Do­mes­tic prod­uct com­pet­i­tive­ness, eco­nomic growth key to vi­sion 2030

Sunday News (Zimbabwe) - - Front Page -

THIS in­stal­ment is a con­tin­u­a­tion of last Sun­day’s ar­ti­cle that was ti­tled, “Ris­ing from the quag­mire of devel­op­ment trap key to vi­sion 2030”. The ar­gu­ment is that there is a lot that Zim­babwe needs to ex­pe­ri­ence or achieve eco­nomic wise be­fore ris­ing to mid­dle in­come sta­tus.

So much struc­tural eco­nomic re­form and trans­for­ma­tion needs to take place to­wards achiev­ing mid­dle-in­come sta­tus. In last Sun­day’s ar­ti­cle, I raised the struc­tural eco­nomic prob­lem of the ‘‘twin deficit’’ of fis­cal and cur­rent ac­count. The un­sus­tain­able trade im­bal­ance or cur­rent ac­count deficit is a re­sult of im­ports that are run­ning above ex­ports, caus­ing a per­sis­tent cur­rent ac­count deficit, which has been a bur­den to eco­nomic growth for a very long time now.

The cor­rec­tion of this trend will re­quire mas­sive fo­cus and at­ten­tion to do­mes­tic pro­duc­tion not only in terms of ca­pac­ity util­i­sa­tion to meet do­mes­tic de­mand but also in terms of do­mes­tic prod­uct com­pet­i­tive­ness to meet ex­port qual­ity and com­pet­i­tive­ness.

In or­der to fa­cil­i­tate do­mes­tic prod­uct com­pet­i­tive­ness there were sug­ges­tions in 2016 for ex­am­ple, that Gov­ern­ment and the busi­ness com­mu­nity come up with bold once-off mech­a­nisms to re­duce pro­duc­tion costs as mea­sures to stim­u­late eco­nomic growth and en­hance do­mes­tic prod­uct com­pet­i­tive­ness. Such sug­ges­tions came from the Con­fed­er­a­tion of the Zim­babwe In­dus­tries (CZI).

The CZI lamented the sup­pres­sion of the eco­nomic growth due to high costs of pro­duc­tion and chal­lenges in ac­cess­ing long term fi­nanc­ing for re­cap­i­tal­i­sa­tion and re-tool­ing of the in­dus­try. The CZI pro­posed the di­rec­tion of in­ter­nal de­val­u­a­tion, which in its opin­ion was a wor­thy bit­ter pill to swal­low.

The strat­egy of in­ter­nal de­val­u­a­tion is an eco­nomic and so­cial pol­icy mea­sure whose main aim is to re­store the in­ter­na­tional com­pet­i­tive­ness of a coun­try that has lost that in­ter­na­tional com­pet­i­tive­ness, mainly by re­duc­ing the cost of labour, di­rectly or in­di­rectly. I re­mem­ber ar­gu­ing in one of my ar­ti­cles in 2016 that in­ter­nal de­val­u­a­tion would not work in the Zim­bab­wean sit­u­a­tion, for sev­eral rea­sons.

Zim­babwe’s eco­nomic sit­u­a­tion, in­stead de­manded the op­po­site, that is in­ter­nal val­u­a­tion and re­bas­ing that would have been sup­ported by huge cap­i­tal in­jec­tion ei­ther in the form of FDI or in­creased vol­umes of ex­port rev­enue earn­ings from the min­ing and agri­cul­tural sec­tors of the econ­omy.

While it may be true that cost of pro­duc­tion is a chal­lenge in the Zim­bab­wean econ­omy, the fun­da­men­tals on the ground do not favour the di­rec­tion of the so­lu­tion of an in­ter­nal de­val­u­a­tion. In­ter­nal de­val­u­a­tion could have caused se­ri­ous de­fla­tion in the econ­omy. In ad­di­tion to cut­ting costs of pro­duc­tion, in­ter­nal de­val­u­a­tion can be ap­plied as a rem­edy for a coun­try in fi­nan­cial trou­ble, that is, in liq­uid­ity cri­sis, such as Zim­babwe.

How­ever, the chal­lenge with the Zim­bab­wean sit­u­a­tion is pro­duc­tive ca­pac­ity or in­dus­trial ca­pac­ity util­i­sa­tion that does not meet the do­mes­tic pro­duc­tion de­mand, not be­cause of high costs of pro­duc­tion, but be­cause of low eco­nomic ac­tiv­ity (dein­dus­tri­al­i­sa­tion) and per­sis­tent eco­nomic fun­da­men­tals that are not con­ducive for mean­ing­ful eco­nomic growth.

Zim­babwe re­quires eco­nomic stim­u­la­tion that will en­sure full do­mes­tic pro­duc­tiv­ity and full em­ploy­ment. The coun­try used to ful­fil do­mes­tic de­mand for beef for ex­am­ple and at the same time able to meet its ex­port quota of the beef to the Euro­pean Union and earned for­eign cur­rency. I re­mem­ber Zim­babwe used to man­u­fac­ture build­ing ma­te­ri­als such as door frames and ex­port them to Botswana and other neigh­bour­ing coun­tries.

These are just a few ex­am­ples that quickly come into my mind. In other words my ar­gu­ment is that the coun­try’s pri­mary and sec­ondary in­dus­tries were for­eign cur­rency gen­er­a­tors through ex­port earn­ings of high qual­ity do­mes­tic prod­ucts that were highly com­pet­i­tive in the in­ter­na­tional mar­ket.

Al­most 100 per­cent of do­mes­tic de­mand for goods and ser­vices used to be met by lo­cal pro­duc­tion and ex­cess be­ing ex­ported to earn the coun­try for­eign cur­rency that backed the coun­try’s sov­er­eign cur­rency the Zim­babwe dol­lar. Why am I rais­ing all these things?

I am rais­ing them be­cause I want us to un­der­stand that twelve years that we have set for the coun­try to trans­form into a mid­dlein­come econ­omy could be short to achieve that level of devel­op­ment given the cur­rent state of the econ­omy, un­less we move with speed and im­ple­ment key re­forms. Mid­dlein­come economies are self-sus­tain­ing in terms of pro­duc­tion and em­ploy­ment.

There are plans to set the coun­try among the fast grow­ing economies in the con­ti­nent within the next two years. At the cen­tre of all these tar­gets, lies sus­tained do­mes­tic prod­uct com­pet­i­tive­ness and eco­nomic growth.

As I have in­di­cated al­ready, the Euro­pean Union used to be quite happy with the qual­ity of our beef for ex­am­ple. Many of the coun­try’s man­u­fac­tured prod­ucts used to be com­pet­i­tive in terms of qual­ity and prices.

Yes, agri­cul­ture re­mained the back bone and the pri­mary for­eign cur­rency earner, but the man­u­fac­tur­ing in­dus­try and sec­tor of the econ­omy com­ple­mented the pri­mary in­dus­tries quite well and sig­nif­i­cantly, es­pe­cially in en­sur­ing that do­mes­tic de­mand for ba­sic com­modi­ties was fully met.

For the coun­try to at­tain mid­dle-in­come sta­tus it would need to func­tion like a nor­mal econ­omy once again and then move for­ward and sur­pass its trad­ing part­ners in terms of devel­op­ment and growth to at­tain the sta­tus of mid­dle in­come.

There is need to im­ple­ment struc­tural eco­nomic re­forms such as req­ui­site changes to eco­nomic and in­vest­ment poli­cies to stim­u­late growth. The coun­try can­not ig­nore cur­rency re­forms in this ma­trix. In my opin­ion, I doubt how fea­si­ble the mid­dle-in­come sta­tus can be achieved with­out re­vert­ing to a sov­er­eign cur­rency at some point in time dur­ing the plan­ning and im­ple­men­ta­tion of the tran­si­tion from the cur­rent eco­nomic poor and lower in­come sta­tus to mid­dle-in­come sta­tus.

The cur­rent cur­rency re­form con­fig­u­ra­tion or mix is caus­ing pric­ing dis­tor­tions that is af­fect­ing the cost­ing for pro­duc­tion as well. It is my strong con­vic­tion that with­out pol­icy re­forms, es­pe­cially in­vest­ment and eco­nomic pol­icy re­forms that will at­tract FDI chan­nelled to­wards a sus­tained pri­vate sec­tor driven eco­nomic devel­op­ment and do­mes­tic prod­uct com­pet­i­tive­ness as well, achiev­ing mid­dle-in­come sta­tus is dif­fi­cult.

In con­clu­sion, there are more struc­tural eco­nomic prob­lems be­dev­illing the econ­omy, that need to be tack­led with pru­dence and the po­lit­i­cal will they de­serve so that do­mes­tic prod­uct com­pet­i­tive­ness can be ef­fec­tively lever­aged to trans­form the econ­omy into mid­dle-in­come sta­tus by 2030.

Dr Bon­gani Ng­wenya is cur­rently based at UKZN as a Post­doc­toral Re­search Fel­low and can be con­tacted at nbon­[email protected] gmail.com

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