The Monetary Policy Statement this week from Reserve Bank of Zimbabwe Governor Dr John Mangudya contained some good news for a change.
The biggest and most important tidings was the 36 percent rise in exports last year. This is the only long-term road for Zimbabwe to achieve monetary stability without subjecting the entire population to dire poverty.
We are, at present, still importing more than we export. And remittances and the actual inflows of foreign direct investment are not filling the gap. We either have to slash our imports, and take the resulting loss in living standards, or we need to sell enough stuff to other people to buy their goods and services.
Boosting foreign direct investment helps speed up the process through the double benefit of providing capital to create the sources of wealth, and providing indirect balance of payments support by using foreign supplied money to buy Zimbabwean goods (even if it is only the bricks and cement) and pay local staff.
But unless that FDI also boosts exports or, at the very least, cuts back on imports it is only a short-term solution. People who invest do so not because they want to help Zimbabwe, although this can be a very useful by-product, but because they want to make money. They will want to see a fair percentage of the profits their investment generates moving into their bank accounts. This is not unreasonable.
And if the investment generates, directly through exports or indirectly through import substitution, enough additional foreign currency to cover those profit transfers, then Zimbabwe wins as well. FDI, in effect, has to generate a triple benefit of capital, immediate help with balance of payments, and long-term balance of payments support through covering with a surplus the payment for that capital.
And of course there are also internal benefits in that a profitable enterprise pays tax and hires Zimbabweans, providing jobs and adding a bit more to the tax kitty as these employed people pay PAYE and VAT.
It is exactly the same when we borrow money outside Zimbabwe. If we use that money wisely and productively, that is if the result of the borrowing is to boost exports or at least cut imports, then when the lenders want their interest and want repayment we can do this. One major economic problem facing Zimbabwe is that we are in arrears over payments to major international financial institutions, largely because we borrowed for consumption, not production.
Dr Mangudya has carefully explained that the RBZ has been borrowing from Afreximbank to manage the peculiar surges in foreign currency earnings, something common to most commodity exporters, and to ensure that those who are producing for export or for import substitution can access foreign currency. He also needs to ensure foreign direct investors that they will be able to repatriate their dividends. But he also needs to ensure that when this bank wants its repayments, he has the money ready and available for that as well. Banks oil the wheels, but they are not charities.
It is somewhat worrying that even with the substantial boost in exports there is still a gap in balance of payments. But that gap is narrowing. Continued efforts to boost exports will see that gap narrow, even if imports rise as black-market rates fall. Black market dollars are used to fund pure consumption imports and usually luxury imports.
These rates will fall as exports continue to rise, and FDI brings in more foreign currency. But another problem, the fast rise in money supply, also has to be addressed. The RBZ has noted that Government spending did start spinning out of control, something Finance and Economic Planning Minister Patrick Chinamasa, promised in his budget two months ago to reverse.
Now the RBZ has to be more active in converting some of its ad hoc cover of that debt into more conventional instruments and has to be more assertive as a banker should be, warning its customer, in this case the Government, that it cannot carry on in the same way.
The Government has to realise that its spending is largely dependent on economic growth. Growth will generate more tax income, allowing it to spend more. Some Government borrowing is not a problem, again if money is borrowed for production. But borrowing to pay civil service salaries or air fares is not a wise idea.
So in the end the formula is the old boring story: boost the economy through boosting production, ensure that exports equal or exceed imports and keep State spending in line with State income. There is nothing very flashy about this formula, but it is the way to move a nation, any nation, from dire poverty to giving its people decent lives.