THINK ON IT by CHRIS CHENGA
Nobody doubts that an opposition knows what is wrong with an economy. That is the vulnerable nature of economics perceived at layman. As an economy struggles, there are those who are materially disadvantaged by unfolding events. Unfortunately, most affected citizens are not trained or versed to precisely express circumstances that led to their reality. That is why the economics of opposition sound so convincing; they tend to posture as representation for those that cannot articulate for themselves but truly feel the pinch of hard times. Hence, when Boris Johnson and fellow protagonists gestured the material disparities that EU membership supposedly implicated on British nationals, a majority of voters were convinced. As far as many nationals saw it, pay slips and work benefits were not sustaining as much of a livelihood as they once did. But, those were the lucky ones with jobs. The ones who couldn’t find jobs heard of employed foreigners; some who they could see for themselves living better off. Thus, suggestions of the “Vote Leave” campaign – which strategically narrowed its rhetoric to that which as wrong with the economy – seemed to resonate from a layman’s material perspective. It is only now becoming apparent just how limited the economics of opposition is. If ever in charge of actual implementation and when pragmatic resolutions become necessary, most opposition often struggles to deliver. As the difficulties of executing, and more importantly, the risks of an actual Brexit going ahead become much more evident, many senior protagonists of Brexit have resigned claiming their EU pensions, with others claiming EU citizenship before Brexit is complete. The disadvantaged who hoped for resolutions find themselves insufficiently represented and least protected.
Of course Tendai Biti knew bond notes were not going to work. He was the one to know more than the rest of all other observers. As he left the Ministry of Finance, Biti was in position to already see an impending scenario, though he failed to implement resolutions well before the necessity of bond notes. During his tenure, foreign currency outflows massively outweighed inflows, in a single year reaching at a high of $4 billion, almost a quarter of the size of the economy’s output. Zimbabwe was at a peak deficit of net trade in goods and services, net earnings on cross-border investments, and its net transfer payments. All three categories can be referred to the fiscal management of a country. Perhaps this is why opposition never cared to elaborate much on the necessity of introducing bond notes; not as enthusiastically as they were opposed to them.
The surrogate currency was an instrument to ease what had occurred, and was at its worst, during a GNU that had significant opposition representation. Functioning as a currency board, the level of success of bond notes was largely going to be determined by how effectively the instrument would ease a foreign currency shortage trend inherent from an opposition involved era. But, Biti knew there was no industrial foundation to bet on.
After dollarization, Zimbabwe’s Current Account deficit was at its worst from 2010 to 2014
A strong cause of the trade deficit was a lack of industrially potent fiscal policy. While the economy may have benefited from an initial inflow of USD into the economy, little of it was fiscally managed towards going to sustainable industrial investment and future capital formation for locals. By the time of introduction of bond notes, most shelve stock in retail, luxury, and capital segments were foreign goods. Local industry was far from competitive. This occurred because Biti’s main flaw as Finance Minister was that he kept a liberal current account, but failed to do the same with the capital account, which is where the real long term productivity investment goes. A simple example would be that the consideration of friendlier tax regimes to attract importation of capital equipment for industry occurred well after Biti had left. Similarly to interventions such as SI64 which boosted industrial capacity utilization by near 10%.
Biti functioned more as a bookkeeper than a fiscal manager. Only because he is loud in cheering for his bookkeeping exploits many a layman overlook his misgivings as a fiscal manager. Hence, matters such as local financial fragilities went, and still remain, unnoticed in popular discourse. Consider the trend of rights issues in capital markets that overly leveraged local investors. A false perception of market confidence under the GNU was rather, a debt accruing regime for local investors that couldn’t sustain parity with foreign investment backed by hard USD. The disenfranchisement seen in last year’s rights issue by Econet, for instance, reflects how disparate capital formation had become between local investors and foreigners by the time Biti left office. Biti’s fiscal regimes created no tangible capital formation for local incomes and savings, which is the fundamental scorecard for a fiscal manager. How well a Finance Minister does is not reflected in merely looking at balancing governmental books. That is such a laymen perspective. A great Finance Minister creates long term capital formation and appreciation of citizens’ incomes and savings. The same critique that the recent surge in Treasury Bills has not yielded a tangible boost in welfare, also applies to a Finance Minister who should utilize a nation’s incomes and savings to boost welfare. There is an irony in the phrase “we eat what we kill”, because today, the Zimbabwe economy is starved because it failed to grow its incomes and savings. A nation should not live by its means; the government should expand the nation’s means. Biti was impassioned with bookkeeping, not fiscal management. He still seems not to get it.
Observers often forget that by the time bond notes were introduced, industry groups such as CZI and ZNCC were already calling for an internal devaluation. In this context, if opposition were really truly concerned with citizens’ welfare, and it knew what Biti knew of the industrial outlook when he left office, perhaps it would appreciate government insisting on keeping the value of citizens’ incomes and savings through bond notes, instead of prematurely conceding to a devaluation which was the only other alternative at the time. Indeed it seems that the opposition’s critique is political cynicism inconsiderate of people’s welfare.
Much more can be spoken about the former Finance Minister’s failure to create productive credit in the economy. Interventions by his predecessor, Patrick Chinamasa, in correspondence with John Mangudya, such as such as capping interest rates, warehousing non-performing loans, targeted fiscal stimulus to sectors such as mining and agriculture, should have been the work sheet of Tendai Biti. He had more resources back then than the latter did in recent years. Today, achievements such as record gold output may have been his. But he was bookkeeping. There is arguably more confidence now in foreign inflows going into the financial sector of the economy than when Biti was in office. Balance sheets are stronger and positioned for growth.
By 2014, Zw’s banking sector was proving that returns on USD inflows were confined by a poor fiscal environment. Source, Monetary Policy Statement 2015
There was a considerable increase in non-performing loans in the banking sector from Biti’s time, ending at a peak of 20 percent of the sector’s entire loan book just after he left. This trend is important, and should be at the forefront of public discourse because it is one the greatest determinant of financial inflows into an economy by investors. A financial sector attracts no long term capital investment when it has growing non-performing loans; that is because to investors the fiscal regime is creating no productive credit and evidently no profitable lending channels for the financial sector. Lending channels are a result of an enabling and competitive fiscal environment – non-performing loans double the global average are another stand out scorecard for Biti as a Finance Minister. He was book keeping.
Of course Biti is not culpable alone for the issues raised in his criticism. It would be convenient for his critics to posture so, but, the economy does not need political posturing anymore. Such back and forth of political posturing is leading the nation astray from real resolutions.
Wary citizens have to be economic with their ears and only pay attention to problem solvers. It’d be unfortunate on the nation to ignore the last, maybe 10 years, in trying to understand what is going on in the economy at the moment. It needs precise study. A lot of political, social, industrial, educational, and global factors influenced our current circumstances and these need to be understood. The nation needs facts and data first, and not the political banter of old. Opposition such as Tendai Biti needs to mature. Otherwise, like the UK with Brexit, finding resolutions will remain an ache with no clear certainty for those most disadvantaged by the challenges Zimbabwe faces today.
