‘We owe it to ourselves’

With less than two months before year end, and in light of challenges the country has gone through this year, the Herald Business (HB) talked to economist Dr Gift Mugano (GM). In this interview, he touches on challenges affecting the economy and prospects for 2016.  HB: As the year draws to a close, what preoccupies the mind of the reader is what the New Year holds in store for them. What hope is there for 2016?
GM: Admittedly, this year was a difficult one. All the details of economic challenges are written on the wall and are in the public domain. Unlike the Zimbabwe dollar era, most of the influencing factors are external. Without exhausting all the factors, the continuous fall in commodity prices and the appreciation of the United State dollar against major currencies, which has seen the rand falling by more than 100 percent since 2011 are enough to put the economy in precarious position.

Before we even talk about other macro-economic factors, the appreciation of the US dollar has rendered our exports very uncompetitive. This, in short, means we need to tighten our belts than before.

HB: How can this be done?
GM: We have to devalue the US dollar by managing costs.

HB. Since Zimbabwe does not print the US dollar, what does this mean for the layman?
GM: It is called technical devaluation. We can do this by cutting costs and this will take away the over-valuation effect of the US dollar. Everyone agrees that our goods are overpriced as compared to foreign products. This is over-valuation of the US dollar. We need to reverse this by cutting costs. This requires Ministry of Finance to cut the wage bill from 83 percent of the total budget to around 40 percent.

All the cost drivers must be lowered. For example, we cannot continue to have luxury of letting the Environmental Management Authority charging unreasonable fees with nothing to show off. We also have to cut other cost drivers such as finance costs, wages and salaries and utilities. This can be done through an organised framework under the Tripartite Negotiation Forum.

However, cutting costs without supply side support is devastating and can perpetuate suffering.

HB: Back to our previous question, what does 2016 holds?
GM. It is not in my place to determine how 2016 will look like. We owe it to ourselves. If we want a gloomy year we will have it and vice versa.

HB: Surely, who would want a gloomy year?
GM: In essence nobody want a gloomy future but actions always give what we deserve. For example, look at office bearers in parastatals. They have destroyed this economy through their greedy and inefficiency. At one point, parastatals used to contribute about 40 percent of total annual output (gross domestic product). To date, these people have rendered parastatals useless. The same applies to corruption. The same applies ministries such as finance and agriculture in particular and private sector and civil society.

These two ministries are failing agriculture and are also in a way responsible for the soaring trade deficit. Over the years, the Ministry of Finance have not supported agriculture but rather went on to support Zambian farmers by paying them promptly at the expense of our farmers. The same applies to the imports of agricultural products.

Honestly, how can we have Pick n’ Pay entirely filling their shops with tomatoes and other produce from Polokwane? This can’t happen in South Africa. The authorities there have stipulated into law that 75 percent of trade across all sectors must be local. We have turned our back on our economy thereby defining the economy we want.

You also note that private sector is to a greater extent shunning supporting the economy in a growth trajectory. There are weak business linkages. The summary of our problems is a question of poor priority. The fact that we have an annual import bill of about $8 billion means that we have the money but we have wrongly prioritised it by importing pampers, Twizza and toothpicks, which can be sourced locally competitively if the money is channelled into production first.

Media, civil society and opposition politics have played a critical role in killing this country by creating negative perceptions, which have become number two enemy for this economy after lack of competitiveness. Capital will never come to a country with negative perceptions. This does not take away our constitutional right on the right of expression but we need to strike a balance between abusing this right and contributing to constructive national dialogue. It is our collective responsibility to define the Zimbabwe we want.

HB: So what needs to be done for a brighter year?
GM: The opposite of what we are doing as I said before.

HB: I can see that from the way you are saying it there should be convergence by all stakeholders?
GM: Yes.

HB: How can this happen?
GM: Convergence can take place in many forums such as dialogues established by the National Economic Consultative Forum, the TNF and the recently launched the National Competitiveness Report (NCR).

HB: How can the NCR bring convergence?
GM: As you may know the NCR provide a dashboard of Zimbabwe’s competitiveness, that is, weaknesses and strengths, opportunities and threats (SWOT) — comparing with other countries. It is after exhibiting the country’s SWOT analysis that working groups whether thematic or sectoral are established to craft solutions starting with low hanging fruits to medium then long term goals. We have just launched the report. We are now working on establishing the working groups.

HB: Are there countries which have used NCR to create consensus and solve national problems collectively and what lessons can Zimbabwe draw from them?
GM: More than 170 countries developed NCRs and used it as a tool to factually inform policy and a monitoring and evaluating guide. Lessons can be drawn from Ireland, USA, Croatia, Sri Lanka, Senegal and Egypt.

In Sri Lanka, there was no history of tripartite negotiation. The NCR brought together all stakeholders. There was consensus on the need to focus on productivity. Here, private sector was very aggressive towards achieving this goal through established industrial clusters.

Ireland focused on creating an investment led growth trajectory. This saw TNF in Ireland focusing on their highly skilled based as a starting point. In Egypt, the NCRs are used to inform national budget prioritisation while in Senegal, the NCR mirrors President’s Investment Council’s thematic focus.

In the USA, the NCR was used to set quantitative goals as we did in the Zimbabwe Agenda for Sustainable Socio — Economic Transformation (Zim-AsseT). The US set productivity growth from 1 to 2 percent within 10 years by increasing non-residential fixed investment (in physical and human capital) by 5 to 6 percentage points of GDP. This requires increase national saving by 7 to 8 percentage points of GDP to finance the investments.

Croatia set an ambitious high impact multi-year action plan. In year 1, they focused on fundamentals — diagnosed the problem, identified strengths and weaknesses, set national goals and priorities and then use first report to build consensus on the need to act. We have completed this part, which has seen us launching the NCR on 29 October 2015.

In year 2, the Croatia prepared action plan, established working groups to develop detailed policy recommendations, monitored changes in competitiveness fundamentals and issued report with policy recommendations. This should be our next step.

In year 3 and beyond, they implemented policy recommendations, monitored changes in competitiveness fundamentals and identify new issues and establish additional working groups (where appropriate) and issues annual progress reports.

HB: Based on the report, which strategy should Zimbabwe follow?
GM: We are certainly biased towards the Croatia approach but I see us using hybrid approach by borrowing ideas from the USA as it is in line with the Zim-Asset and the Egypt style for the simple reason that based on international experience the NCR always compliment the national blue print which is Zim-Asset in our case. Our first thrust in my view must be aimed at increasing productivity especially in the agricultural sector.

HB: Interesting. I had been following your contributions in your previous articles. Any complements or criticism from readers?
GM: I was trained an economist and I have chosen to remain one. My humble view is every Zimbabwean has a responsibility to contribute to the national discourse but our arguments must be both constructive and factual. We accept good policies irrespective of who makes them and constructively criticise bad ones so that we shape the Zimbabwe we want.

With respect to criticism, I look at it in two ways. First, I am not a monopoly of wisdom. So my contribution must be criticised on merit. It is a learning curve for everyone. If it is plain criticism then I will not entertain it — it will fall on deaf ear. Second, some of my submissions are thought provoking to stimulate dialogue. In this case, whatever direction the criticism takes I am happy. Mission accomplished.

HB: Your last words?
GM: Economic fortunes follow a self fulfilling prophecy. If we want a great country we will act in manner that gives the country we want and we must do it. We can’t blame the wind for drying our lips if we don’t leak them. We owe it to ourselves.