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May 03, 2007
As the British
Airways jet lifted off from Heathrow on its way to Harare on October
2 2006, I reflected on what lay ahead. In 12 hours I would be touching
down, landing in a country which I had studied for 14 years, but
had not yet set foot upon.
I had been invited
to serve on a panel in Harare, sponsored by the American Business
Association of Zimbabwe, which was focused on having experts share
ideas on rebuilding the country. I was greatly looking forward to
matching impressions "on the ground" with my previous research outside
Prior to this,
I had read many books and articles, studied satellite photos and
written a fair amount about Zimbabwe while teaching economics at
Salem College in North Carolina, United States.
In 1992, when
I first become interested in Zimbabwe, I learned that it had challenges,
but was one of the clear jewels of Africa, achieving more than 90%
literacy since independence, and consistently strong economic growth.
The country fascinated me, with its rich and complicated history,
vast resources, sophisticated manufacturing base and enormous potential
for the future.
In 2000, as
Zimbabwe's economy began to go into a freefall, I became puzzled
and fascinated about what was happening. This former success story
was beginning to unravel with rapid and alarming speed and I took
a sabbatical from teaching to find out why.
The result in
2004 was a book, entitled The Collapse of Zimbabwe in the Wake of
the 2000-2003 Land Reforms. The theme of the book was that the dramatic
collapse of a country with so much potential contained lessons that
went far beyond Zimbabwe
What I've learned
from my research is that given Zimbabwe's precipitous failures,
a clear path for rebuilding the country is now needed more than
ever. One creative avenue, if it were modified slightly, lies within
Zimbabwe's own borders, and I'll share that later.
But first, any
new government must acknowledge that the precipitous slide in the
economy, and the current devastating 2 200% hyperinflation is inextricably
linked to the seizure of the large-scale commercial farms.
through the 1980s and 1990s rarely had a year where the economy
shrank -- now, since 1999, it has shrunk between 5% and 10% a year.
That is no coincidence. I have written extensively about the disastrous
economic consequences of the land seizures.
In all of these
articles, I return to a main theme: the land seizures shattered
the foundation of the market economy that held up three important,
yet invisible, pillars of commerce: trust by foreign investors that
their investment was safe, the ability to use property as collateral
in the banking system and thus turn land equity into myriad forms
of new wealth, and the incentive to acquire business knowledge,
given that one could profit from the long time ownership of land.
investors pulled out, and foreign investment dropped nearly 95%
in two years. Banks failed because the government now owned land,
and loans which used land titles as collateral were worthless.
sharply contracted as well. And the sophisticated knowledge base
of the commercial farmers evaporated, as most farmers emigrated.
of Zimbabwe's staple crop down to 30% of its former output, the
government tried to blame droughts as the culprit. My research showed
that rainfall was plentiful throughout most of the early 2000s,
and even the "drought" of 2001/02 was only 22% below average.
The land seizures
caused a cascade failure that has rippled through the country and
affected nearly everyone.
So here is where
we are: appropriation of land without compensation is tantamount
to a betrayal in a longstanding relationship. The government has
betrayed the people, and this simple truth means that rebuilding
the country must start from that premise.
A betrayal in
a financial market carries a cost: financial investors and domestic
entrepreneurs will seek a premium that accounts for the twinge they
feel in their guts when they ask the question: "Could Zimbabwe's
government do this again?"
We must remember
that market relationships are, at their bottom, human relationships.
Trust takes a long time to build, and even longer to rebuild after
it has been shattered. Broken trust carries with it a very real
economic expense. A new government must remember that mending this
broken relationship is the most important thing it can do.
The next thing
a new government must remember is that in order for entrepreneurs
to stake their hearts and souls in Zimbabwe's economy, the economy's
new rules must be simple and transparent yet radical -- so simple
a foreign investor in Sydney can easily explain them to another
investor in New York, and so radical that the second investor asks
a follow-up question, his curiosity sharply piqued by the plan.
simple and clear guiding rules grow the fastest. Hong Kong is one
of the world's fastest-growing economies and, not coincidentally,
a new business licence is approved in hours.
Let's not be
misunderstood: Zimbabwe has a lot of repair work to do, and there
are plenty of complicated problems to work through, including a
probable need for foreign aid. However, the country should move
quickly away from any dependence on the outside world to maintain
its sovereignty, pride and incentives to produce.
One strong focus
should be on quickly moving to restore property rights.
Christina Zenker has written that in order for property rights to
generate economic growth, they must have three properties: universality,
definability and security.
means everyone in the country should have access to the institution
of property rights and all its benefits. Historically, Zimbabwe's
laws and customs have excluded women from owning land as well as
those living on communal lands. This should be changed.
means that an owner of property has the right to exclude others
from using it. The land can then serve as collateral for bank loans.
that the above is defended by the rule of law and that citizens
and investors trust that their property is safe from expropriation.
to reduce sharply the cost of business. Realistically, foreign investors
will still hesitate in the wake of the recent history of land expropriation.
Therefore a bold plan is needed to win back their trust.
for such a plan comes from right within Zimbabwe's own borders,
from an entity so little known that many Zimbabwean experts don't
even know of its existence.
In the midst
of Zimbabwe's quasi-socialist regime is a region of the country
whose free-market regulations could have come straight from Hong
Kong. This region is called the Export Processing Zone (EPZ). Within
the EPZ, there is no corporate income tax. Nor are there taxes on
capital gains, imported machinery or dividends.
For those interested
in commercial farming, the government could auction off the thousands
of hectares of unused or mismanaged lands, and apply this tax strategy
to the entire agriculture sector. Lands could be zoned for large-scale
and small-scale farming, addressing the issues of both efficiency
be many positive consequences. Hundreds of thousands of Zimbabweans
who were former farmworkers could return to work. As a consequence,
income-tax receipts would rise. Soon after, all auxiliary enterprises
serving agricultural sector would begin to revive, paying in corporate
taxes as well.
This would also
have a positive effect on small-scale farming. As a side effect,
Zimbabwe would capture worldwide attention because of its bold new
policy, which it can claim as its own. Eventually, inflation pressures
would begin to subside, as tax receipts increased.
In the long
run, the time horizons for all Zimbabweans increase, giving incentives
for everyone to invest in their land, health, children and retirement.
After my panel
presentation in Harare in October, I reflected more on my visit.
What I understood only now was that Zimbabwe's greatest assets do
not show up on its balance sheet. Its pride in its education system
was evidenced by parents' insistence that children walk five miles
or more to school despite the breakdown in public transportation.
Bizarre and complex laws designed to stymie commercial activity
didn't succeed in breaking the incredible entrepreneurial energy
of this country.
always felt safe and secure during my visit. People I met believed
in the judicial system and wanted a peaceful transition to a new
assets -- a belief in education, entrepreneurship and rule of law
-- are the vital qualities that Zimbabwe still possesses. These
will vastly increase the odds of recovery if a new government chooses
the path of secure property rights as an important first step toward
rebuilding the country.
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