Chris Chenga Open Economy
\nSometimes convenient common speech, perhaps through an assumed understanding by those we are engaging with, can easily lead to fostering of incorrect myths. This happens quite often in economics. For instance, it is convenient common speech to say a country requires FDI, with FDI incorrectly taking on an inclusive meaning of all types of foreign capital inflows.

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In fact, FDI is actually just the tangible and physical investment by a foreign entity.  There are other types of foreign capital inflows such as portfolio investments, and commercial and multi-lateral loans. I suspect that it is this presumptive nature of convenient common speech that has crept into our economic discourse in Zimbabwe, somewhat instilling the notion that a strong US dollar is reason for our uncompetitive economy; this became a prominent theme at the last Zimbabwe-IMF Roundtable in Harare.

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Indeed, they know better and their common speech is obviously said within a presumptive context of understanding.
\nBut individuals such as Reserve Bank of Zimbabwe Governor Dr John Mangudya, Finance and Economic Development Minister Patrick Chinamasa and, more recently, Professor Mthuli Ncube, have said “Zimbabwe’s economic competitiveness has suffered because of a strong US dollar”.

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To say a strong US dollar makes us uncompetitive can easily qualify currency exchange rates as the most significant variable of comparative competitiveness.

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Yet, in Zimbabwe’s case, I’d argue that we have other significant variables in terms of comparative competitiveness to other economies.
\nFor instance, suppose we used the rand.

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Our economic structure would remain the same — obviously.
\nWe would still be bound by dependence on the operational infrastructure provided by highly inefficient State providers of power and water, along with interconnectivity infrastructure such as road and rail.
\nRecent power outages and slacking responsiveness by Zesa serve as perfect illustration.

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It is such inconvenience and productivity cost which exacerbates what is commonly referred to as cost of doing business.
\nConsider factory down time, supply chain delays, production defects and other cost increments derived from this shoddy infrastructure.

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Likewise, specific sectors such as agriculture and mining that are supposed to be the greatest contributors, and knock-on effect drivers of the economy, would still be centred around highly favoured and preferentially treated State enterprise laggards.

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As effective summation to the economic strain posed by our economic structure, just this June, Africa Development Bank country representative Mateus Magala said Zimbabwe loses up to US$1 billion annually due to structural inefficiencies.

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So, even if Zimbabwe was using a weaker currency such as the Rand, persistent structural inefficiencies would deter competitiveness.
\nGranted, recently revealed plans by Government show a commitment towards revitalising specific State enterprises.
\nThere are other significant variables of competitiveness. For instance, our industry lacks economies of scale.

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Economies of scale are a derivative of the efficiency of productive capital equipment and market size.
\nIn terms of capital equipment, we often say that industry is at 36 percent capacity utilisation.
\nA relevant question would be to ask if our capital equipment, even assuming that we are at 100 percent utilisation, is of high technology to boast productivity competitiveness.

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We do not have competitive production equipment to drive industry!
\nOur equipment is outdated, not the best standard, and definitely not as productive as other countries’.
\nThus, even this 36 percent we bemoan is in itself a generous metric of competitiveness.
\nOf course, to improve on that capital equipment, firms would have to borrow to finance new wares.

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This is a pressing need in our mining, food processing and agricultural sectors.
\nAccording to the Bank of International Settlements, creditors have been more receptive to lending to companies in US dollars. In such a situation of debt accumulation, as we shall progressively learn from other countries like Zambia, Nigeria and so-called emerging markets which borrowed on weaker currencies, using the US dollar is actually advantageous for Zimbabwe.

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It avails capital more easily and at kinder interest rates.
\nFinally, in terms of market size, we have no choice but to start focusing towards expanding into neighbouring markets.
\nSadly, it seems our industrialists have reduced their ambitions to just local protection.
\nLet me warn of an unsaid danger that is lurking around our Buy Zimbabwe and other protectionist thrusts.

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Protectionism does not attend to competitiveness, and pursuing greater protection of an uncompetitive economy will only lead to depression.
\nThe reason is that supply chains have become too integrated across borders to sustain a scenario where our local market can be protected, yet productivity is not concurrently gaining from larger consumption.

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The importance of economies of scale is that they are a competitive tool for reducing unit costs. Without a demand pull from greater consumption volumes, Government would be pressured into increasing subsidies and other preferential tax treatment for our industries to stay cost competitive.

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However, that is not a sustainable option for us.
\nGovernment is already highly indebted, and household incomes in Zimbabwe do not avail fiscal capacity to provide such stimulus to supply chains.

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Global agricultural markets, particularly cotton, serve as good examples that bigger markets are the best way to help lower production costs.
\nThese are just three variables which have a significant effect on our competitiveness as an economy.
\nOf course, I am not trying to disqualify the US dollar as a variable we can attribute to our uncompetitive circumstance.
\nA strong currency can make an economy uncompetitive, but there is much more to consider.

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I cannot agree that the US dollar is the main reason we are uncompetitive.