He also pointed out that dollarization does not explain why Zimbabwe has been growing faster than Hong Kong.
Mickey mouse economy
I should start by pointing out that numbers conceal more than they reveal. When we look at Zimbabwe’s growth in terms of percentages, let us not forget that we still have a mickey-mouse economy, with a GDP of less than $10 billion. What is best to look at is the actual value of GDP.
Yes, our growth rates for the period 2009-2011 were dynamic, but we should know that we were coming from nothing. If you compare the growth rate of an economy that comes from a zero base with that of an economy that has fully utilised all its resources, the former’s will be higher than the latter’s. So we cannot compare Zimbabwe’s growth rates with Hong Kong’s.
I will give an example of our tourism sector, which is ranked the second fastest growing tourism economy in the whole world, after China. That assertion was arrived at by just looking at the proportion of countries’ tourism revenue to GDP. Zimbabwe’s average contribution was 8.2 percent. But that does not mean that Zimbabwe’s tourism is the biggest in the world. Another country might have one percent tourism contribution to GDP, but have a much bigger tourism revenue base than Zimbabwe.
The reason Zimbabwe is poorly rated by the World Bank and Fraser Institute is because they use factors more than just GDP growth. If I can bring in just one factor of unemployment, where Zimbabwe’s rate is above 80 percent; you will begin to see why we would be poorly rated, ultimately. Just look at Hong Kong’s unemployment rate and compare it to ours. Indexes used to compare countries incorporate many aspects; most of which will result in Zimbabwe poorly performing. GDP alone will mislead us. There are other aspects: national debt, unemployment, international credit rating, trade balance, corruption. I challenge you to score us out of 10 on those.
A stable economy?
We can only say the economy has “stabilised” when the macroeconomic fundamentals are in check. Can we really say so right now when unemployment is above 80 percent and we have a budget deficit of $3.6 billion, almost a third of GDP and more than $10 billion in national debt? Yes, the economic environment has improved, but the fundamentals are still not in check. What happened between 2009 and 2011 is what I call “the dollarization honeymoon”. This is a typical syndrome for countries that have dollarized. They experience dynamic growth for the first few years, but low growth in the medium to long term. Look at Ecuador.
Seignorage
The sustainability of a US dollar in dollarized economies is not impressive.
It should also be noted that inflation was rampant during the Zimbabwe dollar era, due to seignorage – which is the printing of excessive money that does not correspond to productivity. Printing more money results in people having more spending power, which raises the demand for goods and services and puts intense upward pressure on the general price level. We have now lost our seignorage function and monetary induced inflation is no longer a fuss.
That is why we now have a stable inflation rate and probably the lowest in the region.
I also argue that not all raw mineral commodities experienced rapid worldwide price hikes, as nickel and copper suffered subdued prices last year. Lastly, if we look at Zimbabwe’s national budgets between 2009 and 2011, can we really say that Western governments and the IMF have put in “massive cash infusions” to warrant “little incentive to change” for the Zimbabwean government?
Post published in: Business