Those riding two-wheel bicycles know well that it is more stable
and easy to manoeuvre when it is in good speeds of around 20 km/h. The moment the
bicycle stops, only gymnasts will be able to remain on top of it without tipping
over, at least for a very short while. The Minister of Finance, at a crucial
moment in coming up with the national budget for 2013 and holding onto the
controls of an economy that is losing stream after 3 years of strong growth momentum,
has to be a gymnast to continue propelling it before it tips over. At such a
crucial time where monetary policy cannot be employed to jump-start the economy
because of the dollarisation, fiscal policy, through directing expenditure
multipliers where they are needed the most, becomes the most important instrument
to keep the growth momentum.
The signs that the economy is losing steam are glaring. Government
revenue is growing at a worryingly decreasing pace since 2009, and so are other
key indicators such as public and private sector consumption. Government
revenue, which grew 141% in 2010, 25% in 2011 and expected at 16% for 2012, is
likely to grow only 6% in 2013, if at all it grows. Both private and public
sector wage growth have hit a plateau, dealing a worrying blow to domestic
demand.
The weak and misdirected domestic demand is a huge cause for
concern for the government that finds itself having a people with no capacity
to drive growth from within. The options to boost domestic demand are few.
Reducing interest rates, if it were at all possible, would not alter domestic demand
that much because the majority of consumer demand and private sector
investments are not bank financed as in most of the major economies around the
world where tinkering with the interest rate levels impact on long-term aggregate
demand. Reducing the taxation levels is not an easy option either considering that
the central government finances are already in critical state and treasury
cannot sacrifice present day priorities by gambling for long term benefits which
no one knows if they will ever materialise.
It is very important to analyse domestic demand in Zimbabwe in the
context of the balance of payment position. The huge trade imbalances are a
huge cause of concern and impact on the effectiveness of domestic demand’s
ability to drive internal growth. An analysis of the balance of payment
position for manufactured goods for the six months to June shows that for every
$1 worth of exports, Zimbabwe imports about $5.5 dollars worth of goods. A casual
conclusion would therefore be that Zimbabwe’s consumption of manufactured foreign
goods is sustaining more jobs in SA and elsewhere than at home.
However, a more
detailed analysis would show that this huge appetite for imported goods is
killing more jobs at home that it is creating abroad! The poor productivity of
Zimbabwe’s manufacturing industry employees arising out of inefficient
production processes could be seeing Zimbabwe losing at least 10 jobs locally for
every one job created abroad. The inverse relationship should be easier to
comprehend. Zimbabwe has not been investing in technology and infrastructure
upgrades for over a decade and that makes Zimbabwe employee productivity very
poor compared to its well-off neighbours such as SA and many other global trade
powerhouses such as China.
Zimbabwe therefore needs more people to produce a
similar unit of output than the Chinese and South Africans. And for any one job that is created in an
automated factory in SA due to our demand for imports, Zimbabwe could be
creating 10, if not 15 at home to produce the same units of goods due of our
outdated production processes. In China for example, the Asia Productivity
Organisation estimates that industrial output that needed about 100 employees
in 1990 now needs less than 20 employees to produce due to increasing
productivity arising out of huge investments in technology and infrastructure. It
is not Zimbabwe alone that is suffering serious job losses from the effects of trade.
The Americans, according to the Economic Policy Institute, have lost 2.1
million manufacturing jobs between 2001 and 2011 due to the growing trade
deficit with China.
Considering that Zimbabwe imports manufactured consumer goods of
about $1.3 billion per annum, which is about 36% of government expenditure, the
ability of domestic demand to therefore influence internal growth is very
limited. Rather, the jobs are created in such countries as SA and so are the income
multipliers. This therefore creates a challenge for the policy makers to attempt
to anchor gdp growth on fiscal expenditure
multipliers, among other strategies.
But is there real everyday evidence in the
lives of ordinary Zimbabweans of this excessive dependence on imports? Tracing
the day’s journey of a working Zimbabwean urbanite reveals a very sad picture
of the true income leakages and jobs losses through imports. One’s day starts
with a bath where the soap, towel, perfumes, toothpaste and toothbrush are all
imported products from SA, including as well the water treatment chemicals for
the water being used. The breakfast cannot be any better. Save for the locally
made Dairibord milk and eggs from local suppliers, the imported sugar, teabags,
cornflakes or bread made from imported flour are all signs of income leakages
through imports. And of course 80% of all cooking utensils and accessories
making breakfast in Zimbabwe are imported, from the light Chinese spoons to SA
stoves!
One’s journey to work is by means that is all imported, from the fuel
in the vehicle to the tyres. The only thing Zimbabwean in any car on Zimbabwean
roads is the person behind the wheel, and probably an exide battery and water in
the radiator! Although Zimbabweans’ evenings are usually anointed with the
staple sadza made largely out of maize grown locally, the last poor cropping
season means most urbanites don’t even realise they are eating sadza made out
of largely Zambian maize. The relish’s cooking oil, salt, spices and more ludicrous,
the toothpicks, are mainly imported goods from SA. The foregoing analysis
clearly shows how the everyday expenditures of Zimbabweans are sustaining
foreign jobs than they are creating and sustaining at home. Save for the fresh
air, sex and beautiful weather, Zimbabweans are surely spoilt for foreign goods
and indeed the domestic manufacturing industry has failed to provide
competitive alternatives. This explains the reason why the unemployment rate,
income inequalities and poverty levels have remained high in Zimbabwe
notwithstanding the economy having been registering impressive gdp growth since
2009.
Policy makers would need to be decisive at such times to ensure that the economy changes its course of direction. The government, with such as structure of domestic demand that sustains jobs abroad and having no capacity print money to directly influence growth in key areas, can only use its expenditure targeting as one very important driver of growth. But when faced with the current scenario where more than 70% of government expenditure goes towards recurrent expenditure, the expenditure will continue to be directed towards imports and indeed the economy will continue losing steam. Therefore what policy alternatives exist in ensuring that the government fiscal multipliers drive growth from within? The ongoing budget consultations should strive to provide answers to such.
