INTRODUCTION

The essential basis for a growing economy is confidence. Confidence that

the government policies will be predictable and implemented
consistently; confidence that the private property and intellectual
property will be protected; confidence that courts will treat all people
fairly in accordance with the law. Without confidence in these and other
basic governance processes, domestic and foreign businesses are
reluctant to invest.
INTRO…..
• The big question is WHAT WILL IT TAKE TO GET THIS ECONOMY ON
ITS FEET AGAIN?
ABSTRACT

• The purpose of this presentation is to discuss the various elements that can
lead to the growth of the Zimbabwean economy again. It is therefore
important to appreciate the factors that led to the demise of the economic
performance over the years since independence. The presentation offers a
brief economic history of Zimbabwe. It goes on to outline the things that
can lead to the revival of the economy by giving a brief comparison or mini
case studies on other nations. These elements include privatisation,
financial liberalisation, and trade liberalisation. Government expenditure
reduction, investment liberalisation, industrial structure reforms as well as
technological reforms. The presentation further goes on to make
recommendations, which are mainly centred on respecting the rule of law,
rational economic policies and good governance
 BACKGROUND
• Zimbabwe is a landlocked economy in Southern Africa and its economic history is
as old as the country’s history itself. The economic history began with the
transition to majority rule in 1980. The new government under the then Prime
Minister Robert Mugabe promoted socialism, partially relying in international aid.
• The new regime inherited one of the most structurally developed economics and
effective state systems in Africa (Hazzlewood, 1967) Throughout the 1980s; the
economy performed extremely well which led to the central government
expenditure to triple and increase its share from 32.5 percent of GDP in 1979 to
44.6% in 1989 (ibid)
• In 1980 to 1990 the economy grew steadily at about five per cent per annum, but
on an unsustainable basis as we were spending more than we made and the
budget deficit averaged about nine per cent per annum.
BACKGROUND CONTINUED
• Then between 1990 and 2000 we had wild swings in policy with predictable results
– ESAP (Economic Structural Adjustment Programme) and then the payments to
the War Veterans in 1997 and the entry into the war in the Congo in 1998
• The involvement of Robert Mugabe’s government in the DRC war to protect his
investments resulted in suspension of international economic aid for Zimbabwe.
• This suspension of aid and the millions of dollars spent to intervene in the war
further weakened Zimbabwe's already troubled economy
• After the loss of the referendum in 2000, The presidents regime embarked on
what others may term as the war against the nation. This started with the revival
of the land resettlement program. This turned out to be a vendetta against the
whites and the opposition party and led to the seizure of about 4000 white owned
commercial farms which has since been replaced by subsistence farming
CONT…
• . From 2000 to 2010, the economy shrunk by 60 per cent, the currency collapsed completely and
inflation wiped out all cash assets and the balance sheets of all local companies. By the end of the
decade, even after two years of the inclusive government and rapid growth in State revenues, we
were still the most impoverished State in Africa and were unable to pay our Civil Service a livable
wage.
• A National Government was in place during the period 2009-2013, and it adopted the Short Term
Emergency Recovery Program 2010-2012 which was aligned with the country’s Medium Term Plan
(MTP) 2011-2015. These two policy frameworks ushered in macroeconomic stability, incentives for
development partners’ continued engagement and some limited turnaround in private capital and
financial inflows. Donor support to Zimbabwe continued despite restrictive measures and financial
sanctions. The country also been worked closely with the Bank, the International Monetary Fund
(IMF) and the World Bank (WB) to regularize its debt arrears and re-engage with the international
community.
• The political parties were committed to a new Constitution, electoral reforms that would restore
democratic legitimacy to our government in 2013 and it really looked as if there might be a future
CONT..
• . Disaster struck again and the joy was short lived as Zanu PF saw economic
recovery as not being in their interests and simply blocked all positive initiatives. In
addition, the Indigenisation Laws that had been passed the last time Zanu had the
majority to do so (2007) were suddenly activated and the infamous 51 per cent for
nothing demand came into the game. It simply froze all initiative and investment
overnight.
• Currently Zimbabwe is still struggling with a foreign debt of about 9 billion and has
defaulted as far back as 1999. The Economist Intelligence Unit currently forecasts
average growth of 3.4% in 2016-20—well below potential
• The risk of sporadic unrest is also rising, given Zimbabwe's protracted economic
underperformance and the lack of political change. After moving into negative
territory in 2015, inflation will average 5.2% a year in 2016-20, reflecting
commodity price trends and ongoing domestic wage demands.
WHAT IS NEEDED TO GET THE
ECONOMY GOING
• POLITICAL RESTRUCTURING: ACCORDING TO THE OECD THERE IS POSITIVE
RELATIONSHIP BETWEEN GOOD GOVERNANCE AND BETTER ECONOMIC AND SOCIAL
OUTCOMES. FURTHER POSTULATED BY THE OECD IS THAT THE MAJOR MEANS TO
ECONOMIC GROWTH IS THROUGH POWERFUL POLITICAL REFORMATIONS THAT
SIGNAL A TRANSITION TO FACETS OF STRONG GOVERNANCE SUCH AS
I. RULE OF LAW
II. DEMOCRACY
III. ACCOUNTABILITY
IV. TRANSPARENCY
V. EQUITY
VI. SUSTAINABILITY
POLICIES TO ENHANCE ECONOMIC
GROWTH
• REDUCTION IN THE GOVERNMENT SIZE: . Higher spending
undermines economic growth by transferring additional resources
from the productive sector of the economy to the government which
uses them less efficiently. Therefore governments in order for them to
achieve economic growth ,should reduce the size of the government.
• In order to give room for smaller governments which are more
proactive and dynamic, with a much smaller potential to engage in
spending. Furthermore using the case study of Eastern Europe and
Central Asia large governments especially those with weak
governance structures are associated with the following problems
which impede economic growth
Problems of a large government
• Large governments are more likely to run fiscal deficits during
economic downturns particularly were government spending is
inflexible.
• High rates of taxation are needed to fund big governments which can
distort private activity, especially were tax administrations are weak.
• A large government presence in particular sectors may be
accompanied by anti-competitive regulations on private sector
participation.
• Government spending may be misallocated as a result of corruption
or poor capacity sapping productive resources from the economy.
PRIVATISATION AND
DEREGULATION
• According to Adnan Filipovic, (2005) privatization, a method of reallocating
assets and functions from the public sector to the private sector, appears to
be a factor that could play a serious role in the quest for growth. In recent
history, privatization has been adopted by many different political systems
and has spread to every region of the world.
• The process of privatization can be an effective way to bring about
fundamental structural change by formalizing and establishing property
rights, which directly create strong individual incentives.
• Modern market economies, as economist Hernando de Soto (1996) states,
generate growth because widespread, formal property rights permit massive,
low-cost exchange, thus fostering specialization and greater productivity.
CONT…
• A strong economy largely depends on well-defined property rights in
which people make individual decisions in their own interests. Along
with creating strong incentives that induce productivity, privatization
may improve efficiency, provide fiscal relief, encourage wider
ownership, and increase the availability of credit for the private
sector.
• After the World War II, Britain embarked on a deliberate policy of
nationalization of its basic industries with a view to enhancing
efficient planning of the British economy and to guarantee an
uninterrupted flow of essential goods and services to the populace.
Britain is today in the lead for the privatization of public enterprises.
Cont…
• Countries like USA, Italy, Brazil, Spain, Kenya, Holland and Turkey are constantly in
the race for privatization. It has worked successfully in many countries at
comparable stages of development with Nigeria as a means of spurring economic
growth through enhancements in efficiency of former state owned enterprises
• Spain privatized 30 banks and 195 companies between 1972 and 1975
respectively. In March 1987 the Mexican government decided to sell 305
government owned companies to private sector as a means to increase efficiency
and economic growth.
• According to the UNCTAD economic development report in Africa as a result of
the Structural Adjustment program in 2008 Nigerian Banks accounted for over
25% of African Capital.
INDUSTRIAL POLICY REFORM
• Industrial Policies comprise regulations, taxes, and subsidies intended to promote
growth objectives in selected industries. Thus according to Pack and Saggi (2006)
define to be any type of selective government intervention or policy that attempts
to alter the structure of production in favour of sectors that are expected to offer
better prospects of economic growth
• Following the “China Model” of industrial policy reform, that enabled China to
grow to the second largest global economy in the past 3 decades, industrial policy
reform should be centred on the concepts of “Innovation”, and “Investment”
• According to the “China” Model, industrial policy should generate sufficient room
for innovation and should thus spur productivity, and be able to attract investment
both internal investment and foreign direct investment, as a means of achieving
economic growth. Primarily through the achievement of industrial expansion
TRADE POLICY PROCEDURAL
REFORMS
• Trade policy according to the World Bank Trade Competitive
Diagnostic Toolkit is one the most important means by which a
country engages in the global trade of goods and services, as it clearly
as it clearly identifies the means by which trade shall be liberalised
and the strategies needed to achieve enhancements in trade
• In terms of the World Bank international trade is a key driver of
economic growth and therefore is area for reformation in order to
enhance the gains from trade
• As postulated by the International Trade Centre trade policy reform
should achieve the following:
Areas of Trade Policy Reform
• Promote Exports and Foreign Investment
• Move goods across borders efficiently
• Address Export Market Issues- Trade Promotion
• Facilitate competitive infrastructure services
RECOMMENDATIONS
• REDUCTION IN THE SIZE OF THE GOVERNMENT: Government size has
a significant impact on the extent of expenditure incurred by the
Zimbabwean government and hence has a direct positive correlation
with the “residual” state of the budget. That is whether there is a
budget surplus or a budget deficit.
• . Various market and political commentators have aired their
grievances on the abnormal size of the Government and have
attributed budget deficits of about $386 million in 2014 and an
estimated budget deficit in 2015 at above $400million as being a
consequence of this large oversized government.
CONT..
• THE GOVERNMENT OF ZIMBABWE HAS ABOUT 60 CABINENT
MINISTERS, DESPITE ITS PREDIGAMENT OF BEING A PAUPER WHILE THE
UK GOVERNMENT IS COMPOSED OF ABOUT 40 CABINENT OFFICIALS,
THE PRIME MINISTER AND “HER MAJESTY” THE QUEEN.
• THE ZIMBABWEAN GOVERNMENT IS LARGER THAN THE SIZE OF THE
GOVERNMENT OF THE UNITED KINGDOM AND THE LATTER CONSISTS
OF FOUR COUNTRIES.
• With approximately 60 government ministers some commentators have
described it as the “Elephant in the Room” which has the potential
danger of “crowding out” the little private investment in Zimbabwe.
Cont…
• Therefore it is a recommendation based on the case study of the
Eastern Europe and Central Asia, that the size of the government be
reduced in order to curb the potential dangers associated with it.
Privatisation and Deregulation of
Government entities
• Zimbabwe had 97 state owned enterprises which used to contribute 40% of the
country’s gross domestic product in the 1990s according to World Bank Studies.
• Currently, the enterprises are receiving various forms of financial support from
government which are funded on the back of taxpayers for example :
1. The Cold Storage Company, which was at one time the largest meat processor in
Africa handling up to 150 000 tonnes of beef and associated bi-products a year
in 2000 and exporting beef to the European Union, has been saddled by a debt
of about US$22 million
2. The GMB, and Air Zimbabwe are operating below capacity and have huge
liabilities on their books.
3. NRZ owes its 6 000 workers about US$55 million and requires US$500 million
capital injection to turnaround its fortunes
Cont..
• In addition due to their location in strategic areas have led other
companies to close due inefficient service delivery.
• It is therefore a recommendation that the government of Zimbabwe
privatise and deregulate state enterprises such as the National
Railways of Zimbabwe, Cold Storage Commission, Air Zimbabwe,
and the Grain Marketing Board, in order to enhance efficiency,
reduce the burden on taxpayers, and thus consequently propel the
economy to sustainable economic growth
INDUSTRIAL POLICY REFORM
• . In Zimbabwe the government’s most important initiative is an industry
specific industrial policy to transfer ownership to indigenous
populations as a way of empowering groups historically excluded from
participating in rising incomes
• The land reform launched in the 1990s was the first pillar of this policy
which was later expanded to the Indigenization and Economic
Empowerment Act known so well as the 51/49 rule
• In which indigenous people were to be transferred 51% of ownership.
The sheer policy itself and the unevenness of its implementation has
generated serious uncertainty about property rights in Zimbabwe with
the consequence of Depressing Domestic Investment
 A Self Reflection Questions

1. CAN BEGGARS BE CHOOSERS?

2. ARE ZIMABWEAN POLICIES MADE AT THE
HEROES ACRE?
THE EFEECTS OF THIS POLICY
INITIATIVE
LEVELS OF INVESTOR CONFIDENCE IN
ZIMBABWE COMPARED
CONT..
• A key recommendation therefore is the revision of this major
industrial policy initiative in Zimbabwe. As it has drastically affected
investments according to the United Nations Trade and
Development World Investment Report , Foreign Direct Investment
was only 545 million compared to the billions that poured out to
neighbouring countries, Mozambique received US$4.9 billion, South
Africa received US$5.7 billion and Zambia received US$2.4 billion.
Indicating a strong and hostile environment to investment created
mainly by the indigenization policy
TRADE POLICY REFORM
• The National Strategy put forward well-conceived of increasing
exports to sustain growth and diversifying the export portfolio and
increasing its technology content.
• However the current structure of tariffs and other trade taxes is in
such a way that it creates incentives to sell at home rather than
abroad as such tariffs and trade taxes form a wall of protection that
make it profitable to sell at home than abroad.
• Furthermore taxes intermediate inputs act as a tax on exports by
reducing competitiveness.
THE CURRENT STATE OF TRADING
THE STATE OF TRADING CONTINUED
CONT….
CONT..
RECOMENDATION
• A recommendation to act as a solution to this problem is the implementation in the
major reform areas in trade policy as postulated by the International Trade Centre that
is:
1. Creation of Competitive infrastructure services possibly through privatisation and
deregulation.
2. Promotion of Exports and Foreign Investment, through appropriate industrial polices
and creation of an “investor friendly” environment
3. Facilitation of the movement of goods across borders more efficiently through the
enhancement of automation procedures such as risk management and greater trade
liberalisation.
4. Addressing Export Market Issues through developments in trade promotion tactics
such as trade missions, buyer- seller meetings, and market research and development
CONCLUSION
• LOOKING AT THE CASE STUDY OF MYANMAR WHICH BEGAN ITS POLITICAL AND
ECONOMIC REFORMS JUST ABOUT THREE YEARS AGO HAVE YIELDED GREAT
GROWTH DIVIDENDS .
• THE IMF ESTIMATES THAT THE GROSS DOMESTIC PRODUCT GREW BY 8.3% FOR
THE PERIOD 2013/2014 AND HAS PROJECTIONS OF 8.5% FOR 2016.
• THESE GROWTH RATES ACTUAL AND PROJECTED WOULD MAKE IT THE FASTEST
GROWING ECONOMY IN ASIA .
• A REMARKABLE TURNAROUND FOR AN ECONOMY WHICH HAD BEEN FOR SIX
DECADES UNDER MILLITARY RULE AND HAD A POVERTY RATE ESTIMATED BY
UNDP AT 25.6% AND 37.5% BY THE WORLD BANK.
• PLEASE NOTE SUCH MAKES THE ZIMBABWEAN SITUATION LOOK LIKE THE
“POSTER BOY FOR SANITY”
LESSON FOR ZIMBABWE
• MAINTAINING A RAPID GROWTH RATE AND POVERTY REDUCTION REQUIRE
CONTINUED PROGRESS ON POLITICAL AND POLICY REFORMS.
• ECONOMIC POLICY REFORM SHOULD BE LEAD BY POLITICAL REFORMS
• POLICY REFORMS SHOULD DWELL ON THE FOLLOWING AREAS:
i. FISCAL AND TAX REFORMS
ii. INFRASTRUCTURE
iii. PRIVATE SECTOR DEVELOPMENT
iv. FINACIAL SECTOR REFORMS
v. LIBERALISATION OF TRADE AND INVESTMENT
vi. HEALTH AND EDUCATION
vii. FACILIATING AN EFFCIENT AND EFFECTIVE GOVERNMENT
THE FINAL SAY…..
• ONCE PROPER POLICIES (POLITICAL AND ECONOMIC ) ARE IN PLACE
GROWTH CAN TAKE PLACE IN A SHORT PERIOD OF TIME , THE MAJOR
ASPECT IS CONSISTENCY AND SOUND POLICIES .
• THEREFORE UPON IMPLEMENTATION OF SUCH POLICES ZIMBABWE
CAN BE INITIATED INTO THE “BOSSOM” OF MODERN DAY
PROSPERITY.