In Zimbabwe, there has been serious shortages of foreign currency (forex) due to a shrinking and non-productive economy and imprudence in economic management.
From February 2009, the US$ notes have been the currency of Zimbabwe officially alongside a number of foreign currencies (South African Rand, Botswana Pula, Chinese Yuan and British Pound).
In May 2016, the Governor of the Reserve Bank of Zimbabwe (RBZ) announced that there will be an introduction of a surrogate currency called “Bond Notes” backed by a loan facility of US$200 million from Afreximbank in two months (July).
The introduction of the surrogate currency has been moved several times.
In July, an announcement by the Governor was made that the bond notes will be introduced at the end of October and then later moved to the early November. In all instances, there has been no specific dates.
In few weeks, the RBZ will have to introduce the surrogate currency.
Let us now figure out the following…
Transactions and payments within Zimbabwe will be held using the surrogate currency alongside the multi-currency regime. This is a claim by the authorities that defy economic logic as it will be explained.
Those who supply goods either import the finished products or they import raw materials and inputs to produce them locally. According to the 2015 CZI State of the Manufacturing Sector Survey, “recognised as Zimbabwe’s leading analysis of the factors affecting business operations and growth”(1), productivity stands at 34.3%.
Ultimately the business entities will need foreign currency for them to import what they sell or the raw materials and inputs of what they produce.
For their forex requirements, they will need to go to the commercial banks. Either the banks have the forex or they do not have it.
To have the forex, the banks have it from the wider economic activities that generate forex:
- Foreign direct investment (FDI)
- Diasporan remittances
- Development aid or humanitarian assitance.
The economy has minimal inflows from any of these. This means there is a serious shortage of forex.
There won’t be deposits from those with forex due to the trust and confidence deficit already prevailing within the economy. Those with forex will either sell to the bank or outside the bank.
There are stringent measures to sell to banks and those with Forex will prefer selling it to non-banking institutions.
So you have a business transaction to do, either your business will have the forex to use or it does not. You will either approach the banks or not. Since the banks don’t have the forex, you will seek non-banking institutions and even persons. The price of forex will be determined by the imperatives of demand and supply.
Whatever price you will buy the forex, this has a bearing on the subsequent selling price of the goods and even their availability.
From these observations, bond notes are the equivalent of Zimbabwean currency. There will not be anyone willing to use forex locally and those who need the forex will pay a premium price to get it.
From an economic viewpoint, this is towards apocalyptic circumstances. Shortages of goods while they are highly priced will be the new economic order from November 2016.
This is the tragedy of 2008 coming back to brutally btorture us.
What needs to be done?
There is an ancient Chinese aphorism that says, “Better light a candle than curse the darkness.” We need not to be fond of “cursing the darkness” by wailing and lamentation without offering alternative solutions by “lighting a candle.” An active citizen should not be an agent to amplify lamentation, wailing and invectives.
The solutions being suggested are from a “Left of Centre” perspective. This is compared to the leftist and right of centre. “Left of Centre” economic model is largely adopted from that that of Scandinavian and German social market economies.
Such a model is stimulative of the private sector while the government has three key roles:
- business friendly policy making and policies;
- infrastructural development priorities;
- infrastructural spending (procurement);
- prompt payment of procured goods and services.
This means the government isn’t demobilized but be seen and considered as a key player in the economy that doesn’t undermine business. Instead of wanting to create many million jobs, there is need to be the voice that facilitate the creation of “million businesses” or become the champions of the market to offer real economic liberation. That provides both a distinction and a difference. In the immediate and short term, while the surrogate currency in the form of bond notes is being introduced, there is need to do away with the “bad politics” that are fractured and alienating. The prohibitive and punitive aspects of doing business that is scaring away FDI and lines of credit needs urgent fixing. With or without our own currency, the economy has to generate forex and the trust and confidence.
In the immediate term, the following has long term effect as legislative and policy interventions:
- A public education system that advances our own agency, power of causation and critical and creative thinking.
- Prudence in fiscal governance and exercise of public power to avoid fraud, abuse and waste. There is lack of political will (2).
- Ease of doing business so that there is investment for competitive industrialisation and infrastructure development leading to job creation. Endless workshops and conferences around this issue are now an irritant as if we don’t know what needs to be done and how.
- Rule of law so that no person can be deprived of life (s48), liberty (s49, 51 & 52) or property (s71) without due process of law (s69, 70, 85 & 86). (3).
Causes of Economic Growth
There are only a few ways to generate economic growth.
- The first is conversion of economic resources into finished goods.
- Grow the labour force because more workers generate more economic goods and services.
- Create superior technology or other capital goods. The rate of technical growth and capital growth is highly dependent on the rate of savings and investment, since savings and investment are necessary to engage in research and development.
- Increased specialisation so that labour becomes more skilled at its crafts, raising its productivity through trial and error or simply more practice. (4, 5)
Using our own agency, power of causation and critical and creative thinking
To create is to have something out of nothing like an Architect who creates house from his/her MIND.
This means creativity is a mental exercise. We need to exercise both Creativity and Thinking. Being human means to be Creative-Thinker.
Every human being has the infinite power and cognitive capacity to be reasonable, discerning and causative for anything. Poverty is in the MIND not materially.
Thereafter, after we have done the work of an Architect to creatively think, we need to be builders or constructors. We need to act on our thoughts. We need to CONVERT our thoughts into matter.
Being builders means as human beings we use elements and aspects of nature to have what we would have creatively thought about. The result is a human construct. Material is converted from an idea or thought.
Elements and aspects of nature need human EFFORT to be useful to our lives. Useful in the sense of meeting a need or providing a solution to a problem.
We did not create rocks that we now call minerals but human beings agreed amongst themselves to give value on the stones so that they are precious or have commercial (tradable) value. Before that consensus, they were just rocks in the wild. Human beings CONVERTED them into a specific use. We have them for commercial value.
Nature on its own needs human creative thinking and then EFFORT to build and construct.
The top ten global confectionery companies that manufacture chocolate are (not in any order): Nestle (Switzerland), Lindt (Switzerland) Cadbury Schweppes (United Kingdom), Ferrero SpA (Italy), Callebut (Belgium), Mars (USA), The Hershey Company (USA), Kraft Foods Inc (USA) Meiji Seika Kaisha Ltd. (Japan), Barry Callebaut AG (Switzerland) Ezaki Glico Co (Japan).
Israel does not have much land and it then produced one of the best irrigation and greenhouse technology and also leads the world in developing and exporting green technologies. The country is also a pioneer in geo-thermal and solar energy, the world’s leading company in geo-thermal power.
Japan’s Nippon Steel Corporation is the world’s second-largest steel producer in volume and the second most profitable steel company in the world. The materials to produce steel arrive in Japan at the steelworks found in coastal towns on one end and leave as exports at the other end of the same town. Japan does not have iron ore or coal as natural resources, apart from fish.
By volume, Toyota is the largest motor vehicle manufacturing group followed by General Motors (USA), Volkswagen (Germany), Ford (USA), Hyundai (South Korea), PSA Peugeot Citroen (France), Honda (Japan), Nissan (Japan), Suzuki (Japan). By country, Japan is the second largest motor vehicle producer after China, followed by the USA, Germany, South Korea, Brazil and India. Japan does not have a single raw material for the automotive industry, apart from fish.
The Japanese consumer electronics industry is one of the most prominent industries in the world and is the world’s largest electronics manufacturer by companies such as Sony, Pentax, Casio, Citizen Watches, Hitachi, Mitsubishi Electric, Panasonic, Roland, Sharp, Canon, Epson, Yamaha, Sanyo, Fujitsu, Korg, Fujifilm, JVC Kenwood Inc, Toshiba, Pioneer, Nikon, TDK, Nintendo, Olympus, etc. “Japan is the largest consumer electronics manufacturer in the world due to its high concentration of electronics companies, dominant global market share in electronics, and high quality of its products.” – Wikipedia. Japan has only fish as natural resource.
According to the World Trade Organisation (WTO), South Korea is the 8th largest exporter in the world after China, Germany, USA, Japan, France, the Netherlands and Italy, followed by United Kingdom and Canada. South Korea is a country with the least natural resources, just like Singapore.
Within the Top 50 developed countries, one finds industrial powerhouses (not in any order) – Germany, Japan, South Korea, Singapore, Belgium, United Kingdom, Iceland, Luxemburg, and Switzerland do not have any natural resources to match their economic might except that they continue to prove that industrialization is the key to economic development, high employment and very low levels of poverty.
The main chocolate exporters in the world are all European, with the four largest countries, according to World Trade Organization statistics, being Germany (US$1.5 billion exports in 2003), Belgium ($1.4 billion), France ($856 million) and the Netherlands ($821 million). None of these chocolate-producing countries are among the list of those producing cocoa. They are the biggest producers and among the most consumers of chocolate.
Relatedly, abundant natural resources (land, minerals, sun-hours, a tropical climate, etc) in Africa have created a comfort social condition and industrial inertia leading to very low levels of industrial ingenuity, innovation and creativity.
The fastest growing telecommunications market in the world is Africa? In the mid-90s, there were 600,000 mobile phones in Sub-Saharan Africa. Today there are 750 million users today. What created this growth? There were no aid dollars or conferences. It was human ingenuity, innovation and creativity. These were the real game changers. Yet there is NOT even a single telecommunications equipment manufacturer on the continent.
A human construct is anything that did not exist before human creative thinking and EFFORT of building and construction.
Caucasians who came to Africa brought absolutely nothing except what brought them here, their clothes and their human networks.
They exercised the power of creative thinking and conversion of their ideas/thoughts using the available elements and aspects of nature.
They CONVERTED that into commercial value and tapped into their own human networks for leverage.
Apartheid and the colonial government systems all over were a human construct to protect their racially-based interests.
Now that the political systems are inclusive, diverse and pluralistic, how come we are not harnessing human ingenuity, creativity and innovation for an improved economic situation?
Because we are poor in the MIND as we haven’t discovered the infinite power within us waiting actualization.
What is an economy?
From this thinking, n economy is the CONVERSION rate of ideas/thoughts into material products using aspects of nature into solving human problems and meeting needs.
A country is an aggregate and collectivity of individuals and institutions whose economic decisions and behaviour have a bearing on the well-being of a nation’s economic productivity. The least developed countries have remained oblivious to the industrialization approach, yet South Korea, Japan and China have sent their best brains to study, adopt and adapt the Western model – innovation, private property and organizational efficiency.
Ironically, the least developed countries simply adopted and adapted the Western model of conspicuous consumption “in the context of addictive or narcissistic behaviors induced by consumerism, the desire for immediate gratification, and hedonic expectations” while not backed by solid and sustainable economic fundamentals of financial prudence, savings, technological innovation and commercial creativity. Majority of educated Africans are highly Westernized in terms of consumptive style and gadgetry tastes but very unscientific, technically unscrupulous and casual about time in terms of essence and reluctant “architects”.
The top 100 brands of the world are from the developed countries of the world. It was naturally created that way. Expression through human conduct made it so possible. The 1996 book “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy” (1996) by Thomas J. Stanley and William D. Danko looked at the wealthiest Americans and found that most millionaires are quite frugal and lead modest lifestyles.
According to Arthur Herman, historian and author of “How the Scots Invented the Modern World: The True Story of How Western Europe’s Poorest Nation Created Our World and Everything In It,” private enterprise is a process of the unleashing of rational and informed self interest through economic processes in meaningful commercial activities which breed in human beings an independence of mind and ability to make and to judge the world, judge what’s right and what’s wrong, to make decisions for themselves. He said the Scottish Enlightenment as it impacted the USA was an understanding of the principles of property. Property is the resource and a resource is the basis of having an affordable society. Business is the wealth creator of our society.
According to Adam Smith and David Hume, both of them Scots, commercial private enterprise is, in fact, the driving engine of change and human progress. The free market is more than just a place where goods are exchanged. It is really the clearinghouse of civilization because civilization is not only about the exchange of commercial products between the customer and businessperson, between consumer and producers but also the exchange of ideas among scientists, among intellectuals within the larger culture as a whole. That’s the focus that the Scottish Enlightenment gave the role of commercial interest as the driving creative productive force in society.
(3) Constitution of Zimbabwe (2013) http://www.constituteproject.org/constitution/Zimbabwe_2013.pdf
(4) Economic growth http://www.investopedia.com/terms/e/economicgrowth.asp#ixzz4KPGEzXcq
(5) Understanding Supply-Side Economics http://www.investopedia.com/articles/05/011805.asp#ixzz4KPDBOhxZ