Economic transformation in Zimbabwe requires the nation to look carefully at where the rest of the world is going. The rest of the world is in the middle of the third industrial revolution driven by technology and services. These two comprise what is now known as the knowledge economy and represent a clear departure from the significance of the primary/extractive and secondary industries. These same industries are what have anchored the economy from the time the southern African country became a nation. Technology and services are where the greatest value can be appropriated, and it is in technology and services where the key to exponential growth in productivity lies.
The most magnificent thing about technology and services is that it pervades every sector of the economy and we have seen it converge with just about every area of the economy in recent times. The concept of the internet of things is a case in point. Technology must now be embraced and harnessed to optimise productivity in the primary resource and secondary industrial sectors for economic transformation to take place.
The most obvious sector that can lead an economic turnaround because it has successfully converged technology, knowledge and services is the financial sector. The critical question to ask is why Zimbabwe cannot become like Switzerland, Panama, Bahamas, Cayman Islands, Isle of Man, Shanghai, Guernsey, Dubai and even Botswana all of which are countries known for being world financial centers? The world has changed, the world is changing, and the world will continue to change. There are countries in the world like India which have experienced and continue to experience rapid economic growth and as such demand international financial services.
Also Read: Russia’s Diplomacy Moves to Comoro Islands
According to Z/Yen Long Finance, “India is one of the fastest growing economies in the world and a large user of the International Financial Services. As India seeks to expand its economic and strategic activities globally, a dedicated international financial services centre (IFSC) will provide a platform to undertake these services efficiently. India’s services exports were approximately US$ 195bn and imports were approximately US$ 117bn in 2017-18. In April 2015 the Government of India took the initiative to develop an International Financial Services Centre at Gujarat International Finance Tec-City (GIFT City) a Special Economic Zone to help India realise its potential in the international financial services industry. GIFT City IFSC provides a strategic location to develop an efficient platform for all inbound and outbound foreign currency transactions.”
This is not the only rapidly growing economy that makes widespread use of such services and is a potential boon for an economy hard pressed for investment and foreign capital flows like Zimbabwe. How is it that the country despite this great opportunity fails to take advantage and capitalise?
The infrastructure is already there, and the country already has a financial system that is reasonably well developed. Additionally, there are very strong merits that make the case of the country becoming a world financial centre more and more compelling. They include but are not limited to economic benefits among others.
Again, a study conducted by Z/Yen in 2019 found that there are great economic benefits that accrue to a country that seeks to become a world financial centre, “perhaps the most obvious and most mentioned of benefit of hosting a successful financial centre. The top four centres in the Global Financial Centres Index, New York, London, Hong Kong, and Singapore are all great examples of generating significant revenue through financial services. The square mile of the City of London is reckoned to contribute $50 billion to the UK economy and helps the finance industry in many other locations around the UK.”
This amount that the study cites, US$50 billion was contributed to the national economy in a single year in 2017. To put that in perspective in terms of the country of Zimbabwe, the financial services sector of the United Kingdom contributes to the national economy a quantum that is two and a half times the size of Zimbabwe’s economy if the figures on Zimbabwe’s gross domestic product provided by the World Bank are considered. With this perspective in mind this benefit alone should cause the gate keepers of the country of Zimbabwe to give careful thought to the advancement of the financial sector as it can lead the way back to economic wellbeing.
The other benefits that can accrue to a country that adopts policies aimed at fostering growth in its financial sector according to the study are international networking where international financial centres hosting foreign firms generate information flows and networks that help the wider economy. The financial services industry often generates the talent and investment needed for innovation. Access to external currency markets; financial centres encourage trading of financial assets. These assets include domestic and foreign currencies. Strong international financial centres create and strengthen access to international currency markets and lastly greater external influence; where a stronger economy, with greater international networking, and an enhanced reputation for innovation, gives a centre and its host nation, greater influence and bargaining power in international relations.
It is important to note that Panama has advanced and made such great strides in this area that the country does not have a central bank in the strictest sense of the term. They do have a financial authority that regulates the conduct and activities of the financial sector however, they do not have an institution that issues currency and acts as a lender of last resort to the banks. All banks and financial institutions requiring credit obtain it from the financial markets.
All these benefits acting in concert and unison will have the impact of causing the country to re-emerge economically and even become influential on the world stage. However, in considering this new paradigm in terms of economic recovery and growth two things must be noted the first being that the financial sector is not the only service area that we can pursue as a nation. There is indeed a broad spectrum of service areas that can lead the nation out of where it is presently. For instance, a critical question to ask why cannot Zimbabwe develop a technology sector along the lines of Silicon Valley?
The Guardian UK in April 2019 ran an article titled “If Silicon Valley Were A Country It Would Be Among the Richest on Earth” showing the immense contribution the tech sector is making to the broader US economy. The output of Silicon Valley at US$ 275 billion according the Federal Bureau of Economic Analysis is 13 times bigger than the Zimbabwean economy and has a GDP per capita of US$ 128,308.00. It is astounding that a mere sector of the economy produces more than some nations of the world. Silicon Valley truly bears testament to the value that can be appropriated when a country intentionally harnesses the resources, human and intellectual capital it has at its disposal.
The point is that financial services are not the only service that has the potential to be a leading economic growth driver. Technology is another and the list goes on. The second thing to consider in terms of financial services developing as a growth driver is the context of the financial sector. Financial services are a delicate area in Zimbabwe. This sector has been plagued by crises. These crises have been characterized by bank failures which have all had the effect of undermining confidence in the sector and the respective institutions.
Hyperinflation in two different eras has completely decimated domestic savings for corporates and households. When there are no domestic savings there can be little in the form of investment in capital formation which is a critical prerequisite for economic growth and prosperity. Another unfortunate phenomenon around the financial sector in Zimbabwe is policy inconsistency which contributes to undermining further the confidence that is already at an all-time low. It is well known that capital is shy and only flows to places with high levels of relative certainty. Wherever the ground shifts too easily and the rules are not clear the resultant effect will be capital flight.
Before Zimbabwe can turn in this direction the context needs to be needs to be not only right and certain, but it must be conducive to a vibrant and global financial sector. The basics need to be right. There can be no room for uncertainty or shifting goal posts especially in a highly globalised world. The first step in setting the right context will be to benchmark the nation as a country against those countries that have successful and vibrant financial services industries and emulating the steps that they took in getting to that state. Botswana an example cited earlier will soon be an emerging economy if it has not become one already. It is interesting to note particularly that Botswana has no exchange controls in the most literal sense. Is it no surprise that the capital into that country is highly mobile by-passing Zimbabwe in the process? Botswana’s regulations are clear, enforceable, and certain. It is also interesting to note that Botswana has not had any bank failures whatsoever.
Economic transformation for Zimbabwe will require the nation to think differently.