Fundamentals for the Future

When I look around the world and try to synthesize what mankind has learned in the past 200 years, I can see a number of fundamental issues that all countries and their leadership should bear in mind when trying to steer the ship of State into new waters. Zimbabwe, with its hyperinflation and subsequent collapse has a few lessons to teach others as well.

This week we have been working on the next national budget for the country. On Monday the World Bank came to brief us on their views of the budget and priorities that we should acknowledge in the process. In doing so they produced a series of graphs to show what has happened to the economy since 1998.

The first was a simple bar chart showing revenues in US dollars accruing to the State from various sources. In 1998 they sat at about US$2,7 billion or 25 per cent of GDP. They declined slowly at first, reaching $2,3 billion in 2004, then plunged to just $$340 million in 2007 and finally $280 million in 2008. In both years total tax revenues were less than 5 per cent of GDP.

Following the formation of an inclusive government in early 2009, revenues have recovered sharply, in 2009 they reached $1,7 billion (17 per cent of GDP), 2010 they reached $2,7 billion (27 per cent of GDP) and in 2012 $3,6 billion or 36 per cent of GDP. Now you can take out your calculator and work that out, but it averages about 40 per cent growth per annum over 4 years.

The Bank estimated that GDP in 2012 was $10,8 billion. I think that is twaddle and have told them so, they argue strenuously that they are right in their estimate. I just look at our foreign trade of $12 billion this year and know that we are not collecting 36 per cent of GDP in taxes – nowhere near that number, not even 25 per cent maybe. This puts our GDP at $14,4 billion at the least. And this does not include billions of dollars in gold and diamond sales which are all being traded outside the formal system. Take into account all the other activities that go unrecorded in our economy after decades of poor management, our real GDP could be substantially higher – I have previously suggested $16 billion, but even that is conservative.

So my first lesson for future leaders is do not believe all the statistics that are thrown at you, or the plausible arguments of men and women from outer space. Africa is a much richer place than most people think or imagine.

Then there is the lessons learned from the economic changes that triggered this massive (in anyone’s terms) recovery. All my life I have raved against price and foreign exchange controls. I never got anywhere with the Smith government and then with the Mugabe government. In fact when I spoke on the issues I got funny looks as if I lived on another planet. Life without controls; impossible!

Then just days after the swearing in of the new Government, I sat in Parliament when the Minister of Finance, without a dissenting voice, announced that he was abolishing all controls. I walked up to him and congratulated him for showing great courage and doing the right thing. He looked at me as if I was slightly cooked.

What then happened was nothing short of miraculous, and the tragedy of this is that I have seen no analysis by anyone of what happened. Fuel had been in short supply for 10 years; we all knew what it was like to queue for fuel, sometimes for days. In 2005, in preparation for an expected MDC victory at the polls (seems ridiculous now but we actually believed in elections in those days), I was asked by Morgan Tsvangirai to try and organize fuel supplies for after the election, assuming we won. I travelled to London, saw the Chairman of Shell and he authorized a study of the problems, six months later I got the report, they said it would take time, but could be achieved in three months once we had shown them our money.

In 10 days, fuel was in free supply. How the private sector did it, where the money came from I do not know or want to know, but the reality was that for the first time in a decade we could drive up to a pump and tell the operator to fill up the tank. It was an economic and a business miracle.

Three months before the formation of the new government I accompanied my wife to the largest supermarket in the country. There I was astonished to see this vast store, with dozens of till points, absolutely empty – I think there were three items for sale, cabbages, some small water glasses and paper towels. Three weeks after D Day in Parliament, we returned to the same store. It was packed to the roof with goods, every till point had a queue, money was flowing. We got to our till point and I remarked to the operator that this was quite a transformation. He looked up at me and smiled and said one word “Tsvangirai”.

He might have been right in one way, but the real miracle was a private sector that reacted to market demand and opportunity with a speed and determination that was quite astonishing. Where the money came from – who knows and who cares.

So the lessons from our collapse and failure are clear, no society, no matter how developed or self sufficient can violate the rules of macroeconomic stability for any extended period and get away with it. If you break those rules, you pay – we did, with record hyperinflation and a precipitous collapse to near failed State conditions. Restore the fundamentals and give your business community freedom and watch the economy heal itself without the IMF and the World Bank!

What the Bank did say was that Zimbabwe was not a basket case by any measure and in fact we were doing quite well in the regional context and given the background. But we are still unable to pay for the other fundamentals that make up a successful State – health and education, housing and social security. In these areas we are starting from the bottom again, the Bank told us that if we did not get our education right and fast, that we would lose our status as the most literate country in Africa. In fact they told us we were heading for a situation where our next generation will be the most illiterate in Africa.

Stopping that happening will take a little more effort than a simple statement to the House of Representatives to the effect that all controls are abandoned after a 100 years of government imposed restrictions. But at least we have made a start.

Eddie Cross
30th October 2012