Dr Mahoso
Happiness Zengeni My Two Cents
(Conclusion)
Continuing off with my argument in defence of analysis and comments that have been moved both on this paper and on FinX as referenced to by Dr Tafataona Mahoso on successive times in his Sunday Mail column African Focus, it is important to continue giving a background of the situation our economy is in.
Our manufacturing sector is in dire straits operating medieval technologies and introducing a national currency will not change their circumstances.
For instance Olivine Industries requires in excess of US$20million, but one can invest just US$4million and build a newer business with better technologies, more production capacity, requiring less labour and cost efficiency.
Dr Mahoso, before the country introduces a national currency; firstly the country’s FDI inflows and ultimately exports should first get to a level where the country’s balance of payments is in surplus and there is a decent import cover.
Secondly our manufacturing will have to become competitive by investing in new technologies that are cost efficient.
Otherwise without achieving these two pre-conditions there is the danger of repeating the errors of yesterday.
After achieving the above targets and when the time comes to introduce the new national currency it should be introduced pegged against a major currency and under a dual currency system which might include the US dollar with prices of goods and services marked in US dollars and the new national currency.
Introducing a Currency Board once the new currency is accepted would be the most ideal second step.
A Currency Board with a linked exchange rate system will then be the best option to follow; essentially holding the required percentage of US dollars in reserve relative to the local currency. Having a Currency Board pegged to maybe the US dollar will stabilise the local currency, foster investment, improve the competitiveness of the country’s exports, and sustain industrial and economic growth.
Obviously there are pros and cons to a Currency Board like any other, but it is worth analysing if it suits our circumstance. Argentina implemented it after suffering hyperinflation from the 70s to the early 90s.
The Currency Board in Argentina brought down inflation from 3000 percent to about 3,4 percent within five years, improved exports and the country enjoyed a five year period of economic growth averaging 8 percent. Although there was an increase in unemployment, this was mainly caused by Argentina’s manufacturing sector adapting new technologies that were efficient and required less labour.
Let us also look at Estonia as another example; a country with a shrinking current account deficit, balanced budget, almost non-existent public debt and an average GDP growth rate of 8 percent. To think that in 1987 the GDP per capita was around US$2 000 (PPP) and the country had structural weaknesses and suffered a liquidity crisis (sounds familiar); today that GDP per capita figure has grown to US$21 000 (PPP).
The country is termed as one of the Baltic Tigers because of its economic performance, and the World Bank rates it as a high income country.
In the World Bank’s Ease of Doing Business the country is ranked at number 21. Key to Estonia’s rise into an economic success story was the following: adaptation of a flat tax system in 1994, a Currency Board introduced in 1992 pegged against the German Mark and later the Euro, privatisation of state owned enterprises (with the exception of ports and power plants), and a free trade regime.
To imagine that this is a country that has a mining sector that only contributes 1 percent to GDP. Although the growth rate declined in 2008 due to the global economic crisis, however this Baltic state together with the other Baltic Tigers experienced the fastest recovery in the EU. Maybe Dr Mahoso could wade in and give us insights into such marvel economic achievements.
The Government is correct in targeting agriculture and mining as top priority sectors. These are the sectors that can spearhead an economic recovery.
However in mining there is need to relook at diamond mining and how the ZMDC has come to partner with inexperienced JV partners who firstly are yet to inject meaningful investment into Chiadzwa, and secondly there is no proper exploration going on; save for “mechanised panning” as that ex-RBZ governor correctly described it at one point.
In agriculture, Government should promote more food crop production as the major shift towards tobacco farming is a bubble that will explode in the future, if one was to consider the current onslaught against tobacco by WHO under its Framework Convention on Tobacco Control and a gradual shift towards electronic cigarettes in Europe.
BAT Plc last year acquired an electronic cigarette maker for US$200million, showing a major shift in “big tobacco”.
Mitigating for the likelihood of such a potential future bubble will help us more economically as a country in the future.
So maybe in conclusion to Dr Mahoso’s line of thinking I will provide my own two cents to the whole argument; rather than focus on what other countries are doing to Zimbabwe and playing victim all the time it is more critical than ever that Zimbabwe analyse itself looking at its own weaknesses and mistakes. Frankly speaking there is something or somewhere we are getting it wrong.