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Dr Bongani Ngwenya
Preamble
THERE has always been controversy surrounding the indigenous policy from its time of crafting, until now when President Mugabe had to step in, at least to clarify certain aspects of the policy. From an economic point of view, I believe this marks a positive demonstration of statesmanship and leadership. The industry, especially the financial sector should be welcoming this gesture with the much objectivity that it deserves. President Mugabe acknowledges that the interpretation of the indigenous law has undermined market confidence and has led to further increase in the cost of doing business and further weakened the country’s competitiveness.
Latest financial sector overview
The clarification comes at the right time, especially for the financial sector, that of late has been performing well.
Almost all the commercial banks have posted profits, according to their last financial results. This is an indication of good signs of recovery and stability.
Last week, the media has been awash with the highlights of the financial performance of the commercial banks. I am also one of the people who was interviewed or asked for comments by the newspapers. The President’s intervention at this particular point in time should be a welcomed gesture by the financial sector in particular.
“The banking sector shall continue to be under the auspices of the Banking Act, which is regulated by the Reserve Bank of Zimbabwe, and the insurance sector under the auspices of the Provident and Insurance Act”, said President Mugabe.
He reiterated that the policy position is essential for promotion of financial sector stability, confidence and financial inclusion. It naturally makes sense that the positive performance of the financial sector in this economy should not be destabilised, as such performance can go a long way towards confidence building in order to facilitate financial inclusion. There is this serious polarisation between the banking sector and the potential banking market in Zimbabwe. The evidence is very clear — a lot of liquidity that is circulating outside of the formal financial system.
According to President Mugabe, the financial institutions will be expected to make their contributions by way of financing the productive sector of the economy. This is a very positive development. However, the financial sector can be aided to do that if they are allowed to operate without destabilisation. With policy inconsistence, it’s like throwing spanner into the cogs of a running engine. By the way, I am not a politician, and I am not singing for any lunch or supper. I am simply an economic commentator, advocating for sanity for the sake of economic growth.
Policy consistency means compatibility and uniformity of course of actions between the top to the bottom level of Government so that it can be correctly and efficiently followed by all of them (cabinet) without creating a conflict.
Expectations of future policy and need for policy consistence
Policy consistence, that is, in its interpretation and implementation sustains economic growth and development. The argument here is not whether the policy is good or bad, appropriately timed or not, but consistence. It certainly does not auger well for the economy to have a situation where Cabinet Ministers seem not to be reading from the same script of the policy. Policy inconsistence has a potential of scaring investors, both domestic and foreign more than the perception on the policy itself. On the other hand, it may be true that the indigenous policy as a whole or certain aspects of it have been hurting the economy, by actually hindering economic recovery and hampering economic growth, the directive to effect some amendments to the policy by the President vindicates such perceptions and opinions that have been going on.
Domestic and foreign investment decisions hinge on the potential investors’ expectations of future policy by Government. That is, the investor’s impression of what the policy environment will be like for many years into the future plays an important role on the decision to invest today. It takes a policy to stimulate or dampen investor confidence in an economy.
The Zimbabwe Stock Exchange market for example, working as an economic barometer has not been spared first and foremost by the general poor performance of the economy, and secondly, by their nature Stock Exchange markets from the theory or fundamental concept of “efficient-market hypothesis”, are sensitive to policy and other economic or political developments that might be taking place. These markets will either respond or behave positively or negatively depending on how they perceive the implications of the policy or the developments. We know what happened when President Jacob Zuma decided to fire finance ministers left, right and centre. That caused a further strain on the South African Rand for example, that was already nose diving by then.
The developments in our own Stock Exchange have not been good at all, for the past several years now. Our Stock market has been suffering from negative investor confidence, attributed to the general economic poor performance and also policy inconsistence.
The capitalisation of the Stock market has significantly plummeted since dollarisation. The latest position being that, capitalisation has contracted by 14 percent to $2,6 billion in the three months to March 2016 from $3,1 billion in December last year. Latest figures show that the equities market traded lower in the first quarter of 2016, with the main industrials losing 15,02 percent to 97.61 points, with the mining index worse off, down by 178,66 percent.
Market experts have asserted that alleged policy inconsistences have resulted in investors and companies cutting back on spending on new projects and employment. This negative phenomenon cannot be sustainable. There is a need to reverse the negative trends.
In conclusion, it is industry and market’s hope that now that the President has clarified the indigenisation policy there is going to be consistence in the interpretation of the policy, and the necessary amendments will be effected expeditiously for the good of the growth and development of this economy. There is strong correlation between policy consistence and economic growth.
Dr Bongani Ngwenya is a Bulawayo- based Economist and Senior Lecturer at Solusi University’s Post Graduate School of Business. For feedack mailto:[email protected]/ [email protected].
Bongani Ndlovu