Stabilising Zim dollar through manufacturing

Clifford Shambare

After the banning of the use of the basket of foreign currencies through Statutory Instrument SI 142 there is now talk of how to increase the amounts of foreign currency revenues from exports. According to those experts who are talking of this need, the idea is to stabilise the newly introduced Zimbabwe dollar through the accumulation of adequate foreign reserves, the US dollar being the implied currency making up the bulk of these reserves. The assumption behind this thinking is that our currency needs the US dollar to stabilise it.

But one question needs to be asked here; what forces weaken and /or destabilises a currency in the first place? There a number of these. The one that comes easily to mind is political risk, the others are risks emanating from the Government’s monetary and fiscal policies, the other is the state of economic fundamentals, and the last but not least is a weak industrial/manufacturing system. Generally speaking, like most cases economic, every one of these phenomena and policies, is connected to the other but specifically monetary and fiscal policies and economic fundamentals seem more connected than the rest.

Be that as it may, I want to believe that manufacturing is the key to solving our current challenges. In Zimbabwe today, almost everyone knows that there is an urgent need to make progress on the economic front.

In that case I want to posit that the resuscitation of the existing system is the logical  starting point. The major reason for following this approach is to stem the general drift towards a state of abject poverty — a direction that we have slowly but surely fallen into. The idea here is to create more and more jobs in the formal employment sector in the economy. The assumption here is that this form of employment is more stable, reliable and sustainable than informal employment. This of course, has been the case in all developed economies.

That said, let us look briefly into the developed economies to see what makes them tick.  If and when we do this, we find that the availability of capital — the bulk of which they have accumulated over a period of two centuries — for running their factories, is their major strength. But what is capital? In order to answer this question, let us briefly digress from our main subject by first considering the whole system to which capital belongs — that is capitalism.

Capitalism itself, started as an arrangement in which natural resources were manipulated in order to enhance their economic and pecuniary value, ostensibly for the benefit of all people living in such an economic system. In its basic form, capitalism is an idea that was eventually concretised into an economic system.

So naturally, man was the thinker and driver of that system, but at its beginning only a handful of people were involved in the process of conceptualising it. So it is logical to assume that these people and their offspring were and still are, the ones still controlling the system. In his book “Capital in the Twentieth Century”, Matthew Picketty, the now famous French economist, says that a sizeable proportion of the capital running the economies of the developed countries is still owned by the original capitalist families — those who owned real estate — and those connected to them.

This is the realm in which the Africans — nearly all of whom live under this system — find themselves today. However, in reality, they are outsiders to the system; they will remain in this position until they go through a deep change to get into it. And in order to produce the desired result, this change may need to take a metamorphic form.

At this stage you may be thinking, how difficult is it to achieve this state? However, I want to posit that this can be done with enough time and willpower, coupled with the right mindset and tools such as training in business start-ups, entrepreneurship, and the use of technology — real nuts and bolts — not abstract technology! We shall address this issue in later articles, so let us zero in on Zimbabwe’s current situation and its challenges.

Today Zimbabweans are locked in a mental logjam as regards how to enter a mode of economic resuscitation, growth and finally, self sufficiency. They say they need capital — largely a foreign item today because of the reasons given above. However, the current situation does not allow them to get some, at least that easily, and in adequate amounts.

I know that most of us are dead scared of confronting the current reality head on, but if the truth be told, we are already in some sort of dilemma in which we either give up our land and get the capital we are pining for, or continue the way we are currently going and suffer the consequences.

But there is a heavy irony in this whole matter since this land is the major part of that capital that we so desperately need. This is a situation that most of us are not able to decipher at our current level of consciousness of the issues involved, as well our level of knowledge of same. Our current mindset is that all capital comes from the West, but have you ever asked yourself where the West — or even the East — got its capital from? They created it with available resources, the major one of which is land. Our very own Herbert Chitepo knew this fact, hence his famous 1973 statement: “The land is the economy, the economy is the land . . . ”

So taking the former route appears the easy thing to do, just give up the land and get the capital we need. On the other hand, the other alternative — the one with more lasting but positive results — calls for considerable sacrifice from us. Let us assume that we are taking that route — a route that Cuba and North Korea have taken and survived for decades but not without incurring deep bruises in the process. In such a scenario, in order to make any headway at all, thrift and ingenuity become imperatives. In this regard, consider Ian Smith’s UDI regime when it was confronted with a similar situation; it’s “never say die” attitude and consequent thrift, made it exemplary in terms of tenacity and (as) a successful sanctions buster!

At this juncture, let us delve deeper into the matter by scrutinising further, Zimbabwe’s current situation. If and when we do this, we find that our attitudes and behaviours — attributes that have almost become a culture — are our current bane. To begin with, we have developed into what Vance Packard in his book, “Cornucopia City” — calls a consumption culture (and economy).

In this regard, consider those white parties and holidays to Dubai, among other places of fun in this world, that some of us are currently indulging in. Consider also, the prevalent use of large luxury gas guzzling vehicles in the country, bearing in mind that our current Import Bill is made up of nearly one third fossil fuels — that is diesel and petrol.

A thorough scrutiny of this situation will show that with a bit of thrift on this aspect, the country will save a sizeable amount of foreign currency that in turn, could be used for investment in local manufacturing firms. In our current tight circumstances, every cent counts; the use to which we put it will eventually have a lasting effect on our economy. In this regard, consider the case of Japan in the early days of its huge economic leap when it introduced the Daihatsu — a locally manufactured but unsophisticated and economic and motor vehicle — in the early eighteenth century.

As far as this matter is concerned, I sometimes have this uneasy feeling that we Zimbabweans love travelling for its own sake. There are many examples here but let me pick a few. During the colonial days, Government made sure that all workers stayed near their places of work by providing them with adequate and comfortable furnished housing. This was the case with all Government and quasi-government institutions.

Together with the country’s mining companies, the two ran a good part of this economy. As can be expected the country’s fuel bill could be better controlled under such circumstances.

Today all these practices have been done away with. Too many people travel too long distances to their place of work, and with this come too many traffic accidents for our comfort! And traffic accidents result in considerable costs arising from a number of angles — medical and funeral bills, motor repair costs, etcetera.

When it comes to the matter of raising funds for investment, the other area to consider here is the use to which funds collected by such organisations as the pension houses such as NSSA and the Mining Pension Fund, as well as Zimra and Zinara — are being put. This is one avenue through which  considerable amounts of locally generated capital is being lost through frittering, abuse and misuse. Then there is the case of those unspecified amounts of foreign currency that are being used for unproductive purposes — that is foreign currency speculation, the importation of consumption goods, externalisation to foreign banks, the C-Trade in foreign stock markets, and so forth.

Having come this far in our discourse, let us go back to look into how to proceed along the lines of economic resuscitation and subsequent growth using available means. In this respect, first of all, we need to identify areas of priority. But this is easier said than done because of the chicken and egg conundrum that we have inadvertently found ourselves in.

This situation arises from two aspects, one is the fact that the owners of the country’s manufacturing businesses are no longer in the country (a phenomenon referred to as “capital flight”), hence all those ghost factories in the major industrial towns of Bulawayo, Harare, Gweru and Mutare. But to the average Zimbabwean, these are “our factories”. This thinking presents us with its own set of challenges. However, in order to stay focused, let us leave this aspect of the matter as it is for another time.

The other aspect is that even if we could have access to some of it, most of this machinery is now too old — almost obsolete in some cases — for any useful purpose. So as a starting point, we have to make do with what we currently have while we find the means of acquiring new machinery. In this regard going into partnership with appropriate FDI is the way to go; and we are doing this already even though we could do with an increased pace.

Ironically, the current circumstances of hardship serve as a test for us — a test which if we failed, would prove that we could never run the economy successfully on our own if the current impediments were to be somehow removed, or if they did not exist in the first place. The implication of such a scenario is that in case of success, we may never claim any meaningful contribution to it.

Not only that, if we failed this test, we would have no chance of claiming the ownership of the same economy — at least a reasonable part of it.

If in doubt of the possibility of such a scenario, consider the case of the South African blacks in the current era where that economy is successful by any standard, but one where only a handful of blacks have any sizeable share ownership.

According to the industrialists, our current quagmire arises from the shortage of foreign currency in the form of machinery and money, and raw materials.

However, a close scrutiny of the situation reveals the fact that even that the machinery that we have is still being underutilised.

This implies that if we were to somehow manage to harness and use the said monies that are floating in the economy sensibly and thriftily, we could go some way towards our goal.

So in this case, it is a question of will and attitudes on the part of those holding these monies.

This is where the need to put heads together becomes crucial to solving our current challenges.

You see, we Zimbabweans are often wont to ape carte blanche, the Western capitalist approach.

In this mode, we assert that the Government should leave the private sector to do what it wants in its area of responsibility.

But this is largely a false attitude that will not lead us anywhere economically.

In this respect, consider that even the developed economies at their early stages of development, governments worked closely with a quite few industry leaders. Germany and the Krupp and families is a good example here. The Volkswagen — that is, the people’s car — is a product of this strategy.

Today the Government’s involvement in these economies is more nuanced but nevertheless, it is still there. In the USA for example, there is Freddy Mac and Fan Mae — two organisations that the state uses to avail mortgage bonds to the not so well to do Americans. These are the organisations that were responsible for the 2008 dot.com bubble though!

In a democratic and free market economy, everyone is supposed to do what they want with their money as long as it is not connected with, or does not result in the commission of crime. So under such circumstances, how to synchronise the economic ideas and plans of each and everyone of us towards one economic goal, is the big question?

Again, we need to refer back to the West to see how they do it.

In that environment, the populace knows about the culture of investing in order to enhance their financial and consequently, their economic status.

And they usually invest in both large and small firms, be they manufacturing or service firms.

Be that as it may, if we look closely at that environment, we find that most small firms are individual and/or family funded. In the case of medium to large ones — those that have gone public — it is the public that invests in them.

That public knows something about purchasing shares in the stock market.

In Zimbabwe as well as in other African economies — this culture is either weak or non-existent.

So given such a situation, one can assume that if the public is somehow made aware of such a thing as the C-Trade, they will also purchase shares in existing companies thereby enabling the latter to obtain the capital they sorely need today.

However, in reality, this is easier said than done since there is another chicken and egg conundrum here.

For people to invest, they first need to save, and to save they need to get income above their basic needs.

In Zimbabwe with its current state of poverty and low employment rate, this is a tall order indeed! But again, it is also true to assert that there are some very wealthy Zimbabweans who appear not to be using their money for productive purposes.

So, how do we get these people to put their money into our economic resuscitation and growth strategy? There is no easy answer to this question since Zimbabwe’s economy is a free market.

Be that as it may, I want to make some suggestions here. Those investment conferences that we are holding for FDI should also be targeted for such people — the locals. Some sort of arrangement where investment circuses are held in all the districts of the country, including urban ones — for the purposes of training the citizens in such matters — are not unthinkable or impossible. This idea could be linked to the current devolution strategy.

That said, the main challenge here has to do with the Zimbabwean mentality. To begin with, Zimbabweans, do not trust one another.

They also do not appear to trust the authorities, the RBZ included, because of what has, and still is, happening today in many aspects that involve money — their money.

You come across it in the agricultural the mining industries where the issue of foreign currency is concerned.

As a result, in this country today, it is not unlikely that one hears someone say; “What security is there for my money if I invested in such and such a company/ venture”?

Or “why should I make (the business owner) rich”?

Or something to that effect. Nevertheless, we must not give up on such an important matter as this one.

In order to make any headway in this matter, some co-ordination of effort among the stakeholders is required. If that approach is accepted, this function of co-ordination should logically involve the Government and the private sector and to some extent, the civic leadership of the country. But still, this is easier said than done.

I say this because in this country there are so many of such forums today.

For example, we have district and provincial development and co-ordination committees (DDCs and PDCs) but there is little progress in what they are doing.

So this implies that in order to make any headway, a paradigm change is needed here.

Be that as it may, in regarding to this matter, if we revisit the past to see how they managed the economy then, we find that this economy was founded and managed by one company — that is Cecil Rhodes’ British South Africa Company (BSAC). In those circumstances, such discord as we witness today between the Government and the private sector, did not exist.

So in a sense, this was a command economy but one with an element of the private sector ethos in it, no wonder it worked so smoothly even under those economic sanctions in its latter days.

And even after independence but before the land reform programme, it still worked smoothly.

At this juncture, let us go back to the issue of balancing exports and imports in order to stabilise our new currency, the Zimbabwe dollar, in the process making the economy viable in the long term.

As I have already argued before in my previous articles in this paper, in order to achieve a viable economy with a stable currency, we need to balance — in fact, to go beyond the balancing of our exports that are mainly made up of commodities, with imports — through the manufacturing route.

In this regard, I was pleased to note that Alfred Mthimkhulu, professor of economics at NUST, is alluding to the use of the same approach in his article of July 19-25, 2019 titled; “Currency backed with nothing”.

But he is doing so in a diplomatic manner — a manner that does not cause friction between him and the fraternity that he represents — that is academia — and the country’s industrialists. This is as it should be.

 

At this stage, space forbids us to carry on, so we shall continue with our discourse next week in Part Two of this article.

 

◆ Clifford Shambare is an agriculturist come economist and is reachable on 0774960937.