adminTo say a strong US dollar makes us uncompetitive can easily qualify currency exchange rates as the most significant variable of comparative competitiveness.
Sometimes convenient common speech, perhaps through an assumed understanding by those we are engaging with, can easily lead to the fostering of incorrect myths. This happens quite often in economics.
For instance, it is convenient common speech to say a country requires FDI, with FDI incorrectly taking on an inclusive meaning of all types of foreign capital inflows. In fact, FDI is actually just the tangible and physical investment by a foreign entity. There are other types of foreign capital inflows such as portfolio investment, commercial and multi-lateral loans.
I suspect that it is this presumptive nature of convenient common speech that has crept into our economic discourse in Zimbabwe, somewhat instilling the notion that a strong US dollar is reason for our uncompetitive economy.
Indeed, they know better and their common speech is obviously said within an assumptive context of understanding, but individuals such as RBZ Governor Dr Mangudya and more recently, Dr Mthuli Ncube have said “Zimbabwe’s economic competitiveness has suffered because of a strong US dollar”.
To say a strong US dollar makes us uncompetitive can easily qualify currency exchange rates as the most significant variable of comparative competitiveness.
Yet, in Zimbabwe’s case, I would argue that we have more significant variables in terms of comparative competitiveness to other economies. For instance, suppose we used the Rand. Our economic structure would remain the same obviously, thus we would still be cursed by the dependence on the operational infrastructure provided by highly inefficient state providers of power, water supply, and interconnectivity infrastructure such as road and rail.
Mind you these are the factors which we cloak under a politically correct phrase of “cost of doing business”. Likewise, specific sectors such as agriculture and mining that are supposed to be the greatest contributors, and knock-on effect drivers of the economy, would still be centred around highly favoured and preferentially treated state enterprise laggards.
Just this June, Africa Development Bank country representative Mateus Magala said Zimbabwe loses up to $1 billion annually due to structural inefficiencies, and this does not include the lost multiplier effect from this dead weight. So even if Zimbabwe was using a weaker currency such as the Rand, persistent structural inefficiencies would deter competitiveness.
There are other significant variables of competitiveness. For instance, our industry lacks economies of scale. Economies of scale are a derivative of the efficiency of productive capital equipment and market size.
In terms of market size, we have no choice but to start focusing towards expanding into neighbouring markets. Sadly, it seems our industrialists have reduced their ambitions to just local protection.
Let me warn of an unsaid danger that is lurking around our Buy Zimbabwe thrust. Protectionism does not attend to competitiveness, and greater protection of an uncompetitive economy will only lead to depression.
The reason is that supply chains have become too integrated across borders to sustain a scenario where our local market can be protected, yet our productivity is not concurrently gaining from larger consumption.
The importance of economies of scale is that they reduce costs which would otherwise require government subsidising and other preferential tax treatment for an economy to stay competitive, let alone stable.
Our highly indebted government does not have fiscal capacity to provide such stimulus; thus bigger markets are the only way to help lower production costs.
In terms of capital equipment, we often say that industry is at 36 percent capacity utilisation. A relevant question would be to ask if our capital equipment, even assuming that we are at 100 percent utilisation, is of high technology to boast productivity competitiveness.
I doubt that it is. Our equipment is outdated, not the best standard, and definitely not as productive as other countries. Thus, this 36 percent we bemoan, it is in itself a generous metric of competitiveness. Of course to improve on that capital equipment, firms would have to borrow to finance new wares. In such a situation of debt accumulation, as we shall progressively learn from emerging markets which borrowed against weaker currencies, the US dollar is not all that bad.
So, there! Those are just a few variables which have an effect on our competitiveness as an economy.
Of course, I am not trying to disqualify the US dollar as a variable we can attribute to our uncompetitive circumstance. My emphasis here is that it may not be the most significant. — Wires
Online Reporter