Industrialists retain deficient expectations
THESE days, warm sentiments are often exchanged between industrialists and Finance Minister Patrick Chinamasa. As expressed by many executives at the National Budget Review towards the end of 2016, Minister Chinamasa scores high, at least in terms of effort and commitment to the kind of reforms which create a promotive business environment.
But what metrics do our executives look at? Further, what is their context of a promotive business environment?
We must appreciate that it has been a long time since Zimbabwe has been a competitive economy; both internally and externally.
So, for a market economy that often alludes to a belief in the market forces of demand and supply, shouldn’t a promotive business environment take the definition of an economy with fiercely competitive companies supplying goods and services demanded by markets at an equilibrium price that consumers are willing to pay?
This seems a more precise context of evaluating a Minister of Finance and Economic Development. It also gives foundation for credible metrics of evaluation.
From a consumer perspective, the evaluation would be different.
The retained preference for foreign goods and services, from a price and quality standpoint, reflects that local companies are yet to satisfy competitive benchmarks.
If in price and quality, an economy struggles to find local producers supplying consumers with demanded goods and services at competitive prices, then a market economy is not structurally developing.
The economic development of a market economy means producers that exist to supply that local market should be able to do so at competitive benchmarks to produced goods and services from foreign markets.
Indicative of many of our industrialists’ economic illiteracy or complete resignation to being global competitors, protectionism (specifically in the form of outright product bans) is nothing to be content with.
Protectionism of the nature of product bans is a concession that local production of respective products cannot function under a market economy, entirely.
It is structurally inconceivable to produce respective goods and services and compete in the market. It is the existential opposite of a promotive business environment for that good or service!
If a market has reached a point of smuggling goods and services, it means it is not a market economy. If the only way local producers can compete with smuggled goods and services is through informal channels, then there is a serious problem.
Instead of finding content with protectionism, local producers should be informed on the extremity of the business environment’s condition to necessitate bans; then they should pester the Minister of Economic Development about why he hasn’t resolved a more effective mechanism of retaining a market economy: State enterprises!
Minister Chinamasa’s toughest challenge thus far has been the slow reform of State enterprises.
A State-owned enterprise is a legal entity created by Government to partake
Indicative of many of our industrialists’ economic illiteracy or complete resignation to being global competitors, protectionism (specifically in the form of outright product bans) is nothing to be content with.
in commercial activities on the Government’s behalf.
The structural purpose of State-owned enterprises is to fix market failures that occur in a market economy.
Thus, my greatest criticism of Minister Chinamasa is the extent of market failures, and how much arbitrage and smuggling opportunities exist in the economy.
Commenting about the logic of the transition of post-communist countries to a market economy, in his Nobel Prize speech in 1991, Ronald Coase remarked that without the appropriate institutions, no market economy of any significance can exist.
This is the retained circumstance in Zimbabwe, which even our most prominent industrialists seem not to comprehend.
According to the African Development Bank, we lose approximately US$1 billion of competitiveness as an economy every year due to market failures traceable to State enterprises.
Just recently, at a time when meat prices in the region were falling to unprecedented levels, Minister Chinamasa found it necessary to impose a VAT on meat products.
Would such a measure be necessary if the Cold Storage Company was functional and an efficient pillar of the meat sector?
More precisely, the structural detriments of a regionally uncompetitive sector are exacerbated by non-performing State enterprise.
The Comptroller and Auditor-General releases very candid reports about wastage, inefficiency and corruption in State enterprises.
To his credit though, Minister Chinamasa retains cognisance of the role of State enterprises, as at the National Budget Review I mentioned, the minister referenced Zisco as a dead asset that is structurally hindering economic growth.
Command Agriculture is a case study on how State intervention in specific sectors can boost economic output.
What Government is essentially doing in Command Agriculture is acting like a State enterprise, attending to the market failures of the maize sector. What was taking place in the maize sector is what is going on in multiple sectors of the economy.
Minister Chinamasa must engage State enterprises to act in a similar capacity in their respective sectors!
The business of Government is to attend to the market failures that risk killing the market for business to thrive.
Sometimes the shortcoming of our economy is not our policy-makers; it is the lack of self-awareness by the stakeholders who retain deficient expectations.