Zimbabwe's old problem renewed: consumption before production

As Zimbabwe struggles to sustain its nascent economic recovery, some of the mistakes of the past are being repeated. Every year the minister of finance's budget speech is eagerly awaited, with expectations that he will somehow magically pull a rabbit out of a hat. For some reason, there are those who seem to expect that the day after the speech should somehow be very different, and much better, than the day before it.

The finance minister can play around with various economic incentives or disincentives to try to achieve one aim or another, but his basic job is to parcel out what is there. The finance ministry is not fundamentally a wealth-creating portfolio. The expectations that whoever the finance minister is at a particular time will 'solve' this or that economic problem are unfair and misplaced.

This is the situation current minister Tendai Biti finds himself in. There are huge expectations of government largesse from ever sector of the society, but there economy simply isn't generating the necessary levels of income. The 'donors' who prop up many African countries largely stay away from Zimbabwe, which may not be a bad thing if it forces the country to increasingly rely on itself, instead of seeing the donor antipathy as a temporary problem.

The scale of the problem as outlined by Biti is sobering. This year's budget deficit is US$700 million. As one economist pointed out, Biti, who has said the government could be forced to shut down by October, has not given any indication of how the deficit could be bridged, but painful measures seem inevitable. Zimbabwe does not have a good record of living within its means, or even merely trying to.

The country has developed 'sophisticated' spending appetites that are completely out of sync with its levels of production. One big problem is that the big appetites, developed in more prosperous economic times, have remained as the economy has been on a sustained free-fall for over a decade.

So when the president is told 'you are spending too much money on travel, we can't afford it,' he thinks back to the good old days when his travel budget was not questioned. When it is suggested to ministers that spending government money on luxury cars at this times sets a bad example to the nation, they resentfully sniff about the 'prestige' standards that were set in better times, but that look ridiculous in today's Zimbabwean economic environment.

There is very little spirit of 'let us control our wants while we do all we can to produce more,' although Biti has done his limited bit to try to stimulate production. Certain sectors have been given new import tariff protections but local industry's competitiveness problems are probably far bigger than can be fully compensated for by these measures. If they were at a disadvantage compared to South African and other competitors before, they have fallen even further behind during Zimbabwe's 'lost decade.' Some of these industries need complete re-tooling to keep up with foreign competition, not just tariff protection, which is in any case controversial on other grounds.

Agriculture and mining are expected to expand by 19,3 and 44 percent respectively, welcome news that will help to achieve Biti's projection of a 9,3 percent economic growth rate. Mining growth figures are misleading in that large increases and sums can be achieved with relatively little imprint on 'visible,' broad-based economic welfare. It is why countries like Gabon and Equatorial Guinea with impressive-sounding GDPs (oil) are nevertheless riddled with poverty. Relatively few people are needed in the oil/mining industry, and the high revenues can disappear amongst a relatively small elite.

If it can be sustained and accelerated, the growth in agriculture is very encouraging, and will have more abiding social and economic benefits than the bigger mining numbers . Agriculture employs a lot more people, the benefits of a good season are economically deeper and more widespread. There is also much bigger potential for various kinds of value-addition and secondary industries than is the case for mining.

The scramble for higher salaries such as those just awarded civil servants is understandable. But something that will come back to bite the country hard is that very early in Zimbabwe's recovery, a precedent has already been set that we are all scrambling for the tiny bit of income coming in (diamonds, etc) before we have come up with a plan to increase other kinds of wider-implication production.

It is the old Zimbabwean problem of spending and 'prestige' before investment. We all know individuals, families or companies will go bust if they do this. Why do we expect it to be different for a country?

When the full consequences of the consume-before-you-worry-about-production mindset hit, we will have no reason to be surprised.