Zimbabwe’s economic prospects for 2010
http://www.thedailynewszw.com/?p=28891
April 14, 2010
John Robertson
(A paper presented at the ‘Labour Relations Under Dollarisation’ Conference, March 25, 2010)
WHEN Zimbabwe’s currency failed and the country’s authorities had to settle for the best option available, the formal acceptance of the US dollars and South African rands that had found their way into the hands of Zimbabwean shoppers and traders, became that best option. Government had only to legalise the use of these currencies to bring about important changes to the lives of all Zimbabweans.
Most of us were greatly relieved to be able to work for and spend money that did not lose value. Shopkeepers, who previously were supposed to apply to the Reserve Bank for foreign exchange, could use the money they received from customers to replace their stocks, as well as to meet their business expenses, and shoppers who were earning or receiving funds in stable money could now legally spend the cash. That allowed them to avoid all the problems that went with having to find and carry around billions or trillions in bricks of banknotes that nobody really wanted.
However, not everyone was happy. Large flows of money, which had been keeping many people going while government could print lorry-loads of it, simply disappeared, so the subsidies needed by resettlement farmers stopped and the ability to buy US dollars with Zimbabwe dollars also stopped. This was a serious problem for those who had easy access to vast quantities of Zimbabwe dollars and the privilege of buying their US dollars at the official exchange rate.
I suspect that few of us shed tears for the lost incomes of those who had used their influence and privileges to capture scarce foreign exchange and turn it into huge profits, but we were all affected by the very severe
shortage of foreign currency in the country. We often wondered how much was in circulation, but in fact most of it was coming into the country in the form of export earnings and remittances, but quickly leaving the country
again to pay for the supermarket items, fuel and industrial materials we had to import.
Very little of it was left to accumulate within the country. Even when earnings in US dollars were paid to us as we earned our keep in our businesses, or worked for government, we would spend most of it in the shops on imported items. The shopkeeper would then send most of it out of the country to pay for replacement stocks.
Money put into the banks typically did not stay there long. Most individuals and businesses needed their deposits to meet commitments within weeks or even days of depositing it, so the banks could not easily meet demands for loans when their deposit base was almost all about to be withdrawn.
Many companies with international connections were able to obtain some help from parent companies abroad, or perhaps credit terms from suppliers, but these proved hard to manage and difficult to repay when sales were sluggish or local customers kept the businesses waiting for payments.
But for those trying to produce goods in Zimbabwe, in many cases the sales were hard to make because goods of better quality and at lower prices were readily available from South Africa.
Dollarisation affected importers and exporters in ways that should not have surprised us, but often did. In the past, we had supported local suppliers because we could pay them in Zimbabwe dollars and save our precious foreign exchange. And if we could find export markets, we sent as much as possible out of the country to earn more of that precious foreign exchange.
But after dollarisation we were paying foreign exchange to local as well as foreign suppliers and we could earn foreign exchange by selling our goods to customers here at home. That caused significant behavioural changes, but also brought into sharper focus the quality, pricing and dependability issues that can make, or break, any company that has to be competitive to survive.
We are here today to talk about the way that dollarisation affected labour issues, so now would be a good time to make the point that the people affected most directly by dollarisation were mostly engaged in buying and
selling, not in making anything. I also have to make the point that large numbers of these buyers and sellers were not employed by any formal, registered enterprise, were not members of trades unions and were not
represented by workers’ committees.
We all know who they were. They were cross-border traders, fuel importers, moneychangers and facilitators. And they were mostly very good at their chosen field of endeavour because those who were not skilful operators soon lost out to those who were. But when the country dollarised, very nearly all of them lost out.
Most of the informal cross-border traders are no longer needed now that wholesalers and retailers can order container-loads and get bulk discounts, only the most efficient of the fuel importers have survived because no cheap US dollars are available and moneychangers have been rendered redundant.
I make these points to bring the focus back onto the people who do formal work for formal, registered companies and who make things, provide services to others who make things, or offer the full marketing services needed to sell the things that others have made. Of course, many formal jobs are not easily classified in these terms because they are services that support other services, but most of them would not be needed if somebody somewhere was not producing and selling a tangible product.
So we need bankers, lawyers and accountants, and we also need transporters, builders and sales-people. We can all think of many more to add to that list, but would like to steer your thoughts to the range of things Zimbabwe
used to make, the range it is making now and the range it could be making if we organised ourselves properly.
We don’t have to list them in detail, but I can tell you that the Confederation of Zimbabwe Industries used to publish a book that listed six thousand products from Zimbabwe’s factories. Everyone here is old enough to
remember when most goods in the shops were made in Zimbabwe. You will all be aware that now very nearly all the goods come from somewhere else.How are we going to get back to where we once were, and how are we going to move from there to become what we can become – a country that would best be compared to countries in Europe rather than poor developing countries?
The single-word answer to that question is INVESTMENT. We need it, but we are not getting it. The answers to the questions of why Zimbabwe needs it, what investors could achieve if they were encouraged to make their
investment commitments in Zimbabwe and how wealthy Zimbabwe might become if nothing stood in the way of investors, are almost all economics answers.
But the answers to the questions about why not very many of the investors of the past are still functioning, why not many are considering coming to Zimbabwe – or coming back to Zimbabwe – and quite a few of those in Zimbabwe now are thinking of leaving, are almost all political answers.
These answers, both economic and political, are seldom single-word answers, but some of them are, and others are quite short. Confidence is one of them, and the threat to property rights is another. Some are tied to the rule of law, some to freedom of association and some to freedom of expression. In other words they are tied to civil rights that are so normal and so often taken for granted that they are seldom even mentioned in successful
democratic countries.
We need to do more than mention them ourselves because their presence or absence determines whether investment will take place. And that is important because whether investment happens will determine whether or not job creation will happen.
However, this conference needs to be reminded that a third influence can impact on how keen investors are to engage in job-creating investments. That is the productivity of labour, and productivity is the measure of, or the
ratio between, the value of output and the costs of achieving that output. Investors have to take this subject very seriously because events that affect productivity can quickly destroy an investment.
A company that is made profitable by high labour productivity will be engaged in creating wealth and the wages paid are labour’s share of that wealth. If the profitability dies away because the costs of labour and other inputs balance the price received for the finished goods, the investment shows no return and the investor will be under pressure to fix things, give up or move elsewhere.
When the costs become higher than the revenues, wealth is being destroyed. If a remedy is not urgently found, the investor will soon be history, and so will all the jobs.
If the problem is caused by foreign competition at higher quality or lower prices, raw material supplies or costs, power cuts or transport problems, the only variable under the company’s influence might be labour productivity.
In other words, in difficult times, the only way some employers can hope to survive long enough to deal with the bigger problems of infrastructure and changes in local or external markets is through the increased efficiency and productivity of their employees. We are in difficult times.
But the problem has other dimensions. The degree to which people are needed to carry out work has become more and more affected by the work that can be done by machines.
In a great many ways, investors can make a choice between hand-made and machine-made processes, and with computers and microchips, servo-motors and sensors that can measure anything measurable, the number of ways of automating and mechanising industrial processes is increasing all the time.
Many jobs are therefore disappearing, but many jobs that did not even exist a short time ago are now the very best jobs to have. Somebody has to design those machines, somebody has to assemble them and somebody has to maintain them. And all of these people are far better paid that the people who used to sew, or solder, or weld or screw things together on production lines.
Whatever job you are doing now, try to imagine how it might change. Everywhere, people have to move with the times and they have to invest in themselves by upgrading their skills. If they are lucky, their employers
will help, but they should not sit down and wait to become lucky. Real empowerment is a process of self-empowerment. Very few people have been lucky enough to be empowered by somebody else.
I mentioned other dimensions, and in Zimbabwe we are always confronted by the political dimension.
Zimbabwe’s enlarged and revised development document, which we called STERP II, the authorities’ second attempt at a Short Term Emergency Recovery Programme, was said to show the way to economic recovery. I was disappointed to find that it included no evidence at all that the recovery proposals included efforts to repair the damage deliberately done to our economy or our investment climate.
If some sign that we were prepared to learn from mistakes and to rectify those that set us back, I think foreign assistance would have been offered. But no such lines appear in the text, and nor were there any that addressed
the fact that the country’s problems are as serious as they are because decisions were taken to close down Zimbabwe’s biggest business sector and biggest employer, the commercial farms. These also constituted Zimbabwe’s biggest exporters and biggest contributor to tax revenues.
The failures of most of our farming activities and their many, many consequences can be directly linked to the eventual hyperinflation and then the collapse of the Zimbabwe dollar.
STERP II does make the statement that “The Framework strategies to transform Zimbabwe’s agriculture will involve a greater reliance on efficient inputs delivery and farm output marketing systems and a smooth integration of agriculture with the domestic, regional and international markets.”
These phrases suggest that Zimbabwe has chosen to place its trust in bureaucratic procedures, not people. It found no need to accept the thought that the economy has any need of people who can call on experience, business acumen and talent.
And in the belief that this approach would be found acceptable to the donor community, the government started asking for assistance, not to put things right by adopting more suitable policies, but to give us the money we can no longer earn.
We certainly need plenty of it. We need it to meet import bills, to make up for lost tax revenues and to meet our recovery expenses, all because we have decided not to go back to policies that would have allowed investors to
rebuild the capacity to earn the money ourselves.
Our decision not to fix what we broke has impressed nobody. The donor countries are happy to stay away.
The development agencies know full well that our problems are self-inflicted. And the world keeps reminding us that we have failed to settle our debts. Almost no money has come. The Minister of Finance accepted in a statement two weeks ago that if we want it, we have to earn it. So we must all wake up and get back to work.
Recovery prospects
A little over a year ago, when Zimbabweans were permitted to legally use foreign currency, the use of the relatively stable currencies permitted the immediate disappearance of inflation. This change made the early months of 2009 significantly different from the closing months of 2008, but progress since then has been slow.
The plans I believe are needed to establish an actual workable economic recovery appear to have been overlooked as, so far, they have not appeared on the agenda at the meetings of the GNU. They should, first, concentrate on the policy changes needed to place the Rule of Law onto a sound footing and to repeal all laws and regulations that interfere with the acquisition, ownership and marketability of property. And I am referring to all forms of property, whether these be areas of land, mining claims, financial instruments or company shares.
Secondly, a reasonable plan should identify the sequences of events needed to restore Zimbabwe’s physical and social infrastructure to acceptable levels of efficiency and dependability. Preliminary estimates could be made
of the scale of restoration work needed to bring existing roads, railways, airways, power, telecommunications, municipal water supplies, hospitals, schools and colleges back to acceptable operating standards.
If we had forward-looking policies that showed a commitment to restore an attractive investment climate, we could invite experts to make estimates of the time and funding that would be needed to restore each of our utilities and services. Formal proposals could then be drafted to invite the participation of local and international bodies.
If Zimbabwe were considered to be deserving of assistance by virtue of extensive policy changes, its prospects of floating syndicated long-term loan stock issues on international capital markets would improve, and would
quickly gather momentum once the first signs of success had become evident.
For some of the challenges, proposals for the privatisation of certain parastatal organisations could be presented in correctly drafted prospectuses. Others might require work to be put out to international tender to meet the requirements of funding organisations or donor countries, while for certain projects the main concern might be to simply attract back to the country the skilled personnel we have lost.
A plan that covered this ground would no doubt leave further political problems in need of attention, all of which will deserve careful thought and special attention. But Zimbabwe should prevent these from derailing efforts to achieve full recovery by ensuring that the selected solutions were forward-looking, rather than based on claimed entitlements because of past events.
Undiluted attention has to be focused on actions that can deliver recovery and growth. Achieving success and restoring dependable flows of income from the efforts of people with proven technical and managerial skills would leave Zimbabwe far better placed to deal with the challenges caused by past errors of judgment.
Investors will need reasons to feel confident that political issues over which they have no control will not derail them. They will want to feel that the investment climate within the country and region concerned is acceptable
and will remain acceptable.
They will also want assurances that the conduct of other people who can influence the investment climate will not be too unpredictable and that the investment climate on offer will provide the needed protection.
People who can take the initiative to accomplish something usually show energy, vision, enterprise and courage in initiating a process that is intended to lead to something new. We have many people like that, but quite a few of them are planning to leave. Somehow, we have to keep them here. They are innovators or originators and therefore in a class of their own.
People with the capacity to seize the initiative usually see potential that others missed and they create opportunities for themselves. They certainly do not wait for others to empower them by passing legislation that allows them to acquire shares in other people’s companies.
In our efforts to promote the adoption of good policies, we need to remind ourselves that bad policies are equally discouraging to local investors as they are to foreign investors. The fact that Zimbabwe’s administrators
permit conduct and behaviours that are resented by Zimbabweans needs to become an accountability issue on every agenda.
We should have no illusions about the size of the problem. This graph shows that for every hundred people in the country in 1991, Zimbabwe now has about 126, but for every hundred people who had a job in 1991, only about 67 had a job at the end of 2009.
These alarming statistics clearly illustrate the increasingly hostile investment climate, which has caused the shrinkage or closures of businesses, but more to the point, it shows equally clearly the loss of jobs, the disappearance of job prospects and the reason why so many have had to leave the country to find employment.
If we study the performance and reputation of Zimbabwean workers in foreign labour markets, we can very nearly always feel proud of their achievements and of the fact that their work ethic, their expertise and their generous natures have made them eagerly sought-after in many countries.
I find that very heartening because it proves to me that we as a people are more than capable of contending with the rough and tumble of competitive labour markets. Most of us trust the interplay between competition and
market forces to supply us with what we need, and we usually find that if we do trust market forces, they will deliver the goods. The market also delivers jobs and job opportunities and it seems we are as capable as any
when we are in competitive market.
Everyone who understands markets also knows very well that the market place is demanding, exacting and unforgiving, and that while it can severely penalise anyone who can’t deliver what the market wants, it can also
handsomely reward all those who get it right. But everything government has done recently shows that they don’t want to have to pit their wits against market forces and they also don’t want to suffer any of the penalties that can arise if their efforts are found wanting.
Government’s approach seems to be that, as they have the authority to rearrange the economic landscape to suit their needs, they should use this authority to pass Acts of Parliament that formalise their rights to claim
ownership of any assets they want. They obviously feel that is much easier than working for what they want, but more to the point they feel that they are in power to exercise power, not to share power with markets.
By exercising these powers in the ways they have chosen, they appear to believe they have built a detour right around the markets and have won the right to disregard market forces. The Act of Parliament that declares their
right to acquire 51% of every operating company, whether it exists already or has yet to be started, can be easily seen to be a means of completely sidelining the market on which the same shares could be bought.
I feel that it is very important for all of us to realise the implications this move will have on the economy. Losses of foreign earnings might seem the obvious place to start, but less obvious effects will stem from the resentment that will be felt by the current technical and financial personnel who can so easily find work elsewhere.
A functioning, profitable company today that employs hundreds of experienced technicians and earns millions of US dollars could become a useless warehouse of rusting machinery or a valueless hole in the ground in a matter of weeks if a few dozen people with specialised skills pack up and leave.
The damaged relationships with head offices and banks overseas could cause the immediate cancellation of deliveries of spares, new machines and external funding for development work. Contracts drawn up between local and externally-based markets, are likely to be hard to renew when, after losing reputable technical specialists and professional local managers, the new boards of directors have to compete against new contenders.
As the loss of such contracts would impact directly on the number of people who could hold onto their jobs, employment could become one of the major casualties of government’s current proposals to acquire controlling
interests in all companies.
Zimbabwe’s formal employment levels have fallen considerably in recent years, mainly as a result of the displacement of labour from commercial farming since the acceleration of the land reform programme after 2002. Job losses were immediately felt in manufacturing, tourism and the service sector industries, and even mining was affected when government began to fix the exchange rates and made mineral exports unviable.
Various estimates of the extent of unemployment have been made, most of them placing the figure at between 65% and 70%, but the basis for the estimates are subject to many interpretations of the numbers, particularly in respect of definitions of under-employment and informal sector employment.
However, estimates of formal employment numbers suggest that the 2009 total matched the figure from forty years ago. As Zimbabwe’s population has more than doubled since 1970, this decline is twice as bad as it looks in the graph.
Land reform and the loss of the major businesses built up by about 4 500 large-scale farmers caused not only the major loss of jobs, but the loss of school places for many hundreds of thousands of children. Educational
standards have been among the many casualties of policies that did so much damage, not only to production and employment, but also to government’s tax base.
Now, those with formal employment and responsibilities to their extended families have to provide for many more young people than they can manage. Almost all students are growing up with very poor schooling and very few prospects of qualifying for formal employment. Hopes that they might shoulder some of the dependency burden one day are therefore non-existent under present conditions.
Family members working abroad do carry part of this load, but the extent and dependability of this support is impossible to assess. Only by attracting flows of investment capital can the needed local employment be increased, but the discouragement to new investors that will be caused by the Indigenisation and Economic Empowerment Act will make an already very bad employment growth situation considerably worse.
If the authorities show they have learned nothing from the economy’s experiences from the damage done to agriculture, and they go ahead with their plans for the take-over of 51% of all shares in the business sector,
the confidence of potential investors who might have been planning to develop opportunities will be very severely damaged, if not destroyed. As happened with the commercial farms, the workers will suffer badly from the destruction of capacity that will follow and a hidden statistic will be the unknown number of jobs that never come into existence.
Labour unions need to accept the fact that potential employees are being automatically and steadily generated all the time, but there is nothing automatic about the generation of employers. In Zimbabwe we seem to be working hard to discourage them. We should be working hard to encourage them, to entice them and to inspire them. It seems we need to repeatedly explain to government that employers are investors, or investors are employers. They are the basic pre-requisite for employment growth. The investors we have are clearly endangered and should be protected just as we would try to protect all endangered species, especially if we want them to multiply.
We all want more people to have a job. None of us here would have any difficulty understanding that if we want more employees, we should generate more employers. So we should promote conditions that secure the futures of our existing employers and help promote the creation of yet more employers. Government has not yet tumbled to this particular relationship, so we had better start trying much harder to persuade them.