By superadministrator1  The sanctions, initially imposed by Britain and subsequently the UN, were meant to cripple the country economically and thus force the Ian Smith regime to step down. They instead heralded the start of a highly successful industrial drive that was to see the Rhodesian currency and economy firm to record highs.

The way in which Rhodesia prospered under sanctions has often been used to ridicule the present Zimbabwean government over their claims that the so-called “smart sanctions” are what have brought the economy to its knees. During the Rhodesian-era, the sanctions were total, and in theory Zimbabwe was not supposed to have anyone trading with it whatsoever. In practice, the Rhodesians became adept at creating sanctions-busting measures that enabled them to source limited essentials from outside, as well as export some of their produce.

Two weeks ago, this column pointed out how the Government of that time and the business sector closed ranks in the face of this external threat, and how that close cooperation resulted in the build-up of elaborate business linkages across all sectors of the economy. These linkages are the ones primarily credited with the strengthening of the economy that then resulted.

If sanctions are meant to be damaging to an economy, why then did the Rhodesian economy thrive? The answer lies in the way the government reacted, the dynamics of economies and the power of synergy. Instead of precipitating economic demise, the sanctions and more importantly the reaction to these actually created an environment conducive for economic prosperity.

Prior to declaring The Unilateral Declaration of Independence (UDI), the Smith regime had been warned of the consequences that would result in the event that they went ahead with this action. They were fully aware that the country would be blockaded, so they made plans to transfer most of their foreign currency reserves to South Africa, a friendly country. They also began planning around the issue of how they could become self-sufficient and reduce dependence on imports. By the time UDI was undertaken, they had made significant progress in this direction.

A key action that the government took was to set up an exchange control regime that allowed government to direct how the country’s foreign currency reserves would be used. Government then deliberately targeted these reserves towards capital expenditure meant to enhance the country’s industrial capabilities, primarily in the area of import substitution. In the next few years, the government was at the forefront of setting up manufacturing companies which would then be sold to the private sector when the entities’ viability had been established. The Industrial Development Company (IDC) was a key vehicle for this activity.

The closing up of the economy created a ‘greenhouse effect’ on capital, in that capital within the country was locked up, and had to be redeployed locally. Capital was re-invested in expansion projects in the fields of energy, housing, manufacturing, farming and mining. As such projects came to maturity they in turn resulted in even more capital being available for redeployment, creating a vicious expansionary cycle. The closed borders and financial system was therefore conducive for the rapid expansion of the economy through the money multiplier effect.

Because of the close-knit cooperation between the various key players within the economy, cross-sectoral linkages emerged within the economy that aligned the operations of the various sectors. The financial services sector, awash with cash would finance farmers through providing loans for the acquisition of inputs. The farmers would produce and the products would be directed towards various marketing boards which would then on-sell product either to local markets, or would organise sales to external markets through various schemes set up to evade the sanctions.

In a nutshell, what the government managed to do was create a national economic system that was well-aligned and geared to create massive synergies for the economy as a whole. This system was said to be over 70 percent self-sufficient, meaning that the country only needed to import about 30 percent of its requirements.

Looking at our situation now, the differences are glaring. The smart sanctions did not, and do not create the sort of barriers that result in an internal pooling of capital. In fact, post-dollarisation there are no exchange controls whatsoever, and therefore capital is free to leave at any time. The political and economic dynamics currently at play actually encourage such a flight of capital.

Government has not taken a leading role in directing the economy, as politicians are currently pre-occupied with who is in power, rather than getting the economy to perform. Its relationship with the private sector has become more symbolic than anything else, and government policies more often than not do not have the direct input of the private sector. Furthermore, implementation, monitoring and evaluation are practically non-existent.

The business sector has also become fragmented, with each company focusing solely on its own survival. There are thus no synergies to talk of even among companies sharing a common value chain, let alone cross-sectoral synergies. As an example, most companies right now would rather import a raw material than source their product from a fellow local company. While there may be arguments about price, quality and the fact that we are in a free market, this myopic approach becomes laughable when those same companies call on citizens to “Buy Zimbabwe”.

Much as open markets are the right instrument for creating a competitive business environment, the importance of scale and synergies in achieving price competitiveness cannot be underestimated. Our industrial productive capacity stagnated for two decades after independence, before becoming decimated during the hyper-inflationary era. To think that we can just emerge from such circumstances and immediately take on a world that has been innovating all that time is wishful thinking. Zimbabwe simply does not have any industries that are scaled up to the levels at which other operations worldwide are operating, at the moment.

The concept of synergy is even more interesting. One definition of synergy is: “a situation where the whole is greater than the sum of its parts”. In other words, one plus one equals three or four, and not two. Synergies arise when separate units or systems are made to function in a way that results in output greater than either unit could have achieved on its own.
The impact of a lack of unity was amply demonstrated by the manner in which industrial capacity utilisation went up in the first couple of years after dollarisation, then stagnated and now seems to be falling. The reason why capacity utilisation stagnated was because uptake of local products was compromised as people began preferring imports. Currently, several manufacturers are closing down production and instead becoming distributors of imports.
Achieving a sustainable turnaround of the economy requires that all players focus on re-generating the linkages and synergies that once made this country extremely competitive. Land reform will not become truly successful before the financial and manufacturing sectors come on board and join hands with the farmers. Neither will the drive for industrialization. Economies, like all man-made systems, do not simply heal and align themselves without active effort. Until hands are joined and concrete ideas on national economic regeneration are made, we can forget about expecting a turnaround.

– Farai Mutambanengwe is the founding chairman of the SME Association of Zimbabwe, and managing director of Adway Financial Services (Pvt) Ltd. He can be contacted via http://www.adway.co.zw