By Austin Chakaodza
FINANCE minister Mthuli Ncube and Zanu PF secretary for administration Obert Mpofu have predicted that Zimbabwe is going to achieve economic growth this year as a result of the expected bumper harvest of maize and other crops. To what extent is this prediction based on wishful thinking?
This article is designed to explore issues surrounding the concept of economic growth and how it is measured and then apply the implications to the concrete conditions prevailing in Zimbabwe. At the outset, it must be argued that a bumper harvest is not by itself a sufficient condition for measuring economic growth.
The best definition of modern economic growth was provided by Simon Kuznets in a Nobel memorial lecture. A country’s economic growth may be defined as “a long-term rise in capacity to supply increasingly diverse economic goods and services to its population. This growing capacity is based on advancing technology and the institutional and ideological adjustments that it demands”. Thus, from this definition, it is clear that the deliverance of an increasingly diverse range of goods and services as well as the occurrence of technological change which is accompanied by significant changes in the institutional and ideological framework of society go a long way to contribute towards economic growth.
In order to have a better understanding of this concept of economic growth, it is important to explain how it is measured. Traditionally, gross domestic product (GDP) per capita has been used to measure the levels of economic growth. The national income accounts of a country provide the basis for measurement of the output of goods and services. GDP measures the total output of goods and services for final use produced by residents and non-residents of the country, irrespective of these goods to domestic or foreign claims. GDP measures the total domestic and foreign value added claimed by residents of the country.
GDP comprises gross domestic product plus net factor incomes from abroad, which is the income residents receive from abroad for factor services, that is labour and capital, less similar payments made to non-residents who play a contributory role to the domestic economy. As already mentioned, the widely used measure of economic growth is that of GDP per capita divided by the population of the country.
The foregoing has its problems and limitations. GDP per capita does not by itself contribute or measure success of economic growth or development. GDP per capita as a measure of economic growth captures only one side of the equation, it does not address how goods and services are received by the population.
One may start by providing a narrative context of the economic problems that Zimbabwe has been facing over the years. This is necessary if we are to consider whether or not Zimbabwe is going to achieve economic growth this year. Zimbabwe has largely five enemies, namely poverty, inflation, unemployment, inequality and infrastructural under-development. These five challenges, among others are a threat to the wellbeing of the Zimbabwean society as they have persisted for too long without being arrested by the government.
Zimbabwe is a low-income country which shows no evidence of high rates of economic growth. Not surprisingly, there has been a certain disillusionment among citizens as their relative income and in some cases their absolute income continues to fall to staggering proportions. The growth experienced in Zimbabwe over the past two decades has been one of stagnation. The fact that this stagnation has persisted suggests that the problem for Zimbabwe is one of economic mismanagement.
Economic stagnation results from the inherent inefficiencies and distortions in the Zimbabwean economy. For example, the infrastructural landscape is dilapidated. Roads are littered with potholes; the traffic light system is dysfunctional, thanks to street kids who are currently directing traffic at some of the traffic lights-controlled intersections. Unemployment is around 90%. The health and education services have declined to unprecedented levels and inflation has skyrocketed to 200%.
From the above, it can be established that Zimbabwe is unlikely to achieve high rates of economic growth in the foreseeable future. Economic growth requires sustained improvements in social welfare that are pervasive throughout the society. Economic growth should result in the economic development of the country and in turn economic development requires that economic growth affects a broader segment of the population in ways that will enhance their welfare and standards of living.
We have to acknowledge that the government has failed and is still failing to fight poverty, unemployment and inequalities. Yet Zimbabwe is awash with abundant natural resources. The government has over the years failed to develop legislative and policy frameworks specifically to address the economic challenges facing the country. The various stabilisation programmes don’t seem to have resolved the problems in any meaningful way.
Economic growth is unlikely to be achieved this year when the country’s financial system is under repression. Banks, obviously from government pressure, are controlling and limiting how much customers can withdraw from both local and foreign currency accounts. EcoCash is pegged at $35 000 per week. This financial repression has led traders, wholesalers and retailers to charge for their products and services in US dollars when the latter is not even the legal tender.
The value of a country’s gross domestic product should be measured in terms of the purchasing power of its domestic currency rather than the currency’s value on international exchanges. Yet the opposite is true regarding the Zimbabwean financial system. We are pretending that the US dollar is the country’s legal tender and, therefore, the unit of account. However, both the domestic currency and the US dollar are in short supply and this has had a negative impact on economic growth.
In order to achieve high rates of economic growth, there are a number of fundamentals that need to be put in place. This requires among others, government investing in infrastructure and maintaining the institutional framework necessary for economic growth. It also requires that the resources which belong to the nation as a whole should be utilised for the benefit of the society. Service delivery in education, health and public utilities should respond to the developmental needs of society as a whole. Therefore, it is the government’s responsibility to come up with policies designed to react to and alleviate problems of poverty, unemployment and inequalities.
Zimbabwe is yet to experience a high and sustainable rate of growth in income per capita that is associated with modern economic growth. Ncube’s optimistic prediction that the Zimbabwean economy shall grow by 6 -7% this year is as fallacious as it is misleading. A bumper harvest of maize expected this year does not suggest any significant turnaround of the economy. Thus, even the IMF recently dismissed Ncube’s optimistic projection and the institution predicted that the economy might grow by just 3%. The country is facing insurmountable obstacles in launching modern economic growth.
Finally, there is a need for a mind shift for Ncube, Mpofu and their ilk on how they make predictions about the growth and performance of the Zimbabwean economy. Using orthodox methods of measuring the rate of economic growth has its problems and limitations. Measurement should be viewed as a process whereby the greatest value is achieved through officials building up and learning from data and evidence over time.
- Austin Chakaodza is a retired Professor of International Relations and Political Economy