Real problems begin with manufacturing

Edward Ingram
FOLLOWING on from my last essays for The Chronicle on the need for Zimbabwe to develop its own economic architecture and how wealthy economies make money, one reader wrote to me saying that real problems begin with manufacturing.

Yes, without manufacturing Zimbabwe is just an exporter of minerals and nothing more. Before we can have any kind of business enterprise, manufacturing or anything else, we must have a safe business environment with affordable loans and enough money in circulation. It is these that attract investment.

Last time I mentioned that the banks were charging a whole lot of interest, far more than you have to pay to start a business in the developed economies.

The reason given is that lending in Zimbabwe is fraught with risk. National statistics from the Reserve Bank show that non-performing loans amount to over eight percent of all loans outstanding.

If the economic credentials of the nation are not good, there is nothing much, which the banks can do about that ratio other than to stop lending.

What are those economic credentials; and why we do not have them? Here is what we do not have: (a) currency price that enables imports and exports to come into balance, (b) a way of lending whose monthly repayments are stable, (c) affordable, enough money in circulation and more over (d) a rate of interest, which is affordable.

If we had all of those things we would be leading the world because no other nation has ALL of them. The main difference is that we have none of them.

I can certainly help with item two on this list because I have completed most of the researches needed for an actuary employed by a lender to put it into practice. The financial teams I have previously trained both led in their fields. And now we have the National University of Science and Technology (Nust) in Bulawayo, which is running a course on new financial contracts for savings and lending.

The method was approved by a review team of the highest calibre that Zimbabwe had to offer in 2004. Old Mutual’s ex-chief executive officer, Mr Graham Hollick, who is on my team, urged them to look at it. The problem was the regulations and lack of tax breaks, which get in the way.

Once we have our own currency and a workable business environment, all risks as well as interest rates will come down. Businesses will be able to function.

The risk of having repayments jump around will not be there. It all takes time. It starts with the first steps. The easiest first thing to do is to re-establish our own currency.

As I explained last time there is a risk of that leading to high inflation. At least with item two on the list sorted out, savings, pension funds, and borrowers would not go under.

Without our own currency; we cannot create the money needed to pay one another, exporting is not profitable at this rate of exchange, businesses cannot raise the money to get started and people cannot buy what our businesses are producing.

So what must be done? It is important to stop taking lessons from the International Monetary Fund (IMF) or other nations. They are using outdated economic theory, which balances budgets instead of supporting the economy with enough money put into circulation. This is why many European nations are suffering. Until now the United Kingdom, like the United States of America, has run a health deficit. Now they plan to change that. I fear for their future.

None of them understand what I wrote about last time and the time before when I explained how all economic miracles have been funded. It begins with the Government creating the money needed after determining how big a slice of the national output should be under their spending wing.

The Government should spend on what governments need to spend on. These include free education, good roads, constant electricity, police and law infrastructure, social security, defence, water and research grants.

From what I have seen our Government does not spend enough on all these things yet they can. Taking a step at a time, it is easy. They can create all of the money needed. The Government must resist the urge of borrowing more money. At 22 percent of Gross Domestic Product, the main measure of a sound economy, the Government spends too little yet at 37 percent, the UK spends too much.

Mr Ingram is a Bulawayo-based economic commentator and a macro-economic design specialist. Feedback on [email protected]