New perspectives: Inflation control critical for economic growth

Some economists are predicting, hopefully they are totally wrong, that the Zimbabwe dollar will inflate to US$1 for ZW$2000, an increase of hundreds of  percent in three months.

BY FAY CHUNG Inflation is a critical challenge for Zimbabwe.

Zimbabwe has suffered from inflation since independence.

Inflation has become remarkably high over the past thirty years.

There is no doubt that inflation is the main factor restricting economic growth.  This is agreed by all economists, national and foreign.

What are the main causes of inflation, which is presently 190% over the last 12 months, but estimated to be over 500% over the last month.

Some economists are predicting, hopefully they are totally wrong, that the Zimbabwe dollar will inflate to US$1 for ZW$2000, an increase of hundreds of  percent in three months.

Inflation occurs in all economies. Usually this is of a few percent a year. Most nations try to ensure it is less than 8-10% a year.

Zimbabwe managed to keep to this target in the 1980s, but by the 1990s inflation began to increase.

What are the causes of inflation?  There are a number of causes.

The most critical and important one is the government:  how much is government spending, and on what is it spending?

It is important to remember that before Independence, the government was controlled by the white minority, who comprised only 4% of the population.

The government budget mainly favoured the white population, with major changes only taking place in the late 1960s and the 1970s.

African education was only properly established in 1968, prior to which missionaries were responsible for African education:  some did their best and produced good quality education for a small minority.

The majority emphasized literacy to promote their religious aims, with the result that most African schools only went up to Grade 3.

For example in the 1960s there were only six secondary schools for Africans, of which two offered 6th Form, compared to more than 30 for white students.

The changes made as a result of the Federation of Rhodesia and Nyasaland in the 1950s and 1960s resulted in the speedy independence of Malawi and Zambia, and it was crystal clear that Southern Rhodesia, the name for Zimbabwe, would soon join the establishment of independence all over Africa.

By Independence in 1980 there were now 35% of the relevant African age group in primary and 4% in secondary education in Zimbabwe:  there was an enormous change in the 1970s as the white government realised the whole country, including the Whites, would face disaster if they continued with their previous neglect of African Education.

Health was similarly neglected, with missionaries providing medical facilities in rural areas, and government only for urban areas.

Africans were not allowed to own housing and property in “White Areas” which comprised the best half of the agricultural land.

Mining, companies and urban areas were only owned by whites.

All this changed at independence.

For the first time, African children were allowed to attend primary schools: primary enrolment increased to over 100% within three years of Independence.

Now about 49% of African children attend secondary school.

Whereas before independence Africans had to pay for all education whilst Whites got free education, this was changed.

The unit cost of European primary and secondary education was twenty times higher than that for Africans:  unit costs were  immediately  adjusted, and Europeans now also had to pay fees.

However, fees were very low:  primary education was “free”, which meant that government paid for teachers, textbooks, and administration. Construction was done mainly by parents and local authorities, with government providing a third of the costs.

This allowed communities to build hundreds of schools by making their own bricks and paying for the construction.

Government paid for window and door frames, cement and roofing.

Although government did its best to ensure that the cost of education, health and a clean water supply, the three essential social services,  was as low as possible, costs were considered high especially compared to what had been spent in the past.

One major cost was salaries.  Before independence, Europeans earned an average of about US$350 a month, compared to Africans whose lowest wage, for farm workers and domestics, was about US$10 per month.

Moreover most European educational and medical personnel were civil servants, whereas Africans were mainly paid a low salary by missionaries.

It was not surprising that all teachers and medical personnel demanded to be given the same salary as their European counterparts with the same qualification.  Government agreed to this.

The civil service rose from about 40 000 to about 550 000 today.

The demand today for US$540 a month was the average pay for a European civil servant at Independence.

Meanwhile, the number of qualified personnel increased exponentially. The population also doubled.

However, the economy grew very slowly in the first two decades, and became totally stagnant in the second two decades.

A big problem was that the number of civil servants kept growing, so that for the Ministry of Primary and Secondary Education for example, 90% of their budget was spent on salaries, and little or nothing on textbooks, supervision, construction, maintenance, etc.

Naturally the quality of provision was drastically lowered.

In order to stabilise the economy and especially to grow it, it is essential for government to spend more on agriculture and industry, in other words on economic growth, rather than only on social welfare.

For example, if government were able to spend say 40% on the civil service, and 60% on economic growth, this would make a great difference.

Of course, it would also depend on how the investment into economic growth is done.

Carelessly done, for example through a lot of corruption, too much investment on central government, and lack of support for local authorities and private enterprise, naturally means low growth.

Zimbabwe is lucky that recently mineral prices have increased, and that for the first time Zimbabwe can enjoy a surplus of foreign exchange.

However so far we have not been utilising this increased profitability for the good of the economy as a whole.

We are continuing as we have been doing for the past three decades, investing little or nothing into the economy, and instead borrowing billions of dollars at high interest rates.

Apparently our debt is close to US$18 billion now, with little possibility of repaying it even though we are making profit.

We should invest some of the profit, estimated at US$2 billion a month, on paying our debt and on economic growth, particularly of the decentralised economy rather than only the expenditure of  the centralized government.

High centralisation, as today, is good for consolidating political power, but not of economic growth.

Expenditure needs to be decentralized. Economic growth will take place on the farms and industries, both large and small.  In particular it is essential for government to support parents, communities, and local government to employ rather than everybody being employed centrally.

  • Fay Chung was a secondary school teacher in the townships: lecturer in polytechnics and universities: teacher trainer in the liberation struggle; civil servant and UN civil servant and minister of primary and secondary education.
  • *These weekly articles are coordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society (ZES) and past president of the Chartered Governance & Accountancy Institute in Zimbabwe (CGI Zim). Email- [email protected] and mobile No. +263 772 382 852

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