THE INVESTMENT BRIEF, A VIBRANT ECONOMY, THE MOST EFFECTIVE & SUSTAINABLE INSTRUMENT FOR ECONOMIC EMPOWERMENT

How to develop a functioning economy

Pursuing economic empowerment through purely legalistic and regulatory means has fatal shortcomings which defeat the premise of black or native participation in the economy because history has taught that such a strategy creates a very skewed distribution of the wealth that must be sustainably shared. Black Economic Empowerment and Indigenization pursued solely from this strategy is a sophisticated form of socialism especially where there is little in the way of economic growth. It’s process and eventual outcome creates a skewed wealth distribution and novel kind of class structure.

A vibrant economy is the most potent instrument of empowerment, inclusion, and participation of the people of that country. Vibrant economies are not the result of chance but are the result of deliberate pursuit and action.

To create an economy that is enabling and empowers all citizens requires the development of the following pillars:

·????????Capital formation

·????????Manpower or human capital

·????????Infrastructure

·????????Governance

Capital Formation

Capital formation is the accumulation of the net capital over an accounting period for a specific nation. It also refers to the addition of capital goods, such as tools, equipment, electricity, and transportation assets. In other words, capital formation involves making of more capital goods such as machines, tools, factories, transport equipment, materials, electricity, which are all used for future production of goods. It is therefore favourable for a nation to have more capital formation as opposed to less as a higher level of capital formation will subsequently lead to greater productivity and output in that economy. High levels of productivity will inevitably lead to greater share prosperity of that nation.

To make sustained additions to the capital stock of a nation on an incremental basis requires savings and investment. To accumulate capital goods some current consumption must be sacrificed. The greater the extent to which the people are willing to abstain from present consumption, the greater the extent that society will devote resources to new capital formation. If society consumes all that it produces and saves nothing, future productive capacity of the economy will fall as the present capital equipment wears out.

The rate and level of savings in an economy have been postulated by economic theory to be drivers to long term economic growth. Savings are said to provide the loanable funds needed by firms as capital and investment. Furthermore, the availability of savings provides a basis for the money creation process subject to the money multiplier and reserve requirements.

Zimbabwe’s economic stagnation from the period 2000-2008 and again from 2016-2019 has resulted in a strong disincentive to save among businesses and households. The low savings rate has then reduced the amount loanable funds and the ability of the banking sector to provide credit resulting in slower economic growth. Capital formation in this respect is curtailed. To create an economy that is enabling that leads to growth and share prosperity for all citizens will require that gate keepers and policy makers in government ensure that there is a conducive environment for growth and development of capital formation given its critical nature in the development of an economy.

Action needs to be taken to restore confidence in the financial sector by among other things restoration of lost savings to depositors in the failed banks and currency stability. When this has happened growth in the gross national savings of the country can be expected to occur and with it the ability of the country to mobilize funds to deploy in investment/capital formation.

Manpower

This can be referred to alternatively as human capital. It has many definitions and descriptions however, universally it is an intangible asset or quality not listed on a company's balance sheet. It can be classified as the economic value of a worker's experience and skills. This includes assets like education, training, intelligence, skills, health, and other things employers’ value such as loyalty and punctuality. Conversely it refers to the knowledge, skill sets, and experience that workers have in an economy. These skills provide economic value since a knowledgeable workforce can lead to increased productivity. The concept of human capital is the realization that not everyone has the same skill sets or knowledge. Also, the quality of work can be improved by investing in people's education.

There is a narrative among people in Zimbabwe that education is of little importance in terms of determining the trajectory of an individual in terms of success and trajectory. The reasoning behind this is that due to high levels of unemployment and informalization of the economy Zimbabwean institutions of tertiary education annually produce thousands of graduates who join an economy with a shrinking workforce that cannot possibly absorb of the skills and talent being churned out. The result is that many graduates are jobless, the few that find gainful employment made due with low wages in posts that offer little in terms of growth and the rest resort to other ways of eking out a living as informal traders or some other vocation. Due to this most people no longer see the value of an education however this view is misplaced especially when it is considered within the context of the wider economy. For economic growth to take place resulting in shared prosperity which is the most sustainable way to empower citizens requires heavy investment in education that enhances the skills of the citizens of a country.

Zimbabwe for a long time after independence had one of the highest literacy rates in Africa because the government then emphasized the importance of education and went as far as to implement a policy of free education for all. When the citizens of a country are highly skilled and literate economic growth is not as difficult as it would be if they had much lower levels of literacy making it necessary for the country to make use of expatriate labour.

It is not a coincidence that countries in the world that are regarded to be advanced or advancing tend to emphasize the importance of education specifically science, technology, engineering, and mathematics (STEM). It is interesting to note that according to the World Economic Forum China in 2016 produced the highest number of STEM graduates at 4.7 million followed by India at 2.6 million. The United States in the same year produced 586,000 graduates. It is also not a coincidence that all 3 countries cited are advanced or advancing economies. A skilled labour force is critical to economic growth and development. It is next to impossible to separate these two concepts from each other.

Historically the U.S. dominated the world's graduate population but in recent years, that population has shifted amid steady academic progress in Asia. If Zimbabwe is to develop and grow its economy to the point where it produces shared prosperity it needs to double down on the skills and manpower development of its people with a specific focus on STEM subjects.

Infrastructure

This is the general term for the basic physical systems of a business, region, or nation. Exemplified by transportation systems, communication networks, sewage, water, and electric systems. Developing infrastructure enhances a country's productivity, consequently making firms more competitive and boosting a region's economy. The accessibility and quality of infrastructure in a region will help to shape the domestic firm’s investment decisions and determines the region's attractiveness to foreign investors.

From private investment in telecommunication systems, broadband networks, freight railroads, energy projects and pipelines, to publicly spending on transportation, water, buildings and parks, infrastructure is the backbone of a healthy economy. Infrastructure is critical because it supports workers, providing millions of jobs each year in building and maintenance. A Brookings Institution analysis Bureau of Labor Statistics data in the United States reveals that 14 million people have jobs in fields directly related to infrastructure. From locomotive engineers and electrical power line installers, to truck drivers and airline pilots, to construction laborers and meter readers, infrastructure jobs account for nearly 11 percent of the nation’s workforce, offering employment opportunities that have low barriers of entry and are projected to grow over the next decade.

There can never be a more accurate barometer of a nation’s competitiveness in the global economy and in trade than the state of its infrastructure. Infrastructure determines how easily goods and services can be moved and delivered in a country and at what cost. The state of a country’s infrastructure therefore determines the efficiency of households and businesses in an economy broadly speaking. Where the infrastructure of an economy is in good shape and is constantly improved on a regular basis it is not unreasonable to expect productivity and efficiency in that economy to be high. Where these two things are high GDP growth and economic growth are inevitable.

Zimbabwe’s infrastructure though in a very serious state of disrepair is somewhat reasonably intact. Be that as it may it is in desperate need of investment and development. The road network has enjoyed little development in decades evidenced by the potholes that are commonplace. The most notable development to the road network was the dualization of the Harare-Bulawayo highway, which was undertaken by Group Five, the South African construction firm during the years of the coalition government.

The rail network was dominated by the state through a parastatal the National Railways of Zimbabwe, NRZ which currently is a fragment of what it once was in terms of ferry bulk cargo within the country and outside of the country. The demise of the parastatal has given rise to haulage companies that carry cargo by road on the road networks that were not designed to carry vehicles of that kind of weight causing further damage to already damaged infrastructure and resulting in increased cost to the goods being ferried which makes them uncompetitive.

The telecoms space is relatively vibrant since most of the players are private. Being private means the sector enjoys regular investment in terms of equipment and related. Energy and power supply are erratic because the country is not self sufficient in this regard. To mitigate this, players in the private sector (those that can afford it) are investing in renewable energy sources like solar. Intermittent power supplies disrupt productivity, and this constrains economic growth.

Zimbabwe cannot and must not ignore infrastructure development because it is potent catalyst for growth in the economy!

Governance

UNESCO provides the most apt definition of this concept and it refers to structures and processes that are designed to ensure accountability, transparency, responsiveness, rule of law, stability, equity and inclusiveness, empowerment, and broad-based participation.

Participation?requires that all groups, particularly those most vulnerable, have direct or representative access to the systems of government. This manifests as a strong civil society and citizens with the freedom of association and expression.

Rule of Law?is exemplified by impartial legal systems that protect the human rights and civil liberties of all citizens, particularly minorities. This is indicated by an independent judicial branch and a police force free from corruption.

Transparency?means that citizens understand and have access to the means and way decisions are made, especially if they are directly affected by such decisions. This information must be provided in an understandable and accessible format, typically translated through the media.

Responsiveness?simply involves that institutions respond to their stakeholders within a reasonable time frame.

Consensus Oriented?is demonstrated by an agenda that seeks to mediate between the many different needs, perspectives, and expectations of a diverse citizenry. Decisions needs to be made in a manner that reflects a deep understanding of the historical, cultural, and social context of the community.

Equity and Inclusiveness?depends on ensuring that all the members of a community feel included and empowered to improve or maintain their wellbeing, especially those individuals and groups that are the most vulnerable.

Effectiveness and Efficiency?is developed through the sustainable use of resources to meet the needs of a society. Sustainability refers to both ensuring social investments carry through and natural resources are maintained for future generations.

Accountability?refers to institutions being ultimately accountable to the people and one another. This includes government agencies, civil society, and the private sector all being accountable to one another as well.

Conclusion

Of all the pillars that constitute a modern economy and society, there is not one that is more important or whose importance supersedes that of governance. Governance is the nexus or the link that joins all the other pillars and ensures that they interact in concert resulting in shared prosperity and economic development. Where there is a vacuum in governance or where it is poor in that all the facets that constitute it are faulty or weak then the other pillars that make up a thriving economy will suffer and be deficient. Good governance is paramount.

All the nations that are admired today for having transformed their fortunes have this trait common among them: they have highly effective governance systems. Singapore which was a rural backwater a short generation ago managed to transform its economy and society into an advanced one on the strength of good governance. It is noteworthy to mention that Singapore achieved this feat with no notable natural resources. Switzerland, the gold standard of tax havens and world financial centers also has little in the way of natural resources that could support its economy and yet it is a wealthy nation on the back of its good governance system that lends strength and credence to the pillars of its economy!

All the citizens of the countries in the nations cited do not need explicit government empowerment initiatives to increase the participation of their people in their economies. Their governments made every effort to set the background in which their economies can develop in such a way that leads to shared prosperity and growth. The stance that nations in Southern Africa have taken which is to merely legislate empowerment or indigenization will not be effective in isolation. It will not be effective because wealth by nature is not created, developed, or grown by dividing it. Legislation along whether it is called Black Economic Empowerment, Broad Based Black Economic Empowerment or Indigenization is merely a first step which must be followed up by concrete and substantive action steps.

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