What will it take to get the Economy growing again?

It is clear now that the Zanu PF leadership is fully aware of the fact that the economy is contracting quite rapidly. The clearest indication of this statistically is the steady decline in VAT collections in the past three months and that fact this is decline is accelerating and has continued into 2014. There are other indictors - just the general situation in business and the traffic in the main centers. The Ministry of Finance also reports declining revenues in all sectors of the economy. 

Against the backdrop of a shrinking revenue base, the unsustainable demands of the Civil Service Unions and the growing pressure on the Party to deliver what was promised in the elections is creating a nightmare situation. At stand still wages and salaries in the Civil Service, 74 per cent of total State revenues are being absorbed in labour costs. The State through the IMF SMP is committed to reducing this level of expenditure on human resources and increasing allocations to other areas of priority that would make a greater contribution to National welfare and growth, infrastructure for example. The actual target is to get staff costs down to 30 per cent of total State expenditure. We are now headed firmly in the opposite direction. 

A consensus is developing in the Country that we must get the economy moving again. Our history as a State in this respect is very uneven. In 1980 to 1990 the economy grew steadily at about 5 per cent per annum, but on an unsustainable basis as we were spending more than we made and the budget deficit averaged about 9 per cent per annum. 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. Growth accelerated under ESAP, but still on an unsustainable basis and then crashed in the last three years with the collapse of the local currency and the start of hyper inflation. 

From 2000 to 2010, we saw the economy shrink 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. 

As we entered our fourth decade since Independence, we had hope that all this was about to change - a National Government was in place, we were starting to re-engage the international community and markets and exports and imports were surging forward. Prices had stabilized as about 4 per cent inflation per annum and State revenues were expanding rapidly (they doubled in 2010 and 2011). 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. 

Then the wheels came off - Zanu PF and the MDC were simply unable to put the national interest first and both sought parochial objectives. 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 PF 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. 

Since then we have been going backwards in all spheres - reform, human and political rights, the rule of law, investment and overall confidence. In South Africa the Rand has been in free fall again and yesterday went through the 11 to 1 barrier. On the back of this and $500 million imports from South Africa every month, inflation in Zimbabwe has declined until now we have an economy where overall, prices are declining - a disaster in an economy where costs are by and large fixed and rising. 

If we do not break out of the grip of this crisis then we are as Biti said last week, "sliding backwards towards 2008". Last time we were saved by external intervention in the form of the SA sponsored GPA process. This time I can see no possibility of external salvation as South Africa is already in the grip of another election that is going to be deeply divisive and damaging. 

So what will it take to get the economy growing again? It's not rocket science and if you trace the history of other countries which have found the right mix, the answers are all there. I suggest the following: 

- Respect for the rule of law and the enforcement of contracts associated with protection of all property rights; 

- Strict adherence to the rules of the game in macroeconomic terms - live within your means, balance the budget and observe strict monetary rules; 

- Provide a balanced and attractive fiscal environment for all enterprise and business and respect business fundamentals - no price controls, no exchange controls, security of tenure and access to human skills and capital; 

- Establish an environment for enterprise that respects initiative and opportunity and allows an enabling situation for enterprise with few barriers to growth; 

- Create the infrastructure required for growth; energy, transport, water and sanitation and a sound health and education system; and 

- Deal with our debt overhang in a responsible manner and establish sound working relations with all other countries and all multilateral institutions. 

At the December pre budget seminar at the Victoria Falls last year in December, the Minister of Finance spoke at length about the issue of growth and stated quite clearly that two issues needed attention - indigenisation and tenure. He was spot on but since then he also has paddled the canoe upstream in both respects. If we continue, as he stated in the budget statement to the House on the 19th of December, to insist on majority "indigenous" control of all enterprise and we continue to define "indigenous" as being a black Zimbabwean who was previously disadvantaged, then we are going nowhere but back into the wilderness. Local investors simply do not have the resources to invest, if they had we would not need Foreign Direct Investment (FDI) and no other country that has been able to grow rapidly in the past decade, has done so without FDI in large quantities. 

As for tenure, we have no choice but to fix the problems we created in agriculture when we nationalized, without compensation, the assets of some 7000 enterprises in the farm sector. We cannot move forward until this is done and we cannot grow our economy until our farmers have bankable security and guarantees that what has happened will never happen again. 

Eddie Cross is MDC MP for Bulawayo South. This article first appeared on his website www.eddiecross.africanherd.com  

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