Two weeks ago, I wrote about the need to rethink national and global unemployment. My point then was to encourage developing countries such as Zimbabwe to take a step backwards and strengthen their production side of the economy.
We are all fast-becoming middlemen, service providers, vendors and consumers. No one is producing. While the service industry can sustain an economy in the developed world, it is not a viable approach in developing countries.
Someone needs to produce before we vend. If we are vending what we did not produce, then we are not on the right side of economic trajectory. It is the productive sector that sustains economies because they convert zero to something. They generate value from nothing to something and create wealth. The value generated by production is what the service sector adds on their mark-ups to make their profits. The service sector follows money and it does not make it.
The service sector concept often works effectively in functioning productive economies. This is one of the reasons why countries such as Japan which do not have a lot in terms of natural resources have opted to be innovative in acquiring raw materials and establish a vibrant production economy which has had a knock-on effect on the service sector.
Just picture this: If all cars flooding our damaged roads today were produced and supplied in Zimbabwe, our economy would be flourishing. But then check on the other side of the coin: Japan’s economy is flourishing because they even make profit from zero, in the form of second-hand cars that are given value by demand from desperate Africans. The cash in your pocket today will accumulate in the pocket of those who produce what you consume. Consumption is the dead end of cash value which is why the service sector cannot sustain economies in Africa.
The state of the Greek economy tells us a few interesting lessons on the need to rethink production than the service sector. In fact, there have been attempts to draw theoretical parallels between Greece, Zambia and Zimbabwe. I say theoretical because even though the story reads the same, the contextual realities are by far different.
Despite its historical significance to the founding principles of democracy and Western culture, Greece becomes the first developed country to default on its international financial obligations of $1,8 billion owed to the International Monetary Fund (IMF).
The negotiation period was characterised by long queues as the country faces cash shortages, a 25% unemployment rate which is likely to grow, possible isolation by the Eurozone to which it is a founding member and increasing poverty by Western standards.
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References were made to Zambia and Zimbabwe. Zambia was mentioned as an example of a country that benefited from international debt relief, while Zimbabwe remains a recent example of a country that went through a hyperinflationary situation when its economy nosedived and is yet to rise. These references were only limited to the mechanics of economic debates.
But the configuration of the Greek economy tells us an interesting story which could only be sustained by a culture of trust prevalent in the Eurozone than anything else. Greece is classified as developed country with high standards of living. However, its economy comprises 85% service sector, 12% industry and 3% agriculture. The 2008 global financial crisis exposed the weakness of this economic structure which forced the government to borrow billions of dollars in bail out loans from the European Union and IMF.
Certainly Greece has to be credited for having kept it together on such a fluid structure for so many decades. Their economic system would not have survived anywhere else without the support of the Eurozone.
But there is something Greece has additionally done over the decades which has somewhat sustained their economy. African countries can surely draw lessons from Greece before they run to borrow.
Greece has invested heavily externally in the Balkans making the country the biggest investor in that region. So what we can learn here is that in order to obtain what you don’t have, we need to acquire from those who have before borrowing.
As we learnt from both Japan and Greece, acquiring can be in the form of importing raw materials, knowledge and equipment or investing in those countries with high disposable income.
It never works the other way round. We bear testimony to that after our three decades of a bumpy economic ride.
Attracting foreign investors is not an effective long-term response to economic growth, though it can be used as a trigger where an economy has become so desperate to the extent of manufacturing millions of vendors when liquidity is up in the air.
Tapiwa Gomo is a development consultant based in Pretoria, South Africa
