Economy challenge ... Finance minister Patrick Chinamasa presenting his 2014 national budget
by Clive Samvura
COMMENT - Zimbabwe should adopt the Rand? South Africa is up for a economic makeover itself. - MrK
Economy: Radical options for growth (Part 2)
Economy: Radical proposals for growth (part 1)
THIS is the last part of my article where I would Like to draw the government’s attention to simple ways of raising capital internally and also provide a few business ideas at the end of the article. Zimbabwe should not look east, west, south or north; it should look within to solve its own problems and take unprecedented steps to raise capital internally.
The majority of the capital should then be allocated specifically to the Industrial Development Corporation (IDC) and dispensed to indigenous entrepreneurs engaged in the labour productive sectors of Pharmaceuticals, Bio-Technology, Heavy Machinery (agriculture and mining), Chemicals, Iron and Steel, Software and Engineering Services. To raise this capital, government needs to take drastic action now by implementing austerity measures to stop fiscal leakages and cut labour costs. Below is a list of priorities that should be implemented by government if it seriously wants to kick-start real broad-based economic growth:
Staging an outright war on corruption and stopping fiscal leakages
I normally only read articles penned by Nathaniel Manheru in the Herald, but I’d like to say a special thank you to the Herald for exposing corruption in the ZBC, PSMAS, and Air Zimbabwe. This is journalism of the highest order which resulted in the suspension and firing of CEO’s and directors. By stopping payments to Cuthbert Dube and the executive board, the Herald has effectively helped government save a million dollars a month this year. Please keep up the good work; we need to stop the fiscal haemorrhaging brought about by this type of misappropriation of public funds.
Pending the drafting and implementation of remuneration framework for the Consolidated Revenue Fund, the government should take the immediate extraordinary measure of announcing a salary cap of $60,000 for ALL CEO’s in Zimbabwe’s parastatals, pending a forensic audit and probe by an independent commission. There are 80 parastals in Zimbabwe; how much money are we losing each month? The directors and board executives should also be paid below this threshold. The government should show that it is genuine in its fight against corruption and go a step further by taking the radical stance of legislating the death penalty for government officials convicted of corruption, just as the Chinese have done. For other civil servants, and those in public service, a minimum of 20 years should apply. We are ranked a lofty third on the African continent after Nigeria and Egypt when it comes to corruption which is nothing to be proud off. The Zimbabwe Anti-Corruption Commission (ZACC) itself should also be accountable and prosecutable for not carrying out its constitutional mandate. Soliciting bribes for any major project is now the standard practice in Zimbabwe. If indigenisation and empowerment is the main government policy, then please could this also apply to corruption? Please can indigenous Zimbabweans at least be exempted from paying bribes? Fighting corruption is the quickest way to raise an extra $2 billion a year, which is an increase of 50% to the current budget; this alone should be the main incentive to fight corruption.
Reduce number of ministries to a critical mass of 10, reduce number of civil servants
The “critical mass” is the minimum number required to carry out the basic functions with optimal efficiency and limited resources in a self-sustaining way. Government should cut the number of ministries to its “critical mass” and have a maximum of 10 ministries namely Economic; Education; Health; Energy and Infrastructure; Agriculture, Land and Environment; Defence; Home and Foreign Affairs; Health; Justice; and lastly State Enterprises.
Under the IMF’s staff monitoring programme, the government was requested to cut its costs, remove ghost-workers from the payroll and set up a debt repayment programme. In response to these recommendations, the government added another 10,000 workers to the payroll. These are the kind of measures which show that our government is not serious, and in equal measure should not expect to be taken seriously by the IMF, World Bank or African Development Bank. If the UK has a civil service of 340,000 for a population of 70 million how can we seriously justify an over-bloated civil service of 230,000 for a population of 13 million? Our civil service should have a maximum of 65,000 employees in proportion. If the number of civil servants is reduced to this critical mass, then the salaries can be increased above the poverty datum line. This may mean temporary unemployment for a few in the short term, but it will allow scarce capital to be directed and allocated to more labour productive sectors.
There’s another anomaly with regards to the so-called wage bill and recurrent expenditure. The lowest paid employee in the civil service earns $296 per month, e.g. those in the B1 grade which includes office orderlies. The workers in grade C1 earn US$353 per month. Most teachers, nurses and members of the uniformed forces are in grade D1 and earn US$419, while those in the E5 grade such as deputy directors and chief accountants earn US$508 net. So if we take the highest pay of $508 and multiply this by 230,000 worker, we only get $508 x 12months x 230,000 = $1.4 billion, which is only 35% of $4 billion. So could someone please enlighten me as to why the budget says this is 75% of $4 billion (which is $3 billion)? What average monthly wage are they using to reach this figure and why is there a discrepancy of some $1.6 billion? Do allowances and perks make up this other figure?
Reduce number of parastatals, set up a probe commission then restructure all parastatals
The following link provides the list of parastatals in Zimbabwe http://www.mosep.gov.zw/list-of-parastatals. A quick look shows that some parastatals seem to have overlapping and redundant functions and could easily be housed under other existing parastatals, for example: under Agriculture, why do we have the CSC and a Pig Industry Board, why are these not the same parastatal? Why do we have a Tobacco Research Board (TRB) and an Agricultural Research board (ARB), when the TRB could be incorporated into the latter? Under Transport, why does the government need a Central Mechanical and Equipment Department? Why can this not be incorporated into ZUPCO, NRZ or ZINARA where relevant? Is its primary function to dish out cars to the MP’s?
Under the Environment, why do we have a Forestry Commission and a Parks and Wildlife Management Authority? Why are these not housed under the same parastatal? Under Media and Telecoms why is there a Board of Censors, Broadcasting Authority of Zimbabwe and POTRAZ, why are these three not housed under the same parastatal? The worst is Arts and Museums, why do we have a National Arts Council and a National Museums and Monuments of Zimbabwe, why are these not housed under the same parastatal?
Why do we like to complicate things which are not complicated? Why the inefficiency and duplication of parastatals? This is not rocket science; these are organisational problems which need strategic restructuring to allow them to be profitable. In their restructuring exercise, the government should either sell-off or wind-down all loss-making parastatals which are a drain on the fiscus. In general government needs to remove the monopolies that parastatals currently enjoy and allow indigenous entrepreneurs to enter the reserved sectors and provide competition. The parastatals will only improve their performance and service delivery in the face of stiff competition.
Change in Monetary Policy
Zimbabwe should seriously consider adopting the Rand as its main currency (whilst maintaining the other currencies) and become part of the Rand Common Monetary Area. The reason for this is to remove the current distortions in prices and wages brought about by adopting the US$. Regrettably the US$ has made local industries uncompetitive and is stifling economic growth. Introducing the Rand will realign the prices and wages to our real economy with the resultant effect of reducing imports, and making local industries competitive.
Banks are stifling economic growth
The RBZ is going to move in to adjust current interest bank lending rates and allow interbank lending. They should also reduce the minimum deposit limits on banks to allow more liquidity in the economy. Interest rates should not be more than 4% per annum for any term of loan. With EcoCash processing $200 million a month, the banks themselves need to embrace mobile banking, or come up with a competitive product to attract customers and improve liquidity. As smartphone makers are beginning to adopt Near-Field Communication (NFC), the concept of using biometrics to facilitate wireless payments, like Touch ID, seems to be gaining momentum. As mobile penetration is high in Zimbabwe, this could bring an estimated $2 billion floating in the informal sector into the main money stream.
I’m also surprised that no effort whatsoever is being made to bank the estimated three million Zimbabweans in Diaspora who are currently remitting US$2 billion a year. An incentive would be to allow them to open an account online with their current address, set up a system so that they can pay money into this account without excessive bank charges and then use this account for whatever interest they may have in Zimbabwe, or for remittances.
What to Invest in as part of state-led capitalism
Along with legislating Employee Share Ownership Plans (ESOPs) for ALL companies as part of a broad-based empowerment drive on the microeconomic level, the government should also look to follow China’s model of state-led-capitalism on the macroeconomic level. China’s initial growth was based on mass production using cheap labour. China used the capital generated from this initial phase and copied the Japanese route of investing in more labour productive sectors.
Now China’s state-led-capitalism is contributing 50% to their GDP mainly from State Owned Enterprises (Parastatals), which are well managed, well-funded and generally have access to markets. The complete opposite is true in Zimbabwe where our parastatals are bleeding us dry. Government should be the facilitator and driver of economic growth through policies, tax breaks and preferential treatment to start-ups in high labour productive sectors, and by directing capital investments in strategic industries, both large and small scale:
Immediate strategic investments required by government on the macro-Level
Investment strategy based on multiplier effect – Government has correctly identified the specific sectors of the economy which require strategic investment to obtain the multiplier effect, i.e. energy and water. However, as I mentioned before, it is the government who should invest heavily in these sectors and not expect external capital to finance such projects.
Energy - government should invest in energy to have an energy surplus which can be sold to the Southern African Power Pool (SAPP), coal and gas power plants in particular can be designed and constructed by local entrepreneurs.
Electricity grid expansion – whilst the rural electrification programme was a good idea, it lacked sufficient capital for correct implementation. A strategic electricity transmission line needs to be built to the southern part of Zimbabwe to tie in with Mozambique and South Africa’s grids. This will expand our electricity export capacity and it will be easier for power plant built in southern Zimbabwe to connect into national grid.
Water Chemicals – Besides replacing the dilapidated piping systems in the main cities of Harare and Bulawayo, does anyone remember the story of this wasted opportunity (click on link): http://www.ipsnews.net/2010/04/savings-spurned-in-zimbabwe-water-purification/? A feasible solution to reduce the cost of water chemicals was proposed sometime in 2010 and as always politics, corruption and greed got in the way. This issue needs to be revisited with the objective of producing water chemicals to supply the local market and surplus to export.
The Matabeleland Zambezi Water Project (MZWP) – what is the current status of this project, is it on-going, is it still in the planning phase? This should be top of the list on government priorities for national projects.
Zambezi Water Port – (not to be confused with the MZWP) Our economic model and subsequent growth should be based on “Export, Export, and Export”. If this is our ultimate goal then Zimbabwe needs a sea port. Now, I’m not suggesting that we invade Mozambique and reclaim the port of Sofala as part of the old Munhumutapa Empire. However, some time ago the Zambezi Seaway Project was proposed, see link: http://www.thenational.ae/news/world/africa/seaway-touted-as-a-bonanza-for-landlocked-african-states. Unfortunately, Malawi beat us to the punch, and it now seems that they will secure the finance required to construct an inland port in Nsanje, see link: http://www.malawivoice.com/2012/05/17/african-development-bank-ready-to-fund-shire-zambezi-water-way-feasibility-study-55858/ . The SADC region is immense and I still think that it would be in our interests to pursue a port of our own as per the original proposal. This could open up another industry altogether. Singapore’s success was not solely based on its human capital, but also on its port. The big picture with this project is that it will reduce transport costs and subsequently make our exports globally competitive.
What to invest in to build an indigenous based private sector by focusing on start-ups.
The government needs to focus on investing in industries which require intensive employment of capital and technology and with high labour productivity. From a short-run, static viewpoint, encouragement of such industries would seem to conflict with text-book economic rationalism. But from a long term range view-point, these are precisely the industries where income elasticity of demand is high, technological progress is rapid, and labour productivity rises fast at a global, not national, level. These growth industries are “the winners”. In this way our economic competiveness will be elevated from national to international level. Just base it on the maximisation of labour productivity and nothing else.
The government should capitalise the Industrial Development Corporation (IDC) which should be driving our economy; it should focus on providing investments and loans to indigenous entrepreneurs whose start-ups are in strategic and labour productive sectors. This will allow indigenous Zimbabweans with the necessary entrepreneurship skills to generate more capital and scale up their SME’s to larger firms with regional and global reach. I’ve decided to list some proposals for start-ups that could be suitable to Zimbabwe:
Start-ups (US$100,000 or less) with highest return on investment
Engineering Software design, specifically for the engineering sector - a good example is Intergraph’s Smart Plant System Software which does not appear to have any decent competitor and currently dominates the oil, gas and petrochemical industry. I’ve developed an in-house Excel tool which the company I work for has adopted as their standard tool for project planning and control. I would like to work with any Zimbabwean software developers out there who have experience in engineering software like AutoCAD, Microstation, Solidworks, PDS, Intergraph SmartPlant, Staad, NeiNastran, Fluent, etc to develop similar software which has a simpler user interface, is cheaper and can be tied in to project planning and control. Engineering software in general has a higher return on investment and I think there are a few niche markets in this sector.
APPs - there is huge potential in generating income from IT, in particular APPs for smartphones. Our own version of the mobile wallet or something along the lines of Touch ID to allow wireless payments to be made almost anywhere. Anyone can design an APP.
Start-ups (US$1 million or less) with highest return on investment
Irrigation system re-think - I think there is an opportunity in this sector specifically as erratic rainfalls are becoming a recurring phenomenon in Zimbabwe. If someone could design a low-cost irrigation system, which requires little or no maintenance, can be manufactured locally, can be used in any part of the country and does not rely on electricity, I think this would be profitable. I’m not talking about the bucket and hose drip irrigation design here, I’m talking about a commercially viable design which can be used for irrigation on a commercial scale.
Geological surveying of our minerals should be funded by grants from government provided to local entrepreneurs and geo-surveying companies in Zimbabwe who have the requisite capabilities. This should have been included in the national budget as it is nonsensical for the government to invite tenders for foreign companies to finance and carry out this work. Geological surveys can be monetised via third party bankable certificates. The rights to mine can then be sold off to prospective miners with the requisite capital. There is huge potential in the exploration and exploration of rare earth minerals.
Start-ups (US$10 million and less) with highest return on investment
Pharmaceuticals - The government genuinely needs to strategically focus on Pharmaceuticals and Biotechnology if it is to unlock our human capital. I would recommend this link as a starting point: http://www.medicusmundi.ch/mms/services/bulletin/bulletin200201/kap02/13gerster.html. The Pharmaceuticals and Biotechnology Sector is a sleeping giant; there is huge potential in this sector and we are not making the most of it. Either the four or five companies currently operating need to join together, or a new competitor needs to come in and shake the local market and compete on the global scale. India’s economic growth has hinged on pharmaceuticals and Zimbabwe should use the base it already has and invest more capital in this sector. We need to change our current strategy in line with India’s to see how we can best develop this sector to accelerate economic growth.
Start-ups (US$100 million and less) to maximising value addition of minerals
Lithium mined in Bikita – an investment in a plant located near Bikita to manufacture Lithium-Ion (Li-Ion) fuel cells for electrical cars. I think this has great potential, provided that Zimbabwe enters into an agreement with an electrical car manufacturer.
Graphene production - Graphite is mined in the north of Zimbabwe and Graphene has been vaunted as the next big thing, the UK government has invested 1 billion in research and development. I believe an opportunity exists here in indigenous Zimbabweans also carrying out intensive research on the possible uses of Graphene, filing patents as everyone else is doing, and positioning ourselves to manufacture Graphene once this becomes commercially viable.
Iron and Steel Sector – When NewZim Steel Private Limited comes into operation, they will manufacture structural steel, pig iron, steel billets and blooms. Steelmakers (Zimbabwe) (Pvt) Ltd is engaged in manufacturing mild steel angles, window sections, flat bars, round bars, square bars, deformed bars, DV standards, plough beams, plough shares, forged steel balls and other foundry products using bars and stock normally procured from NewZim Steel. There is potential here for a new entry into this market who could manufacture and supply low alloy and high alloy products. Incoloy, Stainless Steel and Chrome-Moly products (plate and pipe) are 4 to 15 times more costly than carbon steel.
The basic elements required for these low-alloy and high-alloy steels are readily mined and available in Zimbabwe, i.e Chrome, Nickel, Molybdenum, Silicon, Sulphur, Phosphorous, Manganese and Carbon. Setting up a Company (like Tubos Reunidos in Spain) to manufacture stainless steel tubes and fittings in Zimbabwe would add value and would benefit our local industry. Tubos Reunidas itself is actually quite global. Plate made from these alloys is also in high demand.
Platinum Industrial Hub – Government should not only force Implats to build a refinery in Zimbabwe, they should force them to build an industrial hub here where platinum only leaves here as autocatalyst assemblies, silicones, hard discs, electronic components, sensors, platinum-based drugs, fuel cell components and jewellery. If the government needs a reminder of its position of power in this regard, they should only look at Implats share price which went down a whole 10% when the government of Zimbabwe gave them an ultimatum to build a refinery. Use this to your advantage; no one wants to lose money.
These are ideas which I am putting out on the public domain as I myself could not possible embark on all of these at the same time. I prefer to share ideas and allow other Zimbabweans with the necessary skills and resources to take up these opportunities and help our overall economic recovery. There are literally thousands of opportunities out there in Zimbabwe, but a lack of capital, and the lack of correct policies by the government to encourage Zimbabweans to take up these opportunities, is what has caused the stagnation our economy. It takes just as much brain power to think big as to think small, so why are we not thinking big? Is our intellectual capacity limited to looking for diamonds for the quick buck?
But before we can embark on the reindustrialisation that I’m proposing, one of the most important sectors which need urgent restructuring to suit our chosen economic model is our education sector. It is no use having an economic blueprint which requires human capital leaning towards engineering, sciences and research and development and not having the necessary resources at hand; it is an exercise in futility. What the Ministry of Education could also do at the moment, is to simply restructure the admission of students in our institutions of higher learning and allow more students into the more technical sectors i.e. we need more engineers, scientists and researchers. We also need to focus vocational and technical training to the more productive sectors related to engineering and sciences i.e. sheet metalwork, fitting and turning, motor mechanics, welding, electrical etc. The table below highlights the problem quite clearly:
Why have 34% of students in Business, Management, Law and a ridiculous 40% in Humanities and Social Sciences? Where is the logic here in enrolling more students in the sectors with the lowest labour productivity? It’s just plain stupid. The same ridiculous situation is also reflected in the Technical Training Colleges where the more labour productive skills such as Sheet Metalwork (5%), Fitting and Turning (3%), Motor Mechanics (3%) have a much lower enrolment than the less labour productive sectors. The government needs to restructure their enrolment at all institutions by lowering the minimum requirement to study the Science, Engineering & Technology areas so that at least 60% of total students enrolled are involved in the more labour productive sector. This is a practical logical approach. Mechatronics should also be introduced as a degree in most of the universities as Japan has shown that robotics is the big thing of the future.
Our education system seems to only cater for hard-working students who are good at memorising and regurgitating what they were taught (which is not necessarily a bad thing), but it is flawed because it does not cater for creative, innovative students who challenge established norms and put forth ideas and different ways of doing things. The latter are your entrepreneurs. Silicon Valley in the US is full of start-ups from former MIT, Yale and Harvard students; why can we not focus our education system in the same way. The main objective, especially of engineering and science-related degrees, should be to produce a graduate who is able to start-up a company and create employment, it should not be to seek employment in firms, and this is just a waste of human and intellectual capital. All final year projects should be business plans with a detailed financial analysis.
We need to invest more in research and development and understand that this is where the businesses of the future will germinate from. With regards to Primary and Secondary Education I would recommend the introduction computer programming, and not just basic IT skills, from primary school level. I would also remove religion from the high school curriculum and make economics, finance and accounting compulsory subjects on the same level as Maths and English. The whole education curriculum needs to be overhauled and we should copy the syllabus and teaching methods of Singapore, South Korea, China and Japan.
Conclusion seeing opportunities in the problems we face
As citizens of Zimbabwe we also need to be the change that we want to see, we need to change our mentality, and stop this culture of entitlement and trying to make the easy buck. We also need to play our part in fighting corruption by not paying bribes and report offenders.
Please note that I do not claim to have all the answers nor the solutions to our current economic problems. But I believe that every problem we face as a nation should be seen as an opportunity. The problem of our liquidity crisis should be seen as an opportunity to adapt the Rand as our main currency, align wages and prices to our real economy, reduce imports, increase exports, restructure our banking system, bank the informal sector, promote mobile banking, mobile wallets, and bank the population in the rural areas. Our problems with foreign direct investment should be seen as an opportunity to start our own local crowd-funding websites and raise capital internally.
The drain brain problem should be seen as an opportunity for the government and private sector to set up a platform for those in the diaspora to provide free advice, technical expertise, solutions and resources on a wide range of issues. Other countries whose economic growth hinged on the contribution of their Diaspora are India and China. The problem of a diminishing revenue base and 75% of our GDP going to pay civil servants should be seen as an opportunity by the government to reduce the number of ministries it has, along with the number of civil servants, to its “critical mass” with the end objective of a lean and efficient civil service. The problem of electricity shedding should be seen as an opportunity for indigenous Zimbabweans to enter the energy sector with the help and support of the government giving them the competitive advantage over foreign companies.
The problem of water shortages and waste management should be seen an opportunity for indigenous Zimbabweans to enter this sector and develop cost effective, sustainable and incoming generating solutions. The problem of corruption should be seen by the government and civil service in particular, as an opportunity to stop leakages and raise capital in the process, and prove to citizens that the government is genuine in its fight against corruption. The problem of our education system should be seen as an opportunity to completely overhaul it, starting with the syllabuses, to produce graduates, who by default of the education they receive, are entrepreneurs when they leave the universities, and those who do not make it thus far, are equally capable of generating income from high labour productive sectors.
Binary economics correctly implemented would provide us with a sustainable economic model in which each individual has the right to capital. It is said that necessity is the mother of all inventions; we have all these necessities and more so where are the inventors? If we are truly as educated as we claim to be, we will find solutions to our own problems and not wait for some kind of divine intervention which will never come. We cannot continue to use the political situation as a crutch to justify our own shortcomings as individuals and should unite and work together to build the Zimbabwe that we want to see. Everyone should contribute their small part. True patriotic Zimbabweans will put their country first so free your mind first and the rest will follow. My apologies for making this article way too long and thanks for having the patience to read it.
By the way, we’re looking for Zimbabwean Civil Engineers, Piping Engineers, Mechanical Engineers, Process (Chemical) Engineers, Electrical Engineers, Instrumentation & Control Engineers, Quality Control Engineers and Software Design Engineers who have worked, or are currently working, in the oil, gas and petrochemical sector. We would like the personnel with the right qualifications to join our small start-up EPC Company. Anyone interested should contact me on my e-mail address below. Any potential investors willing to help us with our gas project are also welcome
Written by Clive Samvura who can be contacted on firstname.lastname@example.org