Tuesday, 29 January 2013

An unbalanced economy: why mining should not dominate, and why agriculture needs support

Last week I reviewed some of the facts and figures in the recent 2013 budget statement. There are some definite bright spots, and the rebound since 2009 is impressive. But can Zimbabwe's economy continue to grow sustainably and inclusively on the back of mineral revenues without a more balanced economy?

In his budget statement, Finance Minister Tendai Biti argues for moving beyond an 'enclave economy' towards what he calls a 'cheetah economy'. Where is the investment for this transition going to come from? And what would such an economy look like?

Unfortunately, there is not much room for manoeuvre. The total budget committed for 2013 was only US$3.8bn, much of which was taken up by already committed salaries. Commitments to agriculture were only US$160m, 'regrettably' 6% below the Maputo Declaration target. Donor and multilateral support remains small in relation to overall need, and focused on welfare, humanitarian emergency and social services. As one commentator cruelly pointed out Zimbabwe's total budget is much smaller than the turnover of Pick n' Pay, a large South African retailer. So where is the strategic investment in a 'cheetah economy' going to come from?

One scenario is to rely on mineral revenues. But, as Cambridge Professor Haa-Joon Chang points out, this is risky. The current buoyancy of African economies is very contingent on high commodity prices and continued demand from the developed world, and perhaps especially China. A downturn elsewhere will see a sharp downturn in Africa. Even leaving aside the risks associated with the capture of mineral revenues by elites (the 'resource curse'), reliance on even an array of minerals to finance the rebuilding of an economy may be foolhardy.

Another scenario would see agriculture more in the limelight. Rather than offering the paltry sums seen in the 2013 budget a much braver, more substantial agricultural rehabilitation initiative is required. This will inevitably require external support – including donors, multilateral banks, finance houses and the private sector – but it must be lead by government, and backed by the state. Agriculture has a different demand profile to minerals, and so different economic elasticities. It employs people in potentially larger numbers per unit of output, and the growth potentials are significant, given Zimbabwe's comparative advantages. There remain outstanding issues of issuing leases and offering compensation, but planning for such a mission-style effort should start now.

The alternative will indeed be the take-over by Pick n' Pay, and other elements of South Africa, Chinese, and Euro-American capital. You only have to go over the border to Zambia to see what a mineral led economy can offer. Growth, yes, but perhaps not more broad based development. This is not the sort of 'middle income' country that Zimbabwe wants to become. Instead it needs a firm national economic base, owned and controlled by Zimbabweans. Perhaps surprisingly for many (including Mr Biti I suspect), the land reform has provided just this platform for growth and recovery, if only the imagination, vision and of course finance are in place.

However it seems clear the Minister of Finance is currently backing the first, risky mineral-led scenario. The budget statement is replete with statements about the dramatic potentials of the mining sector. We have heard this since Cecil Rhodes, who ultimately was disappointed. And indeed in Minister Biti's own words:

"The mining sector is a tiny enclave with little connectivity with the rest of the economy and, therefore, despite its high rentals, it has not been able to sustain growth or socio-economic development".

He argues for a "major rethink" to allow forward, backward, spatial and other linkages with the rest of the economy, but does not reflect on the political economy of such a rethink. Mining capital is in Zimbabwe for a reason – minerals can be extracted and exported at a cheap price for profit. An enclave economy suits them just fine.

While Zimbabwe should not ignore its considerable mineral wealth, and it should tap it for maximum benefit, through appropriately balanced indigenisation policies, effective taxation and maximising local processing and value addition, it should also focus on its other sources of wealth: land and people, and give agriculture the boost it needs. The turn-around in tobacco, sugar and cotton, has shown the potential. In my view, agriculture following land reform can not only deliver growth, but pro-poor, inclusive growth if supported in the right way.
This post was written by Ian Scoones and originally appeared on Zimbabweland