HomeOpinion & AnalysisWhy is the economy in such a mess? (Part 1)

Why is the economy in such a mess? (Part 1)

by Peter Bailey

To the economists and politicians
Read the newspapers published the previous weekend and they tell you that the problems were started by the late president Robert Mugabe and started with the land reform programme, Indigenisation and the command economy ZimAsset. There were others as we will see. This was all in the interests of Mugabe’s belief in the Marxist policies of government. His intention was to turn Zimbabwe into a one-party Communist state as he had a referendum to do and failed. Economic theories are all well and good, but running a country really requires good business acumen as well.

To the president of Zimbabwe
How serious are you about finding a solution to Zimbabwe’s problems? Here is a plan that could take six months to implement and the objective is to develop a workforce of 5-6 million within the next 4-5 years with a substantial clearance of the country’s trading and budget deficits. It requires change, but would you dare do this? Would the Zanu PF party politics prevent you doing much of this? Your government has not tried to change anything done by Mugabe and is going further by introducing compulsory 12-month army training for school-leavers which will undoubtably contain the Communist indoctorisation. Western investors will not be attracted to a Zimbabwe with a Communist government.

A Zimbabwe recovery plan
At this stage the country has some 90% unemployment with little or no investment, high levels of corruption and some 3-4 million nationals living outside the country. A fair proportion of school-leavers end up leaving the country and many parents now send their children outside the country to be educated. The diaspora is contributing much towards what is left of the economy. The government tax receipts are barely sufficient to pay civil servants and local government employees. The country has a massive trade deficit and reliant upon imports. The economy and government are in trouble.

Changes have been made which have made matters worse. The local currency, now the RTGS has lost its value by half to a quarter of what it was when it was 1:1 to the US dollar, effectively increasing prices which reduces incomes and spending power. The government introduced a 2% transfer tax on moneys exchanging hands and this has in many cases increased the tax being paid by companies to more than double making it the highest taxed companies in the world. The country is trying to attract foreign investment and is not liable to succeed with the business environment and the political policies that it pursues. The current policies provide for a closed economy.

How to correct this situation
Adopt a different system of government which advocates changing tax systems to bring employment costs down to their lowest level, providing free health and education in the same interests but retaining the spending power of the people. The system will bring costs of production down and ensure that imported goods share equally in the tax burden. Zimbabwe must be able to manufacture at a cheaper price than imported equivalents, if not why not? The system will attract foreign investment into the country having created a tax haven. The government would need some additional advice on taxes and a few other matters. The tax systems currently in existence will have to change. It can be done.

Repeal the Indigenisation regulations altogether. This is vital to create free market conditions and attract foreign investors into the country. Bear in mind the objective is to provide employment as much as possible. It is not a matter of attracting foreign investment just for itself.

Repeal the ZimAsset legislation to curb corrupt activities and appreciate that government officials should not run businesses. Essential for the attraction of foreign investment. It is essential to open the economy.

It then becomes necessary for the army, government and any others to divest themselves of their interests in mining and other activities. Investment for profit is not their function. The businesses need to be controlled and they must contribute a fair share to the government in the form of taxes and/or royalties.

It is also necessary to change immigration and such laws to allow the inflow of skills with the investments. Zimbabwe is very short of skills and investment into manufacturing which requires knowledge as well as money. It is vital to open the economy and the country must be able to attract back its own external citizens and others.

There is a need to look at Deeds Offices and the manner of dealing with deeds, including company registrations. The whole procedure and charges need attention.
The land acquisition and distribution requires serious attention. The land needed to be sold to the participants with proper title which would have given the land value and the ability to be used for security. This can be done on a 99-year lease as favoured by the present government but the lease has to be able to be sold/transferred to have a value. The land needs to be properly utilised to provide crops and to keep workers employed. The original land distribution by the party was favoured to party members and not necessarily on their ability to farm. It will be vital to make the farms productive and get people employed as well. Some people were given more than one farm (The Mugabe’s 14), which needs to be rectified.

lPeter Bailey is a Harare based author. You can contact him on pwbailey@zol.co.zw

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