A Trajectory to Zimbabwe’s economic prosperity: Scenarios and Trade-offs

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By George Mapope.

ZIMBABWE has been caught up in a transitional phase since the advent of the new political dispensation. Zimbabweans across the political and social divide have been expressing their feelings and views on various issues surrounding Harare’s new administration. Some have labelled it a ‘new error’ while some maintain that its indeed a ‘new era’ and some still call it a ‘new old dispensation’ due to the cabinet composition. These issues are not for discussion in this brief; probably in subsequent ones. In this week’s brief, I present an ideal trajectory to a prosperous Zimbabwe, together with the probable scenarios and trade-offs which the new administration will most likely face.

The path to development is not an easy one and requires a strong state; functional institutions and the rule of law. Not only that, development is in part a science and for the greater part an art; which is the political acumen to gain domestic and international support for state programmes for prolonged periods of time! Development is about achieving a complete structural transformation from a dominantly primary economy to a secondary, tertiary and ultimately, a quaternary economy. Complete structural transformation can be verified through four processes that define structural transformation which are; a decline in the share of agriculture in the Gross Domestic Product (GDP) and employment, an increase in urbanization, a rise in the modern industrial and service sector and a demographic transition from high birth and death rates to low ones.

The development of the United States of America and the majority of the European Union was more straightforward: as agricultural productivity and output increased, people moved from the farming communities into cities and towns for manufacturing jobs. Africa however, has a very unusual urbanization process in which increased urbanization is due to people running away from the irksomeness of farm work and looking for better services in town. Thus, African urbanization is NOT accompanied by a rise in farm productivity and the creation of manufacturing jobs in cities and towns but people are absorbed into the informal sector. As a result, virtually all African economies have a dual economy with a large informal sector. There are structural limitations which prohibit people from moving between one stratum of the dual economy into the other which only consistent government policy can break. With that complication, African governments need to meticulously plan the way out of poverty and history and experiences can be harnessed from the developed world and those in the process of industrializing.

Zimbabwe has to pursue one of the 4 pathways of ensuring economic growth. These are:

  • Import substitution industrialization using protective tariffs
  • Export-oriented industrialization using targeted firm-level subsidies
  • Open-economy industrialization inviting foreign direct investment in domestic industry
  • Expand domestic market through land and agrarian reforms and agriculture-led rural industrialization

The first pathway is not a good option politically; especially if implemented as a standalone strategy. Import substitution requires strong political buy-in from the electorate and citizens have to bear with a high cost of domestic goods as the government addresses fundamentals to reduce the cost of domestic production. Zimbabwe’s SI 64 received strong backlash as individuals and businesses needed to import whatever they needed. Moreover, the majority of rural dwellers in farming communities without skills to get employment in urban industrial jobs will remain trapped in structural poverty. Thus, the government of the day will fail if it embraces this idea.

The second option is not good either; from an economic perspective. Export-led industrialization is too fragile and a shift in the domestic and foreign policies of our markets can render most of our products obsolete; especially if we do not consume much of them locally. Imagine, Zimbabwe producing billions of cigarettes for China, only to wake up one day to find out that China has banned tobacco imports! Export-led industrialization therefore, leads to a situation where Zimbabwe will produce what it doesn’t consume and consume what it doesn’t produce. It happening even now, though at a lesser scale…our platinum, gold and diamonds are barely consumed locally because there is no large domestic market for them in raw form or their derivatives. Brazil has adopted this strategy and have exported chickens, tractors and other manufactures as far as all of Africa, Asia, America and Europe. Nevertheless, Brazil is still home to a large number of poor smallholder farmers; away from the booming industries in Brasilia and Rio de Janeiro.

The third option is not a good one still. Foreign direct investment is good; especially for distressed economies like Zimbabwe. Nevertheless, its applicability as a long-term strategy leaves the country vulnerable to unfair international scrutiny. Mnangagwa has been working around the clock to justify Zimbabwe’s progress towards improving the ease of doing business and consolidating the rule of law. This is because those who have the money usually determine the sectors to be invested in. After all its their money anyway. As a result, critical sections of the economy remain underinvested and the duality will most certainly be maintained. South Africa has more or less this structure; but remains trapped in a middle-income trap with slow economic growth and rising unemployment. The fourth option therefore, seems to be the panacea.

Zimbabwe’s high poverty incidence, high unemployment coupled to low agricultural productivity requires the country to expand the domestic market through land and agrarian reforms and agriculture-led rural industrialization. This option ensures that the rural majority is not left behind but in-fact, lead the structural transformation process by initiating an agricultural transformation; where productivity and incomes rise to create a large rural middle class.  The effects of an agricultural transformation facilitate a broader rural transformation leading to uniformity of incomes in the farm and non-farm sectors. The integration of the rural economy will be a precursor for an economy wide structural transformation in which the whole economy and factor markets integrate.

Key to the achievement of such a transformation are agrarian reforms which foster agricultural development. Zimbabwe had better per capita income than China in 1979 but a decade of concerted agricultural development saw a phenomenal rise in incomes with almost 500 million Chinese people lifted out of poverty by 1990. Between 1980-2001 in China, a $1 of value added growth in agriculture induced $1 of growth in non-agriculture sectors, while $1 of growth in non-agriculture only induced $0.18 in agriculture. Thus, agricultural investment had very high returns to investment in terms of social accounting; than investment in any other sector.

To complement the investment in agriculture, the government of the day also need to provide guarantees for rural employment to ensure that as much value addition as possible occurs close to the farms. Failure to add value to the increased output from agriculture will undo the gains of agricultural productivity; primarily because farmers will be de-incentivized to continue producing products that do not have a market. If Zimbabwe accumulates a lot of agricultural output but fails to add value to its agricultural products like maize, it will still import maize or its derivatives in various forms including breakfast cereals and pet food. Nevertheless, rural transformation needs articulate complementary services which include research and innovation, extension, credit, market linkages and good physical infrastructure. Therefore, the whole transformation process is a delicate process which has its own ambiguities and trade-offs. The government of the day therefore, needs to quickly address the fundamentals that enhance agricultural transformation, a prerequisite for structural transformation in our circumstances.

George Mapope, an independent development economist based in Harare and can be reached on +263 773 127 525 or mapopeg@gmail.com .Copyright ©www.thesolutionstower.com , 2018 All Rights Reserved. The  Solutions Tower Article may not be published or reproduced in any form without prior written permission

 

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