Prof. Mthuli Ncube: How to kick start Zimbabwe’s economic recovery
There is a lot of work to do on the economic front but what is important is to draft a very clear economic vision and strategy for the country, to create an economy that exhibits strong GDP growth over a period of 10 years which should be sustained and shared.
By Mthuli Ncube, HARARE, August 30
The real evidence in growth that is shared is in job creation and opportunities in business among other opportunities. In order to achieve that vision of growth which is shared and sustained and inclusive there are some steps the country would need to embark on.
The first one is to restore international credibility and image of the country in terms of its creditworthiness.
The debt problem
So what one would do is to deal with Zimbabwe’s external debt. There’s two parts to that, firstly there is the debt that is owed to multilateral institutions such as the African Development Bank, World Bank and that needs to be dealt with first before any credit or monies can flow from these institutions.
Then after that we move to the 2nd stage, the Paris Club debt which is about $4.5 billion at least, so the bilateral institutions need to be renegotiated and restructured. We need a mechanism like what Myanmar or Yugoslavia did. That will enable credit to begin to flow into our banking sector, to our companies , to our manufacturing sector. Once this is done and the country begins to build results through these inflows, you can then be able to reintroduce a Zimbabwean dollar or whatever we call it in future.
One needs to be careful about the timeline and how it is arrived at. And then we can restore the monetary policy because there is no monetary policy. We have banking supervision as one leg of the central bank but there is no monetary policy in terms of feeding into the system so that the economy grows.
What’s also urgent, as part of the package, is to deal with the fiscus in terms of government expenditure because a budget deficit of over 10% is never a good thing, it does not look good for investors. Driving it down to at least 5% of GDP should be the target, 3% is even better and then you also correct things on the current account side. Zimbabwe has always been a deficit current account country, it’ll remain there but it shouldn’t be too large. So you change the entire macro picture and restore credibility.
The currency question
I was one of the people who were of the idea that Zimbabwe should adopt the Rand and join the Rand Monetary Union for a 7 to 10-year period. This is because South Africa accounts for 80 percent of Zimbabwe’s trade. So clearly you want a currency that is linked to your largest trading partner. But I don’t think I want to argue that now because things have moved on and we are at a new juncture.
What I would argue now is that we remove the bond notes currency because it is becoming a surrogate currency to the Zimbabwean dollar without the macro economic credibility to support it. The bond note currency is bad money and we know that in economics, bad money drives out good money.
It’s not surprising that the US dollar is now in short supply because people are not banking them. So the immediate course of action is to remove the bond notes and then let the US dollar become the core currency but over time we have to bring back the Zimbabwe domestic currency. That’s what will deal with liquidity issues in a big way.
The issue of domestic debt needs to be dealt with through government expenditure patterns. We have 80% of government expenditure going to wages, which is not productive. That picture needs to change to where we begin to see a bigger share going to the more productive and more investing side of government activity.
There are people who lost monies during the dollarisation , that issue has not been completely resolved. We need to go back and look at it and see how best we can resolve it and restore what people lost.
Jobs, jobs, jobs
But the ultimate confidence for everyone in the streets in Zimbabwe is jobs. Once credit lines are flowing, once the financial sector is strong enough to start lending again to the manufacturing sector and the productive sector starts creating jobs, then people start to feel confidence is back. Jobs are the silver bullet in any economy.
But going forward there is also need to look at the long term skills development because you need to create youths who are job ready. This can be done by making some reforms in the education sector and bring in a stronger element of vocational training. There is no reason why a child who has finished ‘A’ Levels in Zimbabwe shouldn’t walk away with an artisanal skill.
Or we do a bifurcation that used to happen in the past and Switzerland still practices it.
There are also other issues like infrastructure investment. In Zimbabwe, poor investment in infrastructure and maintenance is dampening growth by as much as 3%. But also we have to innovate because we need smart infrastructure. We have to be creative about our infrastructure; more solar energy, less coal although we have to balance that with job creation so we have to be smart about that.
The health sector as well needs attention. Why don’t we have specialist hospitals? Every other middle class person flies to a different country for treatment for eyes or for diabetes. Those are institutions that could be built in Zimbabwe. There’s a lot of work to do at the sectoral level in order to support the vision of strong, sustained and shared growth.
Zimbabwean government must invite all those skilled Zimbabweans out there to come back and contribute. Some of them don’t have to come back physically: they could stay where they are and contribute through certain structures. I think that Zimbabwe can establish an international economic advisory council where you bring Zimbabweans who are out there who may not want to come back but can advise government or government institutions as to the environment out there and best practices. The different skills can help government in crafting policies and creating an environment that is good and that is really open for business by improving the cost and ease of doing business.
Promoting domestic investment
There is no reason why Zimbabwe cannot catch up with it’s compatriots like Rwanda, in terms of doing business. There is also domestic investors. Sometimes we forget about the role of direct domestic investment as opposed to FDI. DDI is also important. For example we need to create a national venture fund, funded by the banking sector and pension funds to support new and current industries and take equity right across the economic spectrum.
There was a time where there was a very successful instrument like that in the Zimbabwe market and it needs to be restored. Because at times without the counterpart domestic investors, foreign investors cannot come in because they don’t see who else is there and who has something to lose they could partner with in order to protect everyone’s interests.
There is the issue of getting strong, sustained growth on the right trajectory and move Zim to middle income status; that should be the aim and that should generate collectable and taxable revenues from across the economy.
Revenue collection systems vastly improved but the informal sector has not been part of the equation. For that I advocate that we look at technology but I don’t think we should spend time doing that. I think the important thing to do with the informal sector is to provide the infrastructure that allows them to do what they do. If it is about electricity provision, or stores where they sell their wares make sure those are provided, special spaces are provided then we find clever ways to collect revenue from them.
I think the attitude for Zimbabwe should be to invest in understanding innovations and often central banks are too slow in investing in these technologies. But there are other countries which are moving faster. If you look at the Swiss central bank they are investing in and understanding bitcoin. One can pay for travel using bitcoin in Switzerland. So if these countries can see value in this and where it’s headed, we should also pay attention. We have innovative youngsters so the idea shouldn’t be to stop it and say don’t do this but rather the regulators should invest in catching up with them and find ways to understand it, then you regulate it because you now understand it. I would actually encourage the central bank to create a unit to try and understand cryptocurrency.
Trade with everyone!
In terms of trade deals, we should look everywhere; not East, not West. Secondly, because the relationship with the West has not been very good maybe more emphasis should be placed there now so that we restore that relationship.
For example with Brexit in the UK, I think if UK people ask me what they really need now is friends within the Commonwealth and my view is Zim must join the family of the Commonwealth and let’s have trade agreements with the UK because they also need that because of their own fractures in terms of the Brexit process.
So let’s look everywhere but again don’t ignore China because that’s where the money is. Everyone is looking to China, it’s not just us even the whole of Europe, this idea of the Chinese, of the global silk road is real and we have to make sure we don’t lose out and we should benefit as much as we can. But let’s negotiate well and fairer deals and maybe there is something to learn about the Chinese.
Why is it you go into the middle of some country in Africa where maybe you and I are not even comfortable but you find Chinese people there, they can’t even speak the local language but you find they are doing business and trading. Maybe they understand risk differently, maybe there’s something to learn.
Professor Mthuli Ncube is a financial, economics, investment, and public policy expert. He has vast experience and worked in the private sector, public sector, academia, and international financial institutions. He is a citizen of Zimbabwe. He is the Former Vice President and Chief Economist, African Development Bank Prof Ncube is a Board Member of the Official Monetary and Financial Institutions Forum (OMFIF) based in London, and with offices in US and Asia. OMFIF provides support and advisory services to Central Banks around the world and pension funds and other investors on monetary policy, macro-policy, investments and financial markets.