SA retail investment a glimpse of what’s coming

SA retail investment a glimpse of what’s coming

RECENT OPINION ARTICLES

• Now may be best time to abandon neoliberal economics

By Kuthula Matshazi
Posted to the web: 16/03/2009 22:53:31
RECENTLY, there have been concerns about South African businesses, especially supermarket retail chains flooding the Zimbabwe market with their goods.

This has been necessitated by the situation in Zimbabwe where there had been, in some instances, real and in other cases artificial shortages of basic foodstuffs.

In times when these shortages were acute, South Africa and Botswana became our shopping centres. As a business response to market demand, and exploiting the proximity of Zimbabwe to South Africa and the cordial political relations that we share, these businesses provided Zimbabwe with basic commodities.

I would like to contextualise this scenario within a liberalised economy discourse. Recently, the government of Zimbabwe announced that it was liberalising the economy. While the economy has been liberalised in the past, the government abandoned the liberalisation doctrine and adopted the developmental state model in order to advance its social agenda, which had been bruised by a liberalised economy of the 1990s.

However, some of the principles of the developmental state run contrary to the free market rules and specifically those of the World Trade Organization regime, the regulator of liberalised trade.

Although the WTO does not prefer some of the interventions undertaken by the developmental state, in other situations it tolerates them as necessary. In fact, the WTO has what it calls “special and differential treatment” provisions that allow governments from developing countries to intervene under necessary circumstances.

For instance, it could be deemed necessary to provide basic assistance to communal farmers who had just received land under the land reform programme. The intervention of government should not, however, have distorting effects on prices and competition in the economy.

Naturally, some interventions of a Zimbabwean developmental state have had a distorting effect such as in the area on price for goods and services. Of course, one might conversely argue that the intervention was necessary to protect citizens from predatory pricing such as in situations where a loaf of bread was selling for US$5.

The liberalised economy discourse has been dominant outside of government before the Global Political Agreement. Those who opposed the Zimbabwe developmental state argued that restricting government intervention in the economy would unlock more value from the economy in a more efficient way and enhance the standard of living for Zimbabweans. Liberalising the economy would also bring in foreign investment into Zimbabwe.

Other benefits of this sort of economic development paradigm is technology transfer and an increased variety of goods and services that might not otherwise be available in a developmental state-led economy.

An aside: I do not believe in the entirety of the notion that the developmental state stifles economic prosperity since we have evidence that it facilitated and fostered the prosperity of South Korea and many other East Asian Tigers.

What we are now seeing is the retail sector of South Africa exploiting opportunities that economic liberalisation provides. We must view the South African businesses for what they are: foreign investors. These are investors that we have always clamoured for.

As citizens that had pushed hard for liberalisation, foreign investment and engagement of the international multilateral organisations such as the International Monetary Fund and the World Bank, Zimbabweans should view South African investment as part of an answer to their prayers. What we must note is that right now this investment is restricted to just one sector of the economy by our economic giant neighbour.

As we embrace the prescriptions of the IMF and World Bank many more sectors will be opened up for foreign investment in the same manner the South Africans are doing in retail or even on a larger scale.

Of course, there is the Indigenisation and Empowerment Act that would be a policy instrument to use in preventing majority shareholding by foreigners. But under international liberalisation laws the indigenisation and empowerment law will have to be changed to allow free competition and non-discrimination in conformity with the obligations of the government of Zimbabwe under the WTO.

Besides, it would be hypocritical for those people that were calling for the liberalisation of the economy to now turn around and use the Indigenisation and Empowerment Act to frustrate its establishment.

The potential investors in other sectors of the Zimbabwean economy will have even deeper pockets than South African retailers. They have the financial means to take over a majority of our companies.

To be consistent with our obligations in the international community (as some members of the inclusive government have religiously advocated), we will need to sacrifice those Zimbabwean businesses that cannot compete. We have to let them fail if they cannot compete. That is what market liberalisation is about.

Of course, under the “special and differential treatment” provisions of the WTO, we are allowed to provide basic assistance. However, that would be insignificant since it should not amount to a proportion that distorts the market.

There are many negative scenarios I cannot mention here for limitation of space that would be a result of market liberalisation. The liberalised economy will eliminate many indigenous businesses or turn Zimbabwe entrepreneurs into fronts for foreign businesses engaging in foreign direct investment; reduce the provision of public goods by the developmental state because those providers such as public energy or transport companies will have to be privatised and there would be labour law reforms.

Many Zimbabweans are going to be retrenched through the rationalisation of labour and companies would offer reduced benefits and pay rates because of the presence of reserve labour. Many goods and services that had previously been provided at free or subsidised rates will begin to be purchased at free market rates. It is doubtful whether many Zimbabweans will afford to pay for them under a retrenched social safety net and dwindling salaries and wages.

Unfortunately, we fought hard to undermine the developmental state which (in many cases, as in the East Asian Tigers and Vietnam has been successful) has the potential of creating its own form of liberalised economy within the specific circumstances of Zimbabwe that also take into consideration its international relations.

If we are to identify characteristics of import substitution industrialisation in our economic development model, I argue that these were going to assist in creating a national economy while incrementally turning it (our economy) into a liberalised form.

The difference between the kind of economic development model that we are implementing now (liberalisation) and that one pushed by the developmental state with characteristics of import substitution industrialisation, would be that right now we would be seeking foreign investors from a strong economic position. We would be now seeking to compete at a notch higher than where we were as opposed to the current state where we are begging to be rescued from calamity!

Unfortunately, we have to accept the liberalised economy and live with its effects, but there will be a heavy political price to pay. The business venture by South African retailers into Zimbabwe is nothing but a glimpse of what is to come.

We should brace ourselves for more external and aggressive business interests with deep pockets. And we cannot turn around and hypocritically start complaining about such investment dominating our economy since we have been fighting for this kind of liberalised economic model for the past ten years in a manner that has not been strategic and does not serve the national interest.

Kuthula Matshazi has a Master’s degree in Globalisation Studies. His areas of interest include economic development, international development, public policy and international financial regulation. Contact: kuthulamatshazi@yahoo.co.uk or www.kuthula.blogspot.com
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