the sole basis of irregularities.

Firstly, let’s speak of legitimacy. Legitimacy is the generally held belief that a particular social institution (in this case government) is justified and valid. So, for instance, after the Zimbabwean 2008 disputed run-off poll, the MDC’s agreement to enter into a coalition government with ZANU-PF gave that very government its legitimacy. Conversely, currently in Egypt, the legitimate election of a Morsi government has been sidelined by the imposition of an illegitimate government by way of a military coup.

Now, Jorge Aragón, from Saint Louis University in the USA has a work entitled:  Political Legitimacy and Democracy. In this work, he writes that “political legitimacy can be described as [the] people’s recognition and acceptance of the validity of the rules of their entire political system and the decisions of their rulers.” Simply put: when the main political players in a given system accept the rules of the system, they accordingly award the system its political legitimacy.

For instance, in the 2000 United States presidential elections, Democratic Party supporters (whose presidential candidate was Al Gore) made public accusations that the Republican presidential candidate George W Bush had ‘stolen’ the elections. However, because Al Gore had already entered into the presidential race and had thus given the process political legitimacy, his only option was to make a court application seeking an order to conduct a manual recount of the Florida vote. Although Gore was granted the order, it was later overturned by the U.S. Supreme Court, making George W Bush the legitimate winner of that election.

Now, the vote-rigging accusations made by the Democrats in 2000 included allegations that “some 36,000 newly registered voters were turned away because their names had never been added to the voter rolls by Florida’s secretary of state Kathleen Harris,” and that “four to six million votes were left uncounted in the 2000 election” (New York Times, 15 September 2002).

Coming back to the Zimbabwean situation, the 2000 presidential vote in the United States demonstrates that the politics surrounding elections are far from perfect even in the most advanced democracies in the world. Secondly, the fact that Al Gore (as the candidate of the Democratic Party) approached the courts to seek remedy for what he perceived to be ‘irregularities’ speaks to his political maturity and to his understanding that the moment he entered into the presidential race he gave the electoral process  its political legitimacy. You see, he didn’t unilaterally declare the process ‘null and void,’ neither did his lieutenants call for some kind of ‘revolution’ or ‘passive resistance.’ The fact is that when a contestant enters into a race and competes, the contestant tacitly accepts the rules and fairness of the very race consequently making the race legitimate, even if he thinks that the odds are stacked against him.

Finally, when the U.S Supreme court made its ruling, Al Gore, in a nationally broadcast speech announced that he accepted George W Bush as the 43rd president. Maybe certain parties in Zimbabwe should consider following suit.

Tau Tawengwa

Executive Director