This week we stay with the budget theme, in a piece leaning more towards wider fiscal developments than sectoral financial interests, in recognition of how the chosen fiscal path may have a significant bearing on the prospects of securing external financial support in the form of lines of credit.
Presenting the Budget, the Minister of Finance Tendai Biti noted that “the vote of credit of US$810 million from development partners has not performed to expectations with only about US$360,2 million having been received by end of October 2010.” Underlining the receding prospects of such assistance, the minister said that the amount of US$500 million expected from “co-operating partners” in 2011 would be channelled directly to projects, thus remaining outside the Budget framework.
For purposes of illustrating the receding prospects of development support and the apparent futility of overly relying on it, I enlist the services of an unorthodox religious movement, which according to Wikipedia, appears in tribal societies in the wake of Western impact, a cargo cult.
Cargo cultists maintain that manufactured Western goods or cargo have been created by divine spirits and are intended for the indigenous people, but Westerners have somehow unfairly gained control of them.
Cargo cults thus focus on overcoming what they perceive as undue “white” influences by conducting rituals similar to the white behaviour they have observed, expecting that the ancestors or gods will at last recognise their own rituals and send them cargo.
In business and scientific circles, cargo cult is often used to refer to a particular type of fallacy whereby ill-considered effort and ceremony take place but goes unrewarded due to a flawed model of causation.
Typical cargo cult activity includes setting up mock airstrips, airports, offices and attempting to fabricate Western goods such as radios made of coconuts and straw, life-size mockups of airplanes built out of straw (ndege dzemashanga) in the hope of attracting real aircraft full of cargo.
Cultists may stage “drills” and “marches” with twigs for rifles, military-style insignia and “USA” painted on their bodies to make them look like real soldiers, treating the activities of Western military personnel as rituals to be performed for the purpose of attracting cargo.
It would appear that for close to two years now, we have unwittingly been (perhaps wittingly) partaking in classical cargo cult activity by pinning about 37% of our hopes on “co-operating partners” to rescue us from our current predicament through the provision of budgetary support.
However unfolding realities have finally made us realise the fundamentally flawed nature of our collective thinking.
In late October 2010, the Minister of Finance was quoted lamenting the extent of well-intentioned but largely misplaced expectation.
“In our 2010 National Budget of US$2, 2 billion, about US$800 million was going to come from the Vote of Credit. We wished donors would give us that money but that was a wish list, the money never came. Now we have seriously learnt hard lessons. If anyone suggests that a third of the Budget should be from donors, I will not do that,”said Biti.
At the same time as Biti made the famous statement, FSS carried an article titled “Zimbabwe needs a Sovereign Credit Rating to unlock value”, which took note that post-financial crisis realities had made it clear that the constrained state of public finances in traditional donor countries would see less aid flowing to Africa in the coming years, despite the promises made by the Group of Seven richest countries in 2005 to double development assistance.
Clearly, it is time for African countries to seriously consider weaning themselves off aid in response to dynamic, unfolding realities, we suggested.
The 2011 Budget is, in many respects both a demonstration of the shift in government thinking and a culmination of unmet financial needs in respect of development aid.
The fiscal policy document is, accordingly, replete with language that finally signifies the onset of a process to ditch a burdensome cargo cult.
Though the minister diplomatically expresses government’s gratitude for the support from development partners, whose impact he describes as “timely given the challenges that we continue to face”, it is clear that in private expectations have been duly adjusted in accordance with the underwhelming nature of the Vote of Credit.
Elsewhere in the Budget statement, the minister proposes the build-up of foreign currency reserves (initially targeting an import cover of three months by 2012, against the Sadc target of six months envisaged under the macro-convergence criteria) and soberly points out that “we are not only on our own, but have no fallback position with regard to foreign exchange reserves”. “This,” he further says “against the absence of external financial support, is not sustainable.”
We noted in the article already referred to earlier that the prospect of aid slowdown, if not of outright reversal, will have the impact of forcing African governments to consider alternative, more reliable sources of funding such as more domestic debt, a broader tax base and foreign bonds.
We are glad that the minister is taking tentative but bold steps in the general direction of those objectives.
Addressing the issue of savings mobilisation in the Budget statement, he notes that “our recovery cannot rely solely on dependence on external financial support and lines of credit” and proceeds to propose various measures in support of domestic resource mobilisation, such as the “introduction of more interest bearing instruments on both the money and equities markets, including reactivation of the bond market”.
In a posture that also boldly demonstrates the resolve to permanently erase memories of recent cargo cult activity, Treasury predicts that going forward the domestic market will drive the economy, with the contribution of exports to gross domestic product falling over time.
It is anticipated that even though they will be increasing, exports will assume a less important role in the economy’s recovery.
However, in seeking to ditch the cargo cult mentality in its most harmful forms, the impact of limited domestic resources must be given due regard.
Immediately after the announcement of the budget, KFHL group economist Witness Chinyama declared that, “This Budget needs external support,” adding that Biti had been constrained by limited resources.
Comments attributed to Industry and Commerce minister Welshman Ncube earlier this week, that government had agreed to waive the Indigenisation and Economic Empowerment Act for the time being and allow flexibility in its application across sectors, after noting its negative impact on foreign investment direct investment, will have gone a long way in illustrating how hazardous the process of ditching a cargo cult can be under conditions of limited resources, especially if it is not well-managed.
“We need foreign investors with the balance sheet and the capacity”, Minister Ncube said.
We now live in a global village with ties that bind, and disengaging from the embrace of the so-called international community in whatever form is easier said than done.
However, let us not be deterred because Africa is badly in need of ditching the cargo cult mentality on many fronts, not the least of which is the development aid phenomenon.
Omen N Muza is a banker and Managing Director of TFC Capital (Zimbabwe) (Pvt) Ltd. He writes in his personal capacity. For feedback and your views on the issues raised in the article, please contact: firstname.lastname@example.org