Economic Unicorns: Deepening our “Shallow and Silo” Economy

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James, the Apostle, and the brother of Jesus Christ, is said to have died in Spain. In his honour, a shrine was built at the Cathedral of Santiago de Compostela in Spain. Cape Finisterre is the final destination of the famous pilgrimage to this shrine of Apostle James the Great. This famous journey of pilgrimage is called “IL Camino”. Like all journeys of life, it is a journey of self-discovery and learning.

In the final stretch of the IL Camino journey, the pilgrims have to walk a further 90km in order to reach Cape Finisterre. The cape is a beautiful mass of land that is framed on one side by steep fearful cliffs that drop down to the Atlantic sea below. The beautiful peninsula looks like the final edge to the world hard set against a black mass of unending sea water. It was aptly named in Latin, “finis terrae”, meaning “the end of the world”. Finisterre is an unavoidable and vital place. In most cases, you will not arrive at it once, but you will recognize that when you are developing or growing, you will keep passing through this unique but special place.

Many onlookers or pundits feel that our policy makers have arrived at Finisterre, the end of their world. That place where they feel that they have reached the edge and are not sure where the future leads to or, if there is a future to talk about in the first instance. Despair and despondency have loud annoying voices. Whatever edge any policy-maker may have come to, giving up may be an option. However, there are immense opportunities that are in the midst of these challenging times if only policy makers open up to several ideas. Every policy maker should keep his or her Camino, his or her journey of pilgrimage along certain principles or values.

In the decades and centuries gone by, the most valuable companies in the world used to be in the extractive industries such as oil and mining with the likes of J.D. Rockefeller of Standard Oil being the richest man in one of those centuries. However, in this new millennium, the list of the most valuable companies in the world is now dominated by ICT related heavyweight enterprises. Companies such as Amazon (with Jeff Bezos being the richest man in the world now), Microsoft, Alphabet (Google), Facebook, Twitter, Alibaba, Apple, Uber, Lyft, WeWork and others come to mind. A fascinating analysis of some of these companies now referred to as unicorns will reveal that these firms have a significant control or influence in their respective industries yet they do not own the idealised “critical” resources in those sectors. For instance, Facebook is the biggest content sharing company in the world yet the company does not create any content at all. Zoom does not own the hardware (internet and mobile network or infrastructure, physical operating places for its users, tablets, mobile phones, laptops etc.) used by its users but the company now has a bearing or influence on meetings currently taking place in various organisations and global interactions.  Uber is a dominant player in the ride-sharing industry yet the firm does not own any vehicles. The same goes for Lyft, a Zimbabwean experience-inspired and American ride-sharing company which listed in the USA this year with a total market valuation of over US$20 billion. The founder was inspired by his experience of the Zimbabwean “self-styled” ride sharing model when he visited our country during our nation’s first hyper-inflation experience between 2007 and 2008 which saw us facing fuel challenges.

In business and economics, great companies or economies can be built on open but unsuspected secrets about how the world works. Consider the Silicon Valley start-ups that have harnessed the spare capacity that is all around us but often ignored. Before Airbnb, travellers had little choice but to pay exorbitant prices for a hotel room, and property owners could not easily and reliably rent out their unoccupied space. Airbnb saw untapped supply and unaddressed demand where others saw nothing at all. The same is true of private car and ride-sharing service enterprises such as Lyft and Uber. Few people imagined that it was possible to build a billion-dollar business by simply connecting people who want to go places with people willing to drive them there. Many countries already had state-licensed taxis but the attractiveness of a cab seems to be declining. Only by believing in and looking for economic secrets can policy makers see beyond the convention to opportunities hidden in plain sight. The same reason that so many ICT heavyweight business entities, including Facebook, are often underestimated. Their very simplicity is in itself an argument for secrets. If insights that look so elementary in retrospect can support important and valuable businesses, then there must be additional motivational evidence in backing structural reforms for our economy.  

At a local level, ZLG, the Chinese owned Zimbabwe-based water company, was a dominant player in its market segment when a one litre bottle of water was more expensive than a litre of diesel yet the Chinese did not bring any water to our country. The water is in our country and in its abundance as Zimbabwe has more inland water catchments than any other SADC country.  ZLG stands for: “Zimbabwean Life Good”. Yes, our country’s market has been so good to the Chinese. The same Chinese company has taken its adventure beyond our borders through a pure juice or beverage company aptly named: “African Joy”. Yes, Africa has given this Chinese business so much joy. The other part of our stroll in the markets will reveal that Israel, India, Belgium and Netherlands control the diamond market whilst no single stone or diamond is mined in those countries. Israel has a vibrant agricultural base whilst the country is in a very dry place. Spain is a dominant player in solar energy whilst the country receives not much sunshine.

If Africa in general and Zimbabwe in particular, do not transform their economic models through some deepening initiatives, we will forever be the economic and industrial laggards of the world to our own detriment. Are we bereft of ideas when opportunities abound for us to emulate from? Sometimes, there is no need to re-invent the wheel, just rolling it down might be enough for our economic transformation. 

Given the right economic transformation pillars and governance, it is not a Utopian vision to imagine “Zimbabwe Incorporated” as a unicorn through a shared-economic model. In this dream, the citizens resemble and enjoy the fruits of our land just like shareholders of an incorporated company enjoy their dividends. Our president then assumes the economic leadership of our nation as its Chief Executive with proper accountability to various stakeholders. Enhanced productivity, value addition and value creation become the norms which we can be identified with as a country. Before further highlighting the possible future economic circumstances, let me emphasise that a lot can be done to transform and deepen our economy with various policies before someone forces me to wake up from my dream. 

For instance, our Diamond Policy now protects the national interest, while meeting the expectations of the Kimberley Process Certification system. The equity structure which the policy prescribes firmly secures our national economic interests. It also covers and pushes for our national interest in all the stages of the diamond value chain, which are exploration, mining, processing, sorting, valuation, value addition, marketing, capacity building, security and compliance.

Indicative global revenues by value chain segment reveal the link between our Diamond Policy and our goal of protecting the national economic interests. Global rough diamond sales rake in anything between US$15 billion and US$18 billion. This is the global revenue at the first stage of the diamond value chain. Just a slight detour and without justifying corruption, I find it hard to accept the public-cited figure of US$15 diamond as revenue leakages from illicit diamond trades in Zimbabwe alone. As we get angry with our economic misfortunes, let us retain our logic! Linked to the above cited figure are worries and flawed narratives on our diamond situation. Who verified the value of those “lost” diamonds? Where were all those diamonds sold in such quantum figures on a global market which is strictly controlled for reasons more than security but market price concerns from the forces of supply and demand together with the cartels behind them? I raise these questions because our economy is being affected by wrong narratives, sensational and senseless speculation. Are we that gullible as a nation?

To take the analysis further, polished diamonds, which feature at the second stage of the diamond value chain, and involving diamond cutting and polishing, globally fetch anything between US$20billion and US$24 billion annually. The global diamond jewellery retail market, which stands at the apex of the diamond value chain, calls forth revenues between US$70 billion and US$72 billion annually. This figure is a massive, five-fold jump from the initial US$15.

Clearly, the greatest value does not reside with the miner at Chiadzwa or Marange. Rather, value resides with the diamond trader in Antwerp, Tel Aviv or New York who dresses the customer’s finger. This means that Zimbabwe must move and stay as close as possible to where real value is. There are vast deposits of minerals which await our exploration and value addition. Our abundant natural resources must lend depth and opportunity to our economy. We must make no qualms about this. Our ultimate goal should be to make our country a key factor in the global mineral value chains. More than anything, we should focus on real, structural problems which are holding or may hold our nation back. Our diamond situation influences a worrisome impression on any citizen in our country. 

In this instalment, I would also like to draw readers’ attention to the worries stocked by facts and figures on our exports. I will confine myself to tobacco acquittals in order to make my point clear. In 2018, our country’s top 20 tobacco exporters accounted for nearly US$384 million around mid-November of that same year. Out of the 20, only four exported cigarettes, for a mere US$5,722 million. The rest of the acquittals on our tobacco exports for the period, amounting to US$378, 715 million came from exports of unmanufactured tobacco. This trend of commodity exports runs through almost all acquittals on our exports in agriculture and in mining.

From the foregoing, the story on our economy is stark and clear. On the one hand, we are spending precious foreign currency on excessive imports of consumption goods, while spending just a little more, or even far less on capital and intermediate goods respectively. Secondly, we remain a primary commodity exporting economy, thus expiring at the very beginning of the value chain. And considering our low productivity levels in mining, partly explained by under-investment in capital goods and in the acquisition of modern technologies, it means we are far from our optimum even at that initial production stage of different value chains.

With the aforementioned points, two lessons thus stand out. Firstly, we must step up productivity at primary stage in order to make sure that our commodity exports grow bigger. Secondly, we must industrialise in order to move up the global value chains through value addition and beneficiation of our primary commodities if our export performance is to improve on the strength of global value chains. With improved export receipts, we are able to meet our import requirements, including medicine, fuel and electricity amongst many other necessities. This, in my view, is the level at which the national focus and debate must be pitched.

Economic experts of all persuasions are now agreed that industrialisation is the only historically proven path to sustainable economic growth and development. No country in the world has developed without light manufacturing at the very minimum. Zimbabwe is no exception! Our reliance on primary commodity exports makes us a low-value economy which is acutely susceptible to external price shocks, and too modest without inclusive development. So, export earnings based on trade in primary commodities cannot be the core of our national growth strategy. Yet, it has been, with all the attendant ups and downs, highs and lows. That model of growth is a “silo” modus operandi which is old fashioned and too traditional.

That said, the remedy is clear, our economy is crying for depth, which in itself is a function of a compact industrial policy backed by a good strategy of execution. The solution cannot lie in current industrial scatterings which are not co-ordinated or built on demonstrable value chains. A compact industrial policy must cause structural transformation of the entire economy away from reliance on primary commodity production and trading. It must gear us into global value chains as an efficient, competitive and innovative economy which reliably supplies global markets. We must move from the nostalgia attached to being the bread basket of Southern Africa by transforming into the innovation basket of Africa.

I also emphasize the issue of efficiency in order to dispel the fetish around protective tariffs which our industrialists clamour for as an end in themselves. Tariffs only deliver captive domestic markets; they do not necessarily give a competitive edge in global value chains. These measures also breed smug complacency and a lack of innovativeness from a sense of uncontested markets and entitlement.

National structural transformation leading to global competitiveness requires much more than protective tariffs or even comparative advantages which can be static. They require a dynamic framework supported by good infrastructure, macro-economic stability, good laws and policies on investment, and aggressive technology acquisitions and innovations. Above all, they require a knowledge economy which begets skills and which narrows gaps to knowledge frontiers. The National Critical Skills Audit Report of 2018 shows that there is a lot we need to do in this area. The sobering findings are worth pondering as we set the stage for our economy’s transformation.

Except in the fields of business and commerce where there is a skills surplus of 121%, Zimbabwe suffers from a debilitating all-round skills deficit in the areas of engineering and technology (-93.57%); natural and applied sciences (-96.91%); medical and health sciences (-95%) and, quite embarrassingly, in agriculture (-88%), which is the backbone of our economy and the natural springboard for any industrialisation policy and strategy. All this creates a paradox where a country with a 94% literacy rate, one of the best on the continent, at the same time registers such a huge skills deficit. These are the real issues which must grab our attention and focus.

In order to address such skills deficits, we can transform our Brain Drain problem into a Brain Gain dividend or capital gain by facilitating for talented individuals in various fields to be seconded to institutions and companies beyond our borders for further training.  Furthermore, we can leverage on innovative investment funds already in our market unbeknown to some people. In addition, we can play our part in supporting other financial vehicles for skills development in areas we have vested interests. Such investment and financial vehicles which can be leveraged on include TPO (Third Party Ownership) models for financing skilled manpower, ISA models (Income Sharing Agreements) for highly skilled human resources as well as SLABS (Student Loans Asset Backed Securities). In addition, great value can be derived from the Industrial and Manufacturing Value Addition Fund. With this context, recognition and support from the RBZ, SECZ, PAAB and IPEC should be accorded to these funding creations as financial assets. 

Zimbabwe needs a compact industrial policy if her economy is to achieve structural transformation. Only countries that industrialise trade sustainably. This new decade must see us move in the direction of a compact industrial policy, followed by a real industrialisation strategy in order to attain a good standing in the global economic order.    

Our country’s leaders have been moving with the mantra “Open for business” but the economy remains dull, lacking excitement and variety through diversification of economic activities especially exports. We need to bring about economic growth that has been desired and missed over a very long time. This heartfelt-desire seems a well-recognized goal by all citizens instigating an environment that welcomes investment and ideas, particularly of a global nature to stimulate our economy. Currently, Zimbabwe is a monotonous, boring and mundane economy desperately yearning for new ideas. Both enterprise and investment like to interface in an atmosphere of excitement, not just investment returns.

In describing the experience of reaching Finisterre, Steven D’Souza and Diana Renner say: “Finisterre is the edge of everything known and familiar, a mysterious place. It separates our current reality, what we are comfortable with, from that strange, unexplained, undiscovered and perhaps undiscoverable. Behind us we have solid ground, the knowledge that got us so far. Ahead of us, we have the unknown mysterious sea, unpredictable and uncontrollable. The fog is starting to settle and it is hard to see around us: the landscape is no longer familiar and there are no road signs or maps to show us the way.” Have we reached our Finisterre? If we have done so, let us be humble enough to seek assistance from both local and international fountains of wisdom and experience.

Malvin Chidzonga (Financial Analyst)

Malvin Chidzonga is an innovative and dynamic finance and investment practitioner. He has extensive exposure and experience in the whole spectrum of the financial service sector. He is animated by the desire to optimally explore, identify and create financial advancement opportunities for people and organizations by harnessing financial potential inherent in them as well as connecting various dots, opening doors and shining the spotlight on them in order to craft great outcomes for society at large. He began his financial service career at Agribank, then joined CFX and Interfin Bank before his stint with Jiang Xing Trading Co in Beijing, China. Upon his return to Zimbabwe, he joined Zimnat Lion Insurance before moving to Comarton Consultants. Whilst at Comarton, he worked with Atchison Actuarial Consultants on the crafting of several financial models for various non-financial organizations. Amongst other posts he has, he is the current Principal Officer of the Sports Industry Pension Fund, a position he has held since the Fund’s formation in 2013. He is now a full-time member of the Nivteil Financial Ventures’ team.  

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