Public vs Private sector led growth
“It seems that Public Finance, like a greedy monster, has been lying in wait for the entire wealth of the people.” ARJ Turgot
At the core of the problem in Zimbabwe is the undeniable misunderstanding of how an economy functions. Governments do not create nor produce wealth. They can only spend the nation’s wealth. President Mnangagwa moves around the country and indeed around the world with the mantra “Zimbabwe is open for business”; read closely, easily interpreted as government is open for business. All pronounced megadeals, never mind that they have not materialised are government deals.
It is a worrying phenomena that a President that got support principally because of his supposed understanding of business has turned out to be a anti-business.
In a recent interview, the permanent secretary of Finance and Economic development George Guvamatanga tried to articulate the role of the public sector but was not convincing in removing state parochial, paternal special interests. While he claims his shareholders are 14m people not once did he protect their fundamental economic rights. He rather championed the thinking of the presidium. Immediately after the interview, the government reportedly introduced price and income controls. Admittedly it is not his fault- he is a cog and a victim of a big state syndrome.
In as much as the Minister of Finance is a supposed pro-market advocate he has turned out to be anti-market. While Mugabe was staunchly anti-business and anti-market, the country had in the past pro-market ministers.
Of huge significance was Ariston Chambati whose short stint the cabinet of 1995, with the able support of governor Tshumba led to 13 indigenous banks opening and a flourishing business sector. The opening of the market led to the first privatisation and listing of erstwhile state companies like Daribord and Cottco. Given Mugabe anti-business mantra, what Ariston achieved in such a short space of time is a miracle.
Professor Mthuli has had over a year and Mnangagwa two years and their reign has seen an assault against private sector. We don’t have to look far for this assault. The dominance and nefarious crony association of Sakunda stinks of skunk and disturbing. Mugabe’s patronage politics divided the spoils relatively well across his acolytes .
Chiadzwa is a fascinating example of Mugabe’s cronyism. A Mujuru backed ACR had the legal claim for the whole of Chiadzwa’s diamond resources. Mugabe took this away and soon enough Chiadzwa was divided amongst the many political constituents of Zanu PF. Indeed it was state cronyism. Today this has been monopolised by Sakunda.
Sakunda has monopolized state cronyism as it dominates state programs. It started with the Dema diesel project that never came to light but as reported in the press Sakunda got duty free fuel. Secondly instead of funding Command Agriculture with its own capital, the ministry of Finance advanced non tradable treasury bills which were traded freely in the market place. We are now made to understand that Sakunda has claimed legacy debt for its loan to government, invariably a claim that will be settled 1:1 when the parallel market rate is 22.
To think President Mnangagwa was likened at some point to Margaret Thatcher. Describing himself as thus “like Thatcher, we are not afraid of taking tough, and at times painful, decisions. As she used to put it, there is no alternatives.” This mischaracterisation has with the passage of time made the president seem like a fraud. Thatcher went on to break monopolies and cartels. Mnangagwa associates himself with Commmand Economics and cartels.
When his friend and teacher of Economics died, The 18th century Jaques Turgot, perhaps the best Finance Minister ever, wrote the classic an Elegy for Gournay. Where he ruminates on the dangers of government trying to run an economy.
As Comptroller General today’s version of Ministry of Finance- Turgot wrote to the King. Mindful King Louis XVI had 10,000 soldiers guarding him and known for his profligacy. It is worth reproducing the memo to the tyrannical King
“I confine myself to recall to you these three words — No Bankruptcy. No Increase of Taxes. No Loans.
No bankruptcy, either avowed or disguised by illegal reductions. No increase of taxes; the reason for this being in the condition of your people, and still more, in that of your Majesty’s own generous heart. No loans; because every loan diminishes always the free revenue and necessitates at the end of a certain time, either bankruptcy or the increase of taxes. In times of peace it is permissible to borrow only in order to liquidate old debts, or in order to redeem other loans contracted on less advantageous terms.”
Jim Powell writes this of Turgot
“He (Turgot ) warned French King Louis XVI that unless taxes and government spending were cut, there would be a revolution which might cost him his head. Turgot warned about the dangers of fiat paper money, and when it was resorted to during the French Revolution, the result was ruinous runaway inflation and a military coup.”
His experience revealed how fragile reforms are when depended on the goodwill of a ruler. It didn’t take long for Turgot to be fired. Three years after, the King was deposed. In retirement and suffering considerably from gout he spent his days writing and enunciating free market ideas to Benjamin Franklin the US ambassador in Paris and to other American law makers. Perhaps America could benefit from his ideas of free markets, free ideas and free exchange of goods and trade.
The greatest assault on the private sector in Zimbabwe has occurred post coup of Nov 2017. Credit to the private sector at $6bn while the public sector credit is $37bn. To think during the Government of National Unit (GNU) the economy enjoyed a growth rate of 8% per annum. Private sector credit average $3bnUSD and public sector credit was near zero. This illustrates convincingly that growth comes from the private sector and not government. The balloning public sector deficit is funded by money printing which is highly inflationary. A double jeopardy to the economy.
Mthuli’s taxes have not been enough to fund government expenditure and appetites. Yet singularly killed the supply side and liquidity for small traders that rely on electronic transactions and make small trading margins. On the other end consumer demand waned. How can a supposed pro-business Minister choke local small business through tax to cover a deficit and then go on to produce the biggest deficit in the country’s history?
The shrinking of private sector borrowings by 10 times to $300m USD reflects the contraction in the economy. Business has been sidelined. The question remains, why business has not spoken out emphatically on the state of affairs, especially those close to the President.
It could very well be easy victimisation and cronyism as possible answers yet the history of Zimbabwe itself provides the damning conclusion. The more astute, forthright and self made businessmen have left the scene. The very best of the professional working class is no longer in Zimbabwe.
System theory correctly predicts what happens when the counter force is weak. Wither away, private sector.
