Batanai Matsika
It is almost a year now since I published an article in Business Times titled “Reasons why Mthuli Ncube will perform”. Here is the link to the full article; https://businesstimes.co.zw/reasons-why-mthuli-ncube-will-perform/
There have indeed been a lot of changes, shifts and tides in the Zimbabwean economic landscape since 16 November 2018 but one thing that is clear is that the economy has contracted, prices have sky-rocketed and the exchange rate has deteriorated.
Put plainly, the economy has under-performed and Zimbabweans are poorer.
In fact, according to the International Labour Organisation (ILO), poverty is now endemic in Zimbabwe, with 65% of adults earning US$100 or less per month!
While some may be quick to judge, let me remind readers that analysts and economists (like everyone else) also face obstacles like human fallibility and illogical exuberance. In other words, an analyst may be wrong in his estimate of the future.
In fact, there is a great possibility of outright errors.
While the four reasons I put out in the article were factual, I have come to an understanding that solving problems in Zimbabwe may not require knowledge of options or even the ability to “price them under stochastic volatility”.
A 13-year old economics student might even do a better job here. In other words, academic credentials do not always equate to the ability to deliver a good performance. That said, Professor Mthuli Ncube will be presenting the 2020 National Budget today.
Meanwhile, he has hinted that the era of “austerity” has ended and the focus going forward will be on growth through increased productivity. The minister has indicated that the 2020 budget will largely be based on growth, productivity and job creation.
Don’t just say it, Do it!
There is a popular English saying that goes like this; “it is easier said than done” It is used in instances when something seems like a good idea but would be difficult to do. The Zimbabwean economy is facing a slowdown (Morgan & Co Research GDP growth estimate of -10% for 2019) and the only way to reverse this is by increasing production output.
The point here is that you cannot make something from nothing. There is need for supplies, equipment, resources and some know-how in order to produce. How much you have of these things affects your production levels.
This is best captured by the Cobb-Douglas Function (a simple economics function that has nothing to do with Options or Derivatives). According to the Cobb–Douglas production function, output in an economy is a function of
- Technological progress,
- (ii) Capital deepening and
- (iii) Labour.
From the function, it can be deduced that technological advancement cannot happen without energy or power. The limited supply of electricity is crippling productivity across industries. In addition, the cost of capital in Zimbabwe has increased and that does not stimulate production.
In our view, these are the key factors that the minister should seek to address in the 2020 National Budget. The government should work hard “crowd in” the private sector with the aim to make sure that businesses access credit more easily across all sectors.
On another note, the minister should consider adjusting the two percent tax as this has become a huge burden and some form of double tax for formal businesses. In conclusion, we do not expect the minister to “pull-out a rabbit out the hat” in the 2020 Budget presentation. He would most probably ask citizens to “pray for the rains to come”.
A better agricultural season means less grain imports and more resources for national developmental projects. Improved rains will also mean more hydro power generation and less power cuts- something that is good for production and growth!
Batanai Matsika is the head of research – Morgan & Co. He can be contacted on +263 78 358 4745 or e-mail batanai@morganzim.com
