Zimbabwe's Wage Bubbles

After independence, the smart in Zimbabwe won the lottery. As 200 000 Rhodesians left , job openings came up and lavish homes were left vacant.

Even semi-literate clerks found themselves taking up managerial positions. Today, over 300 000 graduands fight for a couple of formal semi-clerical jobs.

In 1980, beautiful houses were easy pickings. Families moved en-mass from impoverished areas to the suburbs, courtesy of cash-rich banks and building societies. Living standards rocketed: no more colonial oppression, jobs aplenty, cheap homes, leisure and factories galore!

1980 saw a boom of the salary, pension and allowance bonanza. A legacy of colonialism, with talent having gone in droves the remaining executives realized a self-enrichment gold-mine. In state enterprise- with little transparency and accountability, outright fraud has become the order of business.

Today, jobs are scarce and productivity has been destroyed by poor policy. Factories are gone, however the 1980s 'high salary syndrome' persists. Even with the post-independence economic 'bubble'  having burst, some players still  don't realize the century of performance and austerity is upon us.

Zimbabwe economics 101

We are the local government-pay up!

Economics studies the allocation of 'scarce resources'. Modern economics, unlike classical economics, totally ignores the causes of scarcity. In modern economics, resources are allocated by the forces of supply and demand.

Zimbabwe has an economic crisis. In economics, and Zimbabwe, the central economic problem is  resource scarcity. Resource scarcity in Zimbabwe is worsened by corruption.Corruption has become the sole  resource allocation mechanism.

Zimbabwe has the worst wage system in the world. Employees go months on end without pay, whilst executives and directors reportedly live on millionaire salaries and benefits. Employees live in absolute poverty, working without pay, when they are paid they pay contributions to state organisations that fail to fulfill their obligations. These same state organisations pay large amounts to executives who are non-performing.

Sanctions are being blamed for Zimbabwe's economic problems. With the plundering of national resources, it is becoming clear the real problem is local in nature. Zimbabwe will remain in absolute poverty as long as individuals keep stealing wealth, through non-performing state organisations. Given the poor performance of parastatals and exorbitant payments to some individuals, it seems the sole purpose of these parastatals is to take from hard working underpaid Zimbabweans.

Currently, over 80 quasi-government state sponsored organisations exist with layers upon layer of bureaucracy. The majority of these institutions do not deliver services at all. Nearly all, 80 plus, parastatals are loss making. These institutions are extractive and have been since their initial inception in the 1980s. The whole thing looks like a mafia conspiracy set up to bleed Zimbabweans dry. Zimbabwe's political mafia puts the Sopranos and The Godfather himself to shame.

Zimbabwe has become a feudal economy. An institutionalised patronage system has been created to serve the interests of a few 'Lords'. The main cause of Zimbabwe's worsening scarcity is wealth extraction by these 'lords who run the show', totally mismanaging enterprise (supply and demand) to the point of national bankruptcy.

Any low level employee, who has served in a parastatal, will know they are powerless to deliver any credible change. Political interference and corruption have become the forces of demand and supply in Zimbabwe's economy. With no change in sight, a scarcity of cash and capital will continue to haunt Zimbabwe.

Economic Holy Trinity

Economic success is an outcome of team-play. It is common knowledge: a house divided against itself cannot stand. The triad of economic success is comprised of government, banks and firms. Like The HolyTrinity, these three have to follow one principle.

Economic growth is a dynamic process. Growth depends on: the willingness of firms to invest, banks credit creation capacities and government efficiency ensuring macro-economic stability. The Central Bank is the government supervised bank that ensures private banks treat customers fairly and work honestly. Backed by government, all the time, the Central Bank holds reserves and bills as assets.

When government fails completely, macro-economic instability becomes rampant. This lowers investor confidence and firms stop investing. When firms stop investing, long term cash flow is compromised and banks become less willing to lend worsening a crisis.

To counter such an occurrence, government needs to engage economic actors as partners and develop policy that benefits the trinity. The goal is win-win-win. Firms want profit, government needs tax revenue from these profits and banks see asset growth as firms stay profitable.When all is going well the Central Bank also gets higher reserves from banks and bills are honoured.

No part of the trinity is more important than the other. If one part of the triune collapses, the other two can provide support. If all parts collapse, they need to sit down and work out how to get into business. All this requires compromise and remembering the principle of economic unity:an economy works well, when all actors contribute to growth and development.

Zimbabwe Money

Reserve Bank  Of Zimbabwe

Money has a significant role in economic growth. 
Zimbabwe's recession is worsened by an absence of local money and credit. Instead of developing practical solutions to resolve the money crisis, politicians and analysts are locked in an existential power struggle.

Credit is economic money. Failing to understand this, The Reserve Bank of Zimbabwe(RBZ) printed fuelling hyperinflation. Without factories to stimulate employment and money flow, money flowed direct into pockets driving up prices.

Money prospers, when it is given as credit to firms for productive activities. RBZ hyper-inflationary printing crowded out productive investment and encouraged speculation.

Currently RBZ cannot create base money. Also, banks cannot lend given high loan delinquency levels and dismal economic performances. Lacking credit,  Zimbabwe's economy lacks the stimulus it needs to recover.

RBZ needs an operational framework to rebuild a balance sheet. This is  not permission to print base money, the bank's ineptitude would bring back super inflation. A well funded balance sheet is  needed to support banks that feed  the Zimbabwe's economy.

RBZ owes banks foreign currency and this weakens the liquidity of owed banks- meaning less funds for credit. These two predicaments indicate RBZ cannot achieve outcomes in this environment of repeating political failures. Politicians and analysts identify they is a problem, they do need to work together and resolve the crisis.

　

Zim Banks 101

We are all at risk. Academic economics literally ignores the real-world role of banks, money and credit. We have all heard the abstract mumbo-jumbo about a money multiplier, demand for money and other assumption based fictions, only useful for passing economic exams. 
Events like the  Great Crash of 2008 and Zimbabwe's 20 year recession demonstrate you cannot trust academic economics when it comes to money and banking.

Private banks hold the key to growth in business activity. As private banks stopped lending in 2008, the world economy stalled; in the 1990s, when Zim banks slowed lending, industrial sectors startered declining.

Banks hold two major assets: reserves at the Central Bank and loans. When the Central Bank cannot honour its 'lender of the last resort' position, high loan delinquency means private banks become operationally insolvent.

It is no surprise Zim Banks are always in trouble. Outright fraud, deliberate fund misuse  and poor lending practices have left smaller banks bankrupt. With the lender of the last resort failing to honour deposites made by larger banks,small and large banks lack the funding to support economic transformation.

Local Prosperity

According to John Maynard Keynes: economics is a moral science. Adam Smith,' the father of modern capitalism', clearly identifies: the economy cannot function without justice, fairness and morality. Corruption in Zimbabwe is fuelled by a triad of injustice, unfairness and immorality. With high immorality the economy is not realising prosperity.

Contracts from the basis of economic activity. Fraud, graft and corruption are causing the majority of Zimbabwe's business contracts to fail. Businesses continue to fail and the economy sees more economic decline, as corruption grows unchecked. It is clear to see, for the economy to function contracts have to be fulfilled. With the majority of Zimbabwe's contracts not being settled, Zimbabwe for the past twenty years is sitting in permanent depression.

Until courts are allowed to deal fairly and justly with fraud, graft and corruption Zimbabwe will continue in decline. A just law and fair implementation by a conscientious court system will stop the spread of corruption and reduce dishonesty in 'business'. Immorality is not cured by itself; the law can stop its spread and check its destructive impact.

Jobs for Zimbabweans

90% of Zimbabwe’s working population is jobless. Household subsistence and the informal sector do offer this majority limited opportunity. Among young adults, the majority have no opportunity at all.  The 10% formally employed are underpaid in low quality jobs.

Youth unemployment was an issue, even before political independence was gained in 1980.Rapid population growth, since 1980, has never been matched by job creation in Zimbabwe. High unemployment has fuelled emigration and poverty, guaranteeing crime, prostitution plus delinquency all round. Lack of opportunity has led to wasted youth and moral decline.

Facilitating conditions that ensure real productive job growth is the remit of the state. Only inclusive policy will give Zimbabwe increasing formal employment and the needed rising demand for labour.

Without a currency and bruised by double deficits the country needs to recover its monetary-fiscal positions. Thus, a Zimbabwe properly managed from the top will bring about more social stability. To avoid this persistent waste of talent, government has to amicably work with firms providing quality jobs.

Zimbabwe’s government is not powerless. Zimbabwe government can curb in-house corruption, clean up its failed institutions and remove bureaucracy. Zim gov needs to start walking the walk, all talk no action does not deliver results.

New Year Old Problems

2014 is already witnessing an increase in national challenges.  Zimbabwe’s shaky banking system and the absence of a national currency are the least of the people’s struggles.

40 years ago, Zimbabwean shops stocked over 80% made in Zimbabwe goods. Today, the trend is reversed with less than 20% made in Zimbabwe sold and stocked. Without exports to match this influx of foreign goodies, poverty and deficits will continue their upward march.

Zimbabwe’s leaders agree things cannot go on like this. However, policy from central government is not addressing the main causes of Zimbabwe’s economic demise. The current budget, Zim Asset and all the paraphernalia of a state propaganda machine are actually multiplying the national crisis. They will be no economic progress in 2014; and the hope remains that by 2020 a more honest government will start delivering credible policy.

Fool's Gold and ZimAsset

Gold or diamonds its all there as promised in Zimbabwe's super economy

If it sounds too good to be true-it is too good to be . The Zimbabwean government is promising economic salvation on the back of Zim Asset. Zim Asset reminds old Zimbabweans of the early 1900s, history surely does repeat itself.

In those olden days, The Chartered Company, or  British South Africa And Company (BSAC), promised everyone Zimbabwe had very large deposits of easily accessible, high quality gold. By 1920, it became obvious Zimbabwe did not have this promised gold. The Chartered Company had over-promised and to preserve its investments BSAC had to move heaven and earth to create a 'bread basket' of Southern Africa.

The so called mineral holdings backing Zim Asset, like the mythical King Solomon's mines also supposedly located in Zimbabwe, do not exist in the promised quantity and quality. Zim Asset is a dream built on the myth of 'mineral wealth'. Such fool's gold economics will not deliver development. As demonstrated in the 1920's, no amount of mineral marketing can save a poorly designed economic strategy.

Promising Zimbabwe Economic Budget

Zimbabwe's budget looks promising. It remains the only credible economic planning tool: as it changes tariffs and indicates sectors of the economy favoured for growth by the state. This budget is linked to Zim Asset and takes some stakeholder views into consideration.

Zim government will have a budget of US$4 Billion, out of a GDP of US$15 Billion. In terms of resourcing, this budget shows how the Zim economy is heavilly reliant on the centralised role of the government. Of all the risks indentified in the budget, a risk of  government again failing to deliver is not identified. Markets have no faith in Zimbabwe, as the result of the state itself and its past repeated economic fumbles.

The budget is a sincerely written document, full of commendable aspiration. If the government again fails to deliver, its side of the bargain, Zimbabwe will return to full on economic crisis. Zim Asset seems to be the only tool in this budget; Zim Asset on the other hand will not solve the crisis if bureaucracy, corruption and a lack of transparency re-haunt Zim plc in 2014. The articulate Minister has a battle on his hands, as even he fights to demonstrate his credibility.

Zimbabwe Economy 2014

Economic growth will contract in 2014, given persistent company closures. Real value will be generated in the susbsistence and dollar funded informal sector. Use of the US$ will ensure at most 2% real economic growth, inflation of 5% and GDP per head of US$200.00.

A return of the Zimbabwe dollar will further drive out capital and reintroduce hyperinflationary pressures, as the institutional dynamics of currency stability have not been reinforced in Zimbabwe's economy. A lack of confidence in Zim dollar still persists encouraged by an absent credible macro-economic plan.

Currency and funding shortages will persist, they is no strategy in place to deal with persisting liquidity challenges. Businesses need working capital, which given the scarcity of commercial paper and high interest rates is hard to come by: companies will continue to close, in 2014. Water and electricity shortages will guarantee difficult trading and living conditions for the nation's citizens. The State's Look East policy is not generating the infrastructural investment required to bring about medium term growth.

Old Systems Die Hard

Rhodesia's economy was based on import-substitution and intense state intervention. On the surface the Rhodesian economy appeared strong, however, below was a clandestine engineered economic ponzi mechanism. Apartheid South Africa subsidized Rhodesia by working with inefficient Rhodesian enterprises as part of their political solidarity. Solidarity between two countries running racial discrimination programs ensured Rhodesia could bust sanctions.

The Rhodesian system guaranteed success for the 3% minority, as the majority earned slave wages and lived in rural poverty. Such an economic system inflated economic outcomes for the 3% minority, this deliberate inequitable infrastructure development system sacrificed future development. As war raged it became apparent Rhodesia's so called 'economic success' exemplified a precarious prosperity.

Zimbabwe has totally ridden itself of Rhodesian style economic policy and practice. It has not engaged import substitution, but a small minority is heavily favored by state sanctioned corruption, patronage and incompetence. Zimbabwe's system is yielding the same outcomes as Rhodesia's: infrastructure is not being developed for the majority and sanctions are in place. With business optimism at Rhodesian lows, only moral force can bring back the confidence required to reignite economic performance.

When The Educated Fail To Write

Films need scripts to stay on course. Plays need scripts so actors know their roles, characters and dialogue. When the script lacks clarity confusion ensues.

Managers depend on the scripting of operational guidelines. The sturdiest organisations have bulky operational guides for everything. One single service operation, in competent banking institutions, has various manuals many pages long to specify: product delivery, service roles and working standards.

Our organisations are depleted as they lack comprehensive practical operational guides. Walking into ZIM corporate and government offices one is aware of the total lack of accountability. Things were different 34 years ago when all organisations had comprehensive written, and applied, practical policy guides. The biggest victim of lacking practical policy guide is the economy. As the policy manuals disappeared, so did Zimbabwe’s economic efficiency.

Competitive Disadvantages

To say business is struggling is  understatement. Firms are shutting down and industry, like the dinosaur, is virtually extinct. It started with disappearing factories, that was late 70's; followed by heavy industry taking a bashing in the 80's, now even retailers are having the fates conspiring against them.

Power cuts, water shortages, exorbitant interest and a lack of funding have been haunting industry since the 1990's. No MBA, and or Msc, in Disaster Recovery can prepare those courageous enough to start formal enterprise in Zimbabwe. The executioner wields the noose of  bureaucracy, legislation and corruption for those with the intelligence to circumvent shortages of resourcing.

Zimbabweans are not moaners, but things aren't right. We still have those working for struggling organizations months on end without pay. We salute and respect all these hard working Zimbabweans. Also, we salute those traders and enterprises, in Zimbabwe, fighting against all odds. Lest I forget, lets salute Gideon Gono, he tried and tried-with dignity he resigned; if only others could let go of power and give  Zimbabwe a chance.

Missing link

General Park-Economic Leader

Robert Mugabe has met his match. Politically he has a knack to survive. Zimbabwe right now needs someone to direct and lead the economy into the modern age. After over three decades, Robert Mugabe has failed to deliver on every economic promise.

Zimbabwe has a lot of academically trained  people. This is a hindrance, as it lacks practical leadership in government and industry. South Korea got out of its economic hell hole, through practical men like General Park who fought through economic challenge. General Park did not need MBA's and degrees to deliver. What drove him was purpose and a deep desire to get his country out of poverty.

Zimbabwe has to be honest. Propaganda peddled by The Herald  ensures failed administrators stay in control of a failed economic system. Tightly controlling the economy, as government is doing now, but driving it into permanent recession is the ultimate form of misgovernance. Without a free press to effectively educate  'educated' Zimbabweans, this country remains in crisis. The Herald will not call out the missing link to Zimbabwe's development. Right now, Zimbabwe calls out for economic leadership.

Dollar Effects

The US Dollar has come with its own problems.

Its scarcity, in Zimbabwe, is creating serious funding challenges.

Banks, firms and households are in the midst of a liquidity crisis.

The US Dollar resolved the inflation crisis which was facillitated by poor economic management.

However, dollarisation has not resolved the issue of poor economic management.

The house of Zimbabwe is still in disorder.

With the dollar further weakening export competitiveness, and with foriegn investors, plus donors shunning Zimbabwe; only resolving the economic management crisis and returning the Zim dollar can help Zimbabwe recover.

Speaking to fellow Zimbabweans yesterday, I realised people assume the problems of Zimbabwe's economy will magically resolve themselves.

This is wishful thinking for without  action Zimbabwe's problems are only getting worse.

Factories continue to shut down and our 'leadership' lacks the mettle to get rid of the rot.

Zimbabwe Elections

Zimbabwe elections are around the corner. Scholars have advanced interesting theories on the Zimbabwe situation. A coalition remains the least likely outcome of this election.

Zanu owns the police, army and courts. Everything will be done to ensure they is no outright MDC T win. They will be rigging-this is obvious, MDC T has to overcome the rigged votes.

To rule Zimbabwe, after elections, it is back to Zanu. All contending parties suffer from factionalism. However, to rule fairly, whoever wins the majority needs to court ideas from other parties. MDC T could never rule without control of the army, police, courts and without diamond revenues. Zanu cannot rule effectively without dealing with corruption. Zanu needs MDC's anti-corruption strategies. MDC needs Zanu's resources. The two failed in coalition, hopefully positives come out of this acrimonious divorce.