President wants to see better business

Economic matters were, as now expected, well to the fore in President Mnangagwa’s State of the Nation Address at the opening of the Second Session of the 10th Parliament on Wednesday and the speech gave a clear outline of the successes of the Zimbabwean economy and the pressures that it faces.

The President made it clear that the Government intends to maintain the major thrust we have seen in the Second Republic, with active support in agriculture, the pro-investment policies in manufacturing and mining, a wish to involve more in business, especially industry, through greater support for innovation hubs and university business parks plus greater support for small and medium enterprises, and a determination to continue with the local currency.

Much of this was expected, but the President went beyond just repeating previous economic mantras and outlined extra support where this was needed.

For example in agriculture, while maintaining the growingly sophisticated Pfumvudza/Intwasa scheme, he was stressing the village business units, each built around one of the boreholes in the regular drilling programme, and stressing the need to mobilise the water in the small dams and weirs, as well as the major dams, in irrigation.

While existing industries are supported, the President wants to see a lot of expansion by new businesses and new industries being created, instead of just expanding what this there already.

He sees the innovation centres and business hubs of colleges and universities to be important as ways of filtering good ideas and moving forward, sometimes into non-traditional industries and businesses.

He also wants to see the counterpart of the successful small-scale farming operations in industry and commerce, with greater support for small and medium enterprises, and especially for bringing in more women and younger people to start and grow businesses.

This will help speed up industrial development, and should start breaking some of the near monopolies and possible cartels we have, which are a potential problem, by increasing competition and expanding the business sectors, rather than trying to control the growth of existing companies and minimise their expansion.

In other words he wants a lot more strands within the business environment, and that is the most sensible way of growth without artificial limits.

It has been clear in recent weeks, with increases in US dollar prices that some producers delve into speculative behaviour by trying to tie prices to the black market exchange rates through a double conversion of US dollar prices to ZiG prices and back, using different rates. In a larger and more competitive economy such behaviour simply does not work as there are growing probabilities that someone will break the cartel.

When some of the pressure comes from new and young businesses trying to gain a foothold in a sector then the competitive pressure increases.

Even in the US, the largest single national economy, the problem of continual mergers and buyouts in reducing competition does create a problem, and pricing policies have become a factor in the present US election.

And that is in a country that usually can create large-scale competition, although consolidation has made that harder in recent years.

Many of our established industrial companies tend to be a bit complacent when it comes to products and pricing, and a lot of new blood will both expand the sector, and shake up the established companies. Sometimes the old ways are not the best ways.

Anyone who wants a really visual look at why innovation is important should arrange trip passing Redcliff and Manhize and look at the defunct Zisco works and the rapidly commissioning Disco works.

They are different technologies and quite different approaches.

While not stressing the perceived economic stresses of foreign currency, the President did note that exports are rising far faster than economic growth.

Total exports are expected to hit US$8 billion this year, up from around US$7 billion last year, and that is in a year when growth averages only 2 percent because of the severe drought.

The jump in value also comes in a year when agricultural exports, mainly tobacco, fell because of drought and when mineral exports were damaged by falling prices, although rising volumes and the continued pressure for more local processing are both paying dividends.

That almost 15 percent jump in export earnings is another major fundamental advance, and should have been ensuring that the local currency was a strong and stable currency. Stability should allow in a developing country a gentle drift down, as we see with the rand for example, but no dramatic movements.

President Mnangagwa sees speculation and speculators are principle cause of the re-emergence of the black market after it was slashed back and its influence on economic matters largely minimal.

While there is still not that much trade in that market, its speculative pricing has certainly been a negative factor, and was part of the reason for the sharp devaluation last week.

Considering the strengthening fundamentals the attack on the currency by the speculators was obviously a major factor and it appears that the action to defend the currency needs both adherence to fundamentals as well as action against speculation.

The fact that he brought up criticism of speculators in such a measured and structured speech suggests that the Government is likely to see this as a major problem that can be solved by Government action, the same way perhaps that corruption was hammered back and even overpricing of goods for Government orders was hammered back.

The Second Republic has tended to want opportunities opened, and been practical of doing that with its investment and business policies, but has also made it clear that it sees problems, especially those driven by greed, to be equally soluble and not something that can just be tolerated and left to wither.

The business sectors should note that the President sees it important for the Government to continue to back the local currency, and this does tie in with previous statements by the President and others that Zimbabwe is moving towards a single currency, and that will be the local currency.

This is important when we start looking at competitiveness, especially for exports.

When we did dollarise after the collapse of the first Zimbabwe dollar a lot of industry simply collapsed, since imports became cheaper than local manufacture for far too many products when local industry was locked into a far harder currency than its main competitors in South Africa and even Zambia.

Eventually specific import permits were needed for each product and each shipment, but as we move towards AfCFTA that will no longer be possible and our industrialists will have to compete in their home and foreign markets on the basis of quality and price, and that will make a major difference to how they think.

This is why the newcomers are so important, as they will be thinking competitively from the world go, not having inherited markets and brands, and the faster the Government can work out effective ways to help new start-ups and bring in more innovators into the manufacturing world, the better.-ebnessweekl