16 Jun Building a Competitive Economy
As we have shown, the Finance Minister’s anti-trade and protectionist policies will not work. They will only lay a heavy financial burden on the people and protect inefficient state-owned companies that have no competitive advantage on international markets. The Minister’s “ease of doing business reforms” is a fig leaf to deal with high manufacturing costs. He knows, and we know, that these costs have been driven up by predatory policies and unaccountable party-appointed executives feathering their own nests. And he has studiously avoided the fundamental cause of our lack of productivity and competitiveness: the ruling party’s parasitic patronage system that is sucking the life-blood out of the economy.
So how do we build a competitive economy?
Restoring Institutions and the Rule of Law
It starts by transforming our culture of politics. The first imperative of any truly democratic government demands that we exorcise the cancer of the ruling party’s mendacious politics of state capture, patronage, extraction, and exclusion. Few Zimbabweans seem to realise that the single greatest impediment to restoring the independence of our government institutions lies in a Constitution that grants the President sweeping powers of appointment. If we want a new culture of inclusive politics – where government institutions serve the people – it is essential that we amend the Constitution to constrain the autocratic powers of the President. We need new democratic processes and mechanisms of appointment and oversight that guarantee that we are served by professional military commanders who are loyal to the people; that decisions are made by impartial and independent courts of law that we can trust; and that the sovereign will of the people is sanctified by a completely independent Electoral Commission.
The corollary to restoring the integrity and independence of government institutions – and a necessary condition for investment and growth – is upholding property rights and the rule of law. The Finance Minister entitled his budget statement, “Building a Conducive Environment that Attracts Direct Foreign Investment”. But such optimism is only possible when court orders are respected, when the unlawful seizure of productive farms cease, and when genuine steps are taken to compensate those whose properties have been expropriated. Restoring government institutions comes with another significant benefit. It becomes possible to build a more efficient and honest government bureaucracy that is based on merit and professionalism. This is a sine qua non when building a thriving and competitive economy.
Unshackling the Private Sector
Just as we must expunge partisan party officials from government institutions, we must unshackle the private sector from grasping party-appointed executives. A clear distinction must be drawn between civil servants who are paid from the public purse, and non-state CEOs and directors of private sector enterprises who are appointed by legitimate shareholders. By simply understanding that government has no business running businesses, the easiest and surest way to sever patronage links is to sell the state’s share in all business enterprises. Any arguments about government’s ‘strategic interests’ or ‘protecting consumers’ should be dismissed as nothing but self-serving cant to oil the wheels of the party’s patronage system. The business of government – is government. By wrenching away its hold over the private sector, the government can refocus its attention and limited resources on it primary tasks: to develop the legal, institutional and policy frameworks needed to ensure fair and efficient markets and the effective delivery of public services.
As these processes unfold, a market economy will gradually emerge from the old interventionist and state-administered economy that entrenched the ruling party’s patronage system. But we cannot rebuild a sustainable economy unless we formulate policies based on sound economic principles to create incentives that drive economic growth. Had the Finance Minister understood the meaning of economic competitiveness, he would have known that his protectionist, import-substitution strategy will not work.
Opening the Door
We must concede, however, that he does seem to understand – unlike his cabinet colleague, the Minister of Indigenisation – that foreign investment not only helps narrow the trade deficit, but will give the economy a much needed injection of capital. His “ease of doing business reforms” would even be useful, but only once his party’s perverse indigenisation laws are scrapped. What could be more absurd than asking a company to invest in a high-cost production country like Zimbabwe, and then told to hand over the controlling interest to incompetent and corrupt party-appointed cronies? Since asking our dogmatic old leader or his dumbfounding niece to repeal this law is an exercise in futility, we need a strong, sensible, and inspirational leadership to do so.
A competitive economy is driven by the winds of an open market economy, with only a light touch on the tiller to guide us to prosperity. China’s economic revolution began with the slogan Gai Ge Kai Feng, which means “Change the System, Open the Door”. Like China, we should not only welcome the much-needed infusion of fresh capital investment, but the technology, innovations and skills that come with it. When these factors are combined with a more efficient government bureaucracy and a new class of truly independent, risk-taking and innovative entrepreneurs, Zimbabwe will be on a trajectory of self-sustaining productivity, economic growth and competitiveness. Further impetus to the economy will be given by immigration and labour policy reforms.
Brain Gain and Job Creation
It is not only Zimbabweans from the Diaspora, whose expertise, skills and experience we should welcome and embrace with open arms. Our ‘brain gain’ policy should welcome every good person, irrespective of their colour or creed, who brings their investment and skills to create employment, produce marketable goods and services, and enrich our society. The key criteria are that they obey the law and that they pay their taxes. But, how can their investments create as many desperately needed jobs as possible, while still offering workers reasonable protection from exploitative practices?
Here we come to the crux of an economic understanding of the benefits of trade through competitive markets. It is that jobs are created by a derived demand for goods and services. In other words, only when companies are efficient and produce goods that consumers demand, can they grow and create new jobs. Put more simply, economic growth and job creation depend on the demand for locally produced goods. Now, the whole point of trade is to infinitely expand the demand for our goods – from a few million on our domestic market to billions of consumers around the globe on the international market. If we can successfully market Zimbabwe goods on international markets, economic growth will spark a massive and growing demand for labour. That’s how jobs are created!
But there’s a catch. We need policies that create incentives for our private sector to produce goods that can compete in terms of price and quality with every other country. Governments are notoriously inefficient at second-guessing and directing where investors should allocate their capital. We therefore require policies, especially secure and transferable property rights, which stimulate well-functioning markets that allocate investment capital most efficiently. It is not governments, but investors who risk their capital that have the greatest incentives to probe market opportunities to earn the best returns on their investment. Invariably, they will put their money into ventures where a country has a strongest comparative advantage to produce goods and services at globally competitive prices. The blossoming of Zimbabwe’s floriculture industry in the 1980s and early 1990s is a prime example.
In particular, we must avoid the Finance Minister’s idea of ‘empowering’ loss-making industries where we have no comparative advantage or export potential. He readily admits that “state enterprises have long ceased to yield value for the State and the economy” but continues to ‘protect’ our hopelessly inefficient vehicle assembly plants by imposing import duties and forcing the government to buy their overpriced and obsolete models. Not even Australia can compete on global vehicle markets, and has shut down its assembly plants. Instead of government becoming dependent on ever-dwindling import duties for revenues, the tax base in a competitive economy is expanded by rapidly growing employee and corporate earnings.
At first, our political and economic reforms will attract foreign investment to help reduce the trade deficit. But later, as we build the productive base of a more competitive economy, it will be the expansion of our exports that turn our trade deficit into a surplus. With a healthy trade surplus there will be no need to impose burdensome duties and restrict or ban imports. Zimbabweans will be able to trade freely, thereby benefiting importers (including informal cross-border traders) and exporters alike. The biggest beneficiaries, however, will be the Zimbabwean consumer. Not only will they be saved the expense of paying import duties, but they will make huge saving by being able to buy quality goods at competitive prices. As the prices of goods come down, they can channel their savings into providing for their families with better food and shelter, and better health and education.
Expanding the Tax Base
The ruling party’s ruinous policies and patronage has seen one company after another going bust and thousands of Zimbabweans losing their jobs. Without corporate profits or individual earnings to tax, our tax base has shrunk to the point where the government cannot even pay civil servants. Although Zimbabweans are one of the most heavily taxed nations in the world, our government continues to extort import taxes, tollgate fees, and excise duties out of us. It even targets the poor, pious and vulnerable, including vendors and churches.
But once we have rebuilt a competitive market economy with thriving businesses, rising exports, and many more formal jobs, it is possible to expand and spread the tax base while actually reducing individual and corporate tax burdens. With so many more employed Zimbabweans earning higher incomes, and with the increased flow of goods and services, it becomes possible to reduce corporate taxes to encourage further rounds of investment, to introduce low and simple flat taxes on individuals, and expand VAT on goods and services to spread the burden of tax. These tax reforms will save millions of dollars that our government wastes and losses through border controls, corruption, and ‘leakages’. Millions more can be saved through more efficient tax collection methods and procedures.
The Audacity of Winners
But competitiveness is more than good economic theory and policies. It demands a new mind-set: an audacity to be winners. This requires shaking off the ruling party’s debilitating narrative of victimhood and entitlement. We must stop pleading poverty and acting like helpless victims of colonialism who, wallowing in self-pity and unable to help ourselves, are forever dependent on donor aid. We must dispel the notion that wealth can be created by simply taking what belongs to others. And we must shun self-defeating policies based on patronage, import substitution, and protectionism. It is time to stand tall, take responsibility, and become masters of our own destiny. Only by believing and having confidence in ourselves, can we boldly grasp the nettle of opportunity to build a competitive economy – and win. Therein lies our salvation.
Dale Doré is a member of Transform Zimbabwe’s Presidential Advisory Team