• Fri. Apr 19th, 2024

OPINION: Looking Back and thinking about 2024

ByETimes

Jan 6, 2024

By Eddie Cross

2023 has just vanished. However, we can look back with considerable satisfaction. Nothing dramatic, just that we have been at peace, there has been no violence to speak of and after the good 2022/23 season we have had sufficient food to feed ourselves. You cannot say that for many parts of Africa and we must not take this for granted.

The most outstanding part of the year was the national election in mid-year. I have participated in every election in this country since 1960 and I cannot remember an election that was so peaceful and executed in such a quiet and efficient manner. It was almost a non-event. The opposition did very well but has subsequently fallen apart and will not constitute a decent opposition force for the rest of their 5 year term. The main party, Zanu PF was returned with a clear majority and our Presidency remained unchanged. Like many other countries in Africa, we are ruled by a system where there is only one centre of power and decision making, is not perfect but it gives us direction and stability.

Our situation is a bit like that of the Biden Administration in the USA, 3 per cent inflation and almost zero unemployment with significant growth, but nobody recognises it!! Our economy has started to grow rapidly driven by economic recovery post Covid, better agricultural output, a building boom fuelled by the Diaspora and considerable investment in the mining sector. Stronger gold prices have also helped. The consequences are visible everywhere, traffic has increased substantially, border activity has grown exponentially, all our infrastructure of water supplies, power generation, rail and road systems are under pressure.

When our economy was in steep decline from 2000 to 2008, we did not have such pressures, we were able to meet demand at a very low level. Now we have to contend with a growing economy and are under pressure in every field. It’s a different but very real challenge. Between 2009 and 2013 we had the GNU and while this gave us some stability with low inflation, the fact that we were totally dollarized meant that we became a supermarket for the rest of Africa and our domestic economy did not grow. We did not create jobs and our informal economy thrived. One aspect of that period which I have yet to see explained, is where did all the USD come from?

Poor management of our monetary system has meant that after we reintroduced a local electronic currency – the “RTGS dollar”, we have seen it slide into oblivion. Today its trading at nearly 11 000 to 1, and what paper currency that is in circulation is virtually worthless. We are again virtually dollarized and in fact our economy is swimming in USD, there is no shortage of US dollars and the informal economy (probably half our total economy) is 100 per cent in USD while our formal sector is 85/15 per cent in USD and RTGS. This crept up on us in 2023 and at the yearend our formal sector is in trouble, unable to compete with the regional States and the informal sector. Faced with imports that are being smuggled in and are lower priced than domestic products, I fear that 2024 will see casualties unless we change course.

In the short period when we had a functional local currency, we were creating jobs on a large scale in both manufacturing and agriculture. That has stopped and we are more dependent on the informal economy than ever. I have argued time and time again for us to dedollarise – bring in our own currency, print a decent series of notes $1,00 to $500.00 in quantities that will give us the currency for local trades (about 15 per cent of money supply). Then liberalise – no price controls, no exchange controls, free up the Gold market and allow the local currency to find its own level against foreign currencies in the domestic banking system.

Contrary to what almost everyone says in response, if we did that our own currency would be too strong – I would not be at all surprised if its real market value was greater than the US dollar. People forget that when we had a Rhodesian Pound during the Sterling era, our pound was worth 2,5 British Pounds, then the strongest currency in the world. In 1980 when we came to Independence, despite sanctions and the liberation war, our currency was still worth 2 US dollars. We took it for granted.

At that time, arguments arose that we needed to weaken our currency to protect our local industry and commerce and to spur export-led growth. Since that time, we have seen all our neighbours go that route, we have witnessed Japan, China and the Asian Tiger States all follow this prescription. The result has been universal – low inflation, steady growth, massive expansion in international trade which has been growing at 5 times average GDP growth. Even the much despised Meticais’ and Kwacha are stable and the sole means of exchange in their countries of origin.

This is the ONLY way forward. If we took this route we would have to buy surplus foreign currency off our market and bank it as national reserves, something we have never done or been able to do. If we fully liberalised and brought in a local currency as the sole means of domestic exchange, we would find that our informal sector would join the real economy, smuggling would decline, our Diaspora receipts would be properly measured at what they really are at about US$5 billion a year and our gold sales would be formalised in open markets and proceeds at another US$5 billion a year.

Put those numbers into the budget just adopted by our Parliament and you would get some idea of what it would mean.

What about 2024? It is clear that heavy weather is ahead for much of the global economy, demand is sluggish. The shift to what many are calling the “new economy” of electric cars and the decline of many traditional industries will make it difficult to maintain strong growth. Our position, still in isolation from world financial markets, still under harsh US sanctions and unable to participate in the multilateral agencies in which we have shares, and we will have a difficult task to meet the demands of expanding and upgrading our infrastructure which is a precursor to growth.

But what we have shown the world in the past, is that we can overcome these challenges and turn problems into opportunity. We have peace, we have political stability, we can feed ourselves and meet most consumer demands. In the past three years our private sector has started to take up the challenges of infrastructure provision. We have shown it can be done. The Government has challenged us to take the lead in development and growth and we are doing so.

A factor that gives me much encouragement is that our Diaspora is coming home and they are bringing with them new expertise and skills as well as energy and resources. We are on our own, let’s remain confident that we can make the future work for us in every way – Harare

Eddie Cross is an economist and former Bulawayo South legislator. He writes here in his personal capacity.

By ETimes

Leave a Reply

Your email address will not be published. Required fields are marked *