Zimbabwe’s Present (Post Z$) Economic Recovery Programmes Essay Example for Free

Zimbabwe’s Present (Post Z$) Economic Recovery Programmes Essay Introduction The beginning of 2009 marked the end of over a decade of economic decline in Zimbabwe. The economic indicators decline cut across all key sectors, despite Zimbabwe’s rich resource endowment. Inflation, initially at 100 percent annually between 2001 and 2006, increased to over 1500 percent (McIndoe, 2009). According to IMF estimates, real GDP growth recorded a cumulative contraction of 48% (nearly 5% per year) between 2000 and 2009. Agriculture value added contracted by 86% during the period 2002-2008. Gross national income per capita in 2008 was estimated to be US$360 (compared to sub-Saharan Africa average of US$1,428), making it one of the poorest countries in the world (African Development Bank, 2010). The poverty rate which was already on an increase since 1995 (42 percent) was recorded at 63 percent in 2003 and was estimated to be over 70 percent in 2010 (African Development Bank Group, 2011). According to the economic policy reform proposals announced by the coalition government formed in February 2009, other symptoms of the economic crises as negative GDP growth rates, low productivity capacity, loss of jobs in the formal sector, food shortages, massive deindustrialization and general despondency (STERP, 2009). This paper uses ‘developmental state theory’ as a basis of assessing economic reform policies proposed and currently being implemented by the Zimbabwe’s coalition government after the demise of the Zimbabwe dollar (Z$) in 2009. The paper considers STERP in March 2009, Medium Term Plan (MTP) in July 2010, and the Three Year Macro-economic Policy and Budget Framework 2010-2012 (STERP II) in the context of this economic theory with a view to assessing the extent to which they bring Zimbabwe closer to the key elements of a develop-mental state. This is taken from the premise on which these policies are anchored. For example, the sixth point in STERP says: â€Å"STERP is an emergency short term stabilization program, whose key goals are to stabilize the macro and micro-economy, recover the levels of savings, investment and growth, and lay the basis of a more transformative mid-term to long-term economic program that will turn Zimbabwe into a progressive developmental State,† STERP, 2009: point no. 6) The paper begins with a summary of the key elements of the economic reform proposals. It then looks at the key elements of a developmental state after which it assesses the extent to which Zimbabwe’s key reform proposals would enable it to meet the minimal requirements of a develop-mental state. The paper concludes by offering an assessment of the chances of success for the economic reform measures. Key elements of Zimbabwe’s economic reform measures All reform programs are anchored on economic stabilization, increasing productivity and turning Zimbabwe into a developmental state. In the key policy pronouncements announced in STERP (February 2009) and the Medium Term Plan, Government of Zimbabwe (GoZ) had two principal objectives. First, it set out to use domestic savings and foreign finance to carry out public investment projects and to mobilize and channel scarce resources into areas that can be expected to make the greatest contribution towards the realization of long term economic objectives. These include measures â€Å"to stabilize the macro and micro-economy, recover the levels of savings, investment and growth, and lay the basis for transformation from mid-term to long-term economic programs that will result in economic growth and reduction of poverty levels. In so doing, the reform programs, as espoused in article 3 of the September 2008 Global Political Agreement (GPA) seek to address the key issues of economic stabilization and national healing, whilst at the same time laying the foundation of a more comprehensive and developmental economic framework. The second is to ensure that economic policy (e.g. taxation, industrial licensing, the setting of tariffs and the manipulation of wages, interest rates and prices) stimulates direct and in some cases control private economic activity to ensure harmonious relationship between the desires of private business operators and the social objectives of government policy. Some of the key features of the policies include the adoption of a cash budgeting system; use of multiple currencies as legal tender and adoption of the rand as a reference currency; and the dismantling of foreign currency controls among other measures. Theoretical framework A starting point in exploring the theory of a developmental state is the ‘developmental state’ literature that gained currency following the phenomenal economic performance of the East Asian countries in the 1970s. Meredith Woo-Cumings (1999: 1) describes the theory of develop-mental state as the explanation for the East Asian industrialization. This theorizing represents one of the first attempts to integrate government and private sector decision making. Earlier theorists such as Downs (1957) had noted a trend in economic theorizing which treated government action as an exogenous variable determined by political considerations that lie outside the purview of economics. The earlier view represented a carryover from the classical premise that saw the business as a self regulating mechanism. Any government action beyond maintenance of law and order was seen as undesirable interference. Edigheji (2005) has analyzed a number of variations of the literature on the developmental state and notes two strands of theorizing. The first set of theories focus exclusively on the developmental goals of the state (e.g. Castells, 1992). These theories argue that state is developmental when it establishes as its principle of legitimacy its ability to promote and sustain development (understood as the combination of steady and high rates of economic growth and structural change in the productive system) both domestically and in its relationship with the international economy. Thus a developmental state is seen as one which is able and willing to create and sustain a policy climate that promotes development by fostering productive investment, exports, growth and human welfare (Ponk, in Edigheji, 2005). The second strand of theorizing looks beyond the objectives to focus on the institutional characteristics of the state and draws attention to the ideological character of the development state. Mkandawire (2001) has referred to this as the ‘state-structure nexus’ that enable the state to be able to achieve growth and development while others cannot. A premium thus has to be placed on the institutional/organizational configurations of the developmental state. This is primarily because what sets a developmental state apart from others is that not only is it able to clearly set its development objectives; it also establishes institutional structures in order to achieve the objectives. Locating the role of the state In this paper, a developmental state is defined by its objectives and its institutional characteristics. It is â€Å"one whose ideological underpinnings are developmental and one that seriously attempts to construct and deploy both administrative and political resources to the task of economic development† (Mkandawire, 2001:296). The role of the state needs to be clarified given the contradictory nature of the literature on the East Asian cases. Earlier theorizing initially conceived a developmental state in terms of the state imposing its will over society and suppressing civil society. Thus they argued that the developmental state paid no heed to the democratic aspect of the developmental state. This is partly because some scholars regarded the repressive nature of the state as one of the factors that enhanced its developmental capacity. For some scholars, the â€Å"soft authoritarian character† of the state was the source of its autonomy which spurred growth (e.g. Johnson, 1982, Wade, 1990). This is because a developmental state has existed in authoritarian Korea and Taiwan as well as in democratic Japan. In fact, Japan was the first East Asian state to be considered a developmental state (Bolesta, 2007:107). Despite the nature of government, in a ‘true developmental state, the bureaucratic rulers possess a particular kind of legitimacy that allows them to be much more experimental and undoctrinaire (accommodative of new ideas) than in the typical authoritarian regime’ (Johnson 1999: 52). However, Leftwich (1995: 405) has identified six major components that define the developmental state model. These are a determined developmental elite; relative autonomy; a powerful, competent and insulated bureaucracy; a weak and subordinated civil society; the effective management of non-state economic interests; and legitimacy and performance. The characterization of the democratic elements in Leftwich’s model closely mirrors the situation in Zimbabwe prior to 2009 and may not be helpful looking forward. Zimbabwe had an increasingly authoritarian governance style since the late 90s (Sachikonye, 2002) yet its economic policies saw a continuing decline in key economic indicators. In analyzing the economic reforms policies in Zimbabwe this paper therefore draws more from theories that have stressed the cooperative dynamism of the developmental state. For example, following a detailed analysis of the state’s relationship with business, Linda Weiss (1998: 258) came up with the concept of â€Å"governed interdependence† where she conceptualized that there are collaborative relationships between government and business in pursuit of transformative projects. She noted: â€Å"In this relationship, each party retains its independence, while government remains the ultimate arbiter of the rules and goals of interaction in which information is exchanged, resources are pooled and tasks shared,† (Weiss, 1998: 258). Zimbabwe’s neighbour, Botswana, is an illustration of a state that has pursued certain policies in the construction of what might be regarded as a â€Å"developmental state† i.e. a state that pursues policies that co-ordinates investment plans; has a national development vision- implying that the state is an entrepreneurial agent that engages in institution-building to promote growth and development; and†¦plays a role in domestic conflict management (Chang, 1999: 192-199). Assessment of Zim’s post Z$ economic reform policies The economic reform policy measures are assessed in relation to how the enhance Zimbabwe’s progress towards the attainment of ‘developmental state’ status. It is necessary to point at the onset that the key policy reform measures announced by the GoZ have been formulated and are being carried out within the framework of a mixed economy i.e. some of the productive resources are privately owned and operated while some are controlled by the public sector. As Todaro and Smith (2010) have noted, the mere existence of such an institutional setup means that neither the private nor the public sector can be considered in isolation from each other. This acknowledgement of the interdependent role of the state and business is one of the few positive outcomes (discussed later) of the reform measures. However, a number of factors in the policy measures do not meet the minimal elements required for the country to attain development state status. These include the lack of a clearly and coordinated role of State institutions and weak premises for global re-engagement, both of which are critical for the success of the economic reform measures. Unclear role of the State According to the MTP (2010), the policy measures seek to â€Å"establish a platform for Zimbabwe to emerge as a vibrant Private Sector driven economy that is growing and transforming from a producer of primary products to a producer of diversified manufactured quality products laying the foundation of a competitive global player.† The State will thus â€Å"provide a conductive policy environment that will ignite Private Sector initiatives, entrepreneurship as well as promote a saving and investment culture.† This statement sounds noble but there is nothing that has been said about coordinating the role of the many state players in the economic reform measures. The Ministry of Economic Planning is coordinating 13 sectors in a framework that in reality has shown to be independent of the other key ministries such as the Youth, Indigenization and Empowerment ministry, the Mines Ministry and the Local government ministries, to cite but a few. The country’s indigenization policy, supervised by the youth ministry, has been viewed as a threat to foreign investment in the nation. Whilst government has made assertions about the enforcement of the Act, several transactions have been concluded which show inconsistency in policy implementation. A case in point is government ‘sale of above 50% of its shareholding in Ziscosteel to Essar Energy in Mauritius in 2010 despite the conditions of the Act, which state that 51% of all businesses must be indigenously owned. (IH Securities, 2011) Exacerbating this lack of coordination is the past record of State regulation which has in the past failed to facilitating a conducive environment for business by sections of the previous government. This has the effect of promoting rent-seeking behaviours and corruption in both government and the private sector. International financial institutions have noted this as a hindrance to the success of the economic reform measures. For example, in statement at the Conclusion of the 2011 Article IV Consultation Mission to Zimbabwe (IMF, 2011) the IMF noted that while â€Å"stronger policies, a favorable external environment, and sizeable off-budget donor grants supported a nascent economic recovery and a notable improvement in the humanitarian situation during 2009-10,† the â€Å"macroeconomic outlook for 2011 remains highly uncertain,† (IMF, 2011). The IMF cites among other things, an inefficient composition of public expenditure, persistent financial sector vulnerabilities, and weaknesses in the business climate, including the recently announced fast track indigenization of the mining sector. The State, which prior to the coalition government had become an arena for private capital accumulation, cannot extricate itself from excessive private sector regulation which has, in some cases, resulted in the violation of private property rights. A recent example of these excesses is the recent case that will be heard in the International Court in Paris. The case involves the GoZ and South Africa based Amari Platinum following the former’s cancellation of joint mining ventures in 2010. The South African company had invested over $35 million into the project where it partnered the Zimbabwe Mining Development Corporation. According to media reports, the company is demanding compensation of $200 million, (Sunday Times, October 9th 2011). Autonomy, which is a crucial element that supports growth in a developmental state, means the ability of the state to behave as a coherent collective actor capable of identifying and implementing developmental goals (Edigheji, 2005).There is therefore need for structural reforms. These would include alignment of indigenization and empowerment objectives with respect for private property rights and the need to attract domestic and foreign investment. While these recommendations appear individually, they point to the failure by the reform policies to clearly spell out the role of the State in the economic reform process. Crucially, and related to the role of the State, is the fact that there has not been any systematic attempt to elaborate the concept of the developmental state in Zimbabwe. Besides passing reference in the objectives of all plans, government has not specified the sources of its capacity, other than regular lamentation about the need to build the skills capacities of the public sector. Thus crucial institutional elements that would enable the developmental state to act in a coherent fashion and, on that basis, successfully engage with its social partners have been either taken for granted at best or ignored at worst. Weak to zero premises for global re-integration The policy measures recognize the level of debt currently besetting the country and its impact on badly needed financial inflows, yet it is not clear how this debt will be cleared. According to the MTP: â€Å"the success story that Zimbabwe is becoming will in itself unlock other sources of funds. The few investments funds already in the country will soon become a multitude. Investors like a place where a dollar can be made and Zimbabwe provides such an opportunity.† This in itself sounds like a work of faith. Whilst trust plays a crucial role in policy implementation, the assumption that only success can unlock lines of credit and provides a stimulus for the productive sector is not based on evidence. The huge debt which will result in high future taxes if the country’s major sectors of the economy do not increase their operating capacity against a background of inadequate foreign aid. It could be that it is a carrot in the stick for those elements of government that are likely to derail reforms, yet experience in the past has shown that it is not success that drives politicians, but the ability to create and generate enough wealth prior to the next elections. Reducing poverty under such policies becomes a farfetched dream that will not be recognized. There is need to strengthen internal revenue generation and collection in areas such as tourism, agriculture and mining to finance internal and external debt while also providing resources f or the productive sectors such as agriculture and manufacturing. Alternatively, the country could attain Highly Indebted Poor Country (HIPC) status to enable international debt relief. The experience of Zambia shows that total external debt reduced significantly by 8.9 percent from US$7.12 billion in 2001 to US$6.49 billion in 2002 as a result of the HIPC Initiative (Zulu, 2003). HIPC status could be tied in with the strengthening of open trade policies. Despite being a signatory to numerous trade pacts, Zimbabwe has maintained numerous import controls as reflected by the high tariffs relative to other countries in the region (Hurungo, 2010). The country’s reluctance to reduce tariffs is due to its over reliance on the revenue generated (Biti, 2010) Economic literature on the relationship between restrictive or open trade policies and economic progress has been inconclusive. Multilateral institutions such as the World Bank (WB) and the International Monetary Fund (IMF) regularly promulgate advice predicated on the belief that openness gener ates predictable and positive consequences for growth. According to the IMF, for instance, â€Å"policies toward foreign trade are among the more important factors promoting economic growth and convergence in developing countries,† (IMF, 1997:84). This view is supported by a vast array of literature on trade. For example, Stiglitz (1998:36) noted that â€Å"most specifications of empirical growth regressions find that some indicators of external openness- whether trade ratios or indices or price distortions or average tariff level- is strongly association with per-capita income growth.† Others have made similar observations noting that â€Å"integration into the world economy is the best way for countries to grow,† (Fischer, 2000). Thus Zimbabwe’s strategic reintegration with traditional trade partners could spur growth if value addition is considered for some export products. History has shown that there is no positive relationship between exports and growth in Zimbabwe. For much of the period when Zimbabwe experienced negative growth rates (between 1997 and 2009), it experienced a trade surplus with South Africa, the European Union and the United States (ZimTrade, 2009). Such trade surpluses need to be tapped into in a new economic and political environment fostered by the coalition government so as to spur economic growth and equity. However, there is no acknowledgement of these facts. Stabilization as a success story It should be noted that a significant proportion of the policy measures have had a positive effect- which has resulted in economic stabilization. The adoption of multiple (excluding the Zimbabwe dollar) had the immediate impact of eliminating hyperinflation. Annual inflation declined from an official figure of 231 million in July 2008 to 0.5 percent in December 2009 and 3.5 percent in July 2011, according to the Central Statistical Office (CSO). According to the IMF (April 2011), the Governing Board of the RBZ (which was appointed in May 2010) has achieved a significant improvement in central bank governance, reporting, and organizational restructuring although further steps are needed to accelerate financial restructuring of the financially-distressed RBZ. There was also a significant improvement in product availability in retail and wholesale outlets, with capacity utilization having markedly improved which also witnessed an improvement in the performance of the overall economy. For instance, in 2009 the economy was estimated to have grown by 5.7 percent and the average for SADC was 2.4 percent and 2 percent for Sub-Saharan Africa. While this stabilization, within the theoretical framework of the developmental state, can be seen as progress, it is easy to see that the economic decline had hit rock bottom and the desire is to bring levels of productivity to 2000 levels. The World Bank has estimated that it will take another decade with a growth rate of 10 percent per annum to bring rates to 2000 levels. In June, the IMF said Zimbabwean growth is set to slow sharply in 2011and the countrys recovery from a decade-long deep economic contraction remained fragile (IMF, 2011). An IMF review of Zimbabwes economy projected that economic growth would drop to 5.5 percent in 2011 from 9.0 percent in 2010. It said the country was in debt distress with a large unsustainable external debt stock of 118 percent of gross domestic product as of the end of 2010, the bulk of which was in arrears. Conclusion This paper has provided a framework for understanding Zimbabwe’s economic reform policies within the framework of a developmental state. Though not exhaustive, the developmental state has been defined based on its institutional attributes of being autonomous and coherent. In addition, the developmental state is one that forges broad-based alliances with society and ensures popular participation in the governance and transformation processes. Elements of the Washington Consensus and other classical economic theory have been brought to bear on previous economic reform programs and there is evidence that these continue in current reform policies. The classical theories do not take into account the unique circumstances of a country, especially the different types of government. In spite of the type of government, a developmental state is guided by the goals of coherence and authoritative governance, accountability, inclusiveness, stability, ability to generate consensus and popular participation- none of which are visible in Zimbabwe’s political and economic outlook. Much of the work towards the attainment of a developmental state hinge on Zimbabwe providing and implementing a clear definition of the role of the key players- the state, private sector and civil society- in the proposed economic reform measures. Other measures include forging a clear partnerships with local and international players- with parameters of engagement with the latter based on realistic economic policy measures as well as an engagement path that takes into consideration Zimbabwe’s trade surplus with the major international economic blocks such as the European Union, SADC and the United States. Without this, as seen in current reform policies the chances of success of the reform measures are limited. References African Development Bank Group, 2011, Infrastructure and Growth in Zimbabwe- An Action Plan for Sustained Strong Economic Growth, Tunis, Tunisia African Development Bank Group, 2010, Zimbabwe Country Brief, Regional Department, South Region A, January 2010. Biti, T 2010 â€Å"2010 Budget Speech. Ministry of Finance (28 January) Castells, M., 1992 ‘Four Asian Tigers with a Dragon Head: A Comparative Analysis of State, Economy and Society in the Asian Pacific Rim.’ in Applebaum R, Henderson J (eds). State and Development in the Asian Pacific. Newbury Park: Sage Publications. Chang, H-J (1999) ‘The Economic Theory of the Developmental State’ in M. Woo-Cumings (ed.) The Developmental State New York: Cornell University. Downs, A., 1957, An economic theory of political action in a democracy. Journal of Political Economy, Vol. 65, No. 2, April 1957 Edigheji, O., 2005, A Democratic Developmental State in Africa? Centre for Policy Studies, Research Report No. 105, May 2005 Hurungo, J.T. 2010 Trade Policy Review: Zimbabwe. Stellenbosch: Tralac Medium Term Plan, 2010, Medium Term Plan January 2010- December 2015, July 6, Harare: Government Printers IH Securities, 2011, Zimbabwe Equity Strategy: Bullish macro story amidst potential turbulent waters, Equity Research, March 2, 2011. Johnson, C., 1982, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975. Stanford: Stanford University Press Leftwich, A., 1995, ‘Bringing Politics Back In: Towards a Model of the Developmental State’, Journal of Development Studies, vol. 31, no. 3. McIndoe, T., 2009, Hyperinflation in Zimbabwe: money demand, seignorage and Aid shocks. IIIS Discussion Paper No. 293, July 2009. Mkandawire, T., 2001, ‘Thinking About the Developmental States in Africa.’ Cambridge Journal of Economics, Pp 289- 314 Sachikonye, L. M. 2002 Whither Zimbabwe? Crisis and Democratization. Review of African Political Economy, No. 91, 13. P 13- 20. Roape Publications Limited. Todaro, P.T. Smith, C. S., 2010 Economic Development (10th edition), Boston: Pearson/ Addison Wesley Wade, R. 1990. Governing the Market. Princeton, New Jersey: Princeton University Press, 1990. Weiss, L. 2003 Guiding Globalization in East Asia: new roles for old developmental states. In Linda Weiss (Ed), States in the global economy: bringing domestic institutions back in. UK: Cambridge University Press Zulu, J.J., 2003, Leaning Against Economic Winds: Zambia’s Problems with HIPC, Lusaka: Jubilee- Zambia Debt Project