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

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5 Comments

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5 responses to “An unbalanced economy: why mining should not dominate, and why agriculture needs support

  1. Ken May

    This is too narrow a view if Zimbabwe is to become a modern economy which does not have a trade deficit of 25% of GDP. Major contributors to exports – agriculture and tourism – were effectively destroyed from 2000 onwards and need to get back on track. There has been some slow progress in that direction.

    Agriculture cannot be the major driving force, because 70% of the population works the land, mostly at subsistence level and contribute nothing in taxation. (There is no effective means of collecting tax from small farmers even if their earnings warranted it). They need to produce at least one and a half times their own needs to support the urban population. That has not yet been achieved.

    Even when it is, some sector of the economy has to then deal with bridging the huge trade gap. Mining is doing especially well at the moment, but for how long can gold prices stay so high? That was Mugabe’s mistake in the early 1980s, the last time gold was at a similar high.

    Employment which takes people off the land (and to make use of their education) is needed. And that requires foreign investment, but not foreign exploitation. But that will not happen within the hostile political environment that has been the hallmark of Mugabe’s reign and still persists.

  2. Thanks Ken. You make some really good points. My argument was about balance. You cannot rely solely on any sector, and it is important that agriculture – even smallholder agriculture – is part of the picture. Taxation is difficult, but not impossible, from small and medium sized farming operations, as there are substantial numbers producing regularly for the market. It is not all ‘subsistence’ as you suggest. An agricultural base has been important for all major transitions in economies. Look at Asia’s success – it would not have happened had there not been a green revolution, focused on small-scale farming. People have left the land since, but the economy needs to grow first. And, as you say, this does need investment, but geared in a way that allows jobs to be created, and growth to be inclusive – unlike so many other settings where investment simply results in extraction, exploitation and jobless growth.

  3. Ken May

    The political climate needs to be right before there will be any meaningful investment. In particular there needs to be a return to the rule of law that existed before Mugabe interfered substantially from about 1998 onwards. There needs to be an end to the cronysm that prevented Strive Masiyiwa getting a cellphone contract at around that time.

    A start needs to be made on import substitution (which was to be my next project in Zimbabwe until I left in anticipation of the food shortages that resuted from the farm invasions) and the rebuilding of Bulawayo’s manufacturing activities. Although there are exceptions, most Zimbabwean businessmen need a lot of advice to become successful.

  4. Francine

    Zambia’s growth is more broad based than it used to be before the economic and political reforms of 1991. Prior to 1991 mining used to constitute about half the country’s GDP. Last year (2012) mining contributed $7.5 bn to the Zambia’s $20.68 bn GDP. There’s about $13.18 bn economy that has more or less nothing to do with mining. Indeed during the global economic downturn in 2008/2009 when some copper mines were mothballed, the country still managed to grow at 6% buyoued on by the none mining sectors. Zambia is a country that used to import food. The situation has now been completely reversed. Barley, Maize , Wheat, Soya, and Sugar are all grown in surplus both for local consumption and export. Zambia is a changed country…….Agriculture, Construction, Tourism , Manufacturing, Services are all contributing to the Zambian growth story!

  5. Pingback: Transforming Zimbabwe’s agrarian economy: why smallholder farming is important | zimbabweland

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