Taking Lessons From Latin America

Venezuelan President Hugo Chavez addresses the people after the new National Assembly was seated in the Bolivarian Republic. Venezuela is a leading oil producer in Latin America., a photo by Pan-African News Wire File Photos on Flickr.

Taking lessons from Latin America

Sunday, 24 November 2013 00:00
Taurai Tawengwa
Zimbabwe Sunday Mail

Economic development, broadly defined, is the process of creating wealth by mobilising human, financial, physical, natural, and capital resources to generate marketable goods and services.

Economic growth, as defined in standard economics textbooks, is an increase in the production and consumption of goods and services, which, consequently, results in an increase in real gross domestic product (GDP).

However, it must be noted that economic growth does not necessarily translate into economic development, and economic development does not necessarily translate into social development. For instance, during the four-year tenure of Zimbabwe’s inclusive Government, the country’s positive economic growth was not matched by adequate socio-economic development, although some development was registered.

Socio-economic development is commonly measured by the Human Development Index (HDI), which is based on these four criteria: life expectancy at birth, mean years of schooling, expected years of schooling and gross national income per capita.

Now, as Zimbabweans anxiously await Treasury’s 2014 National Budget presentation, the question on everyone’s mind is: How will the Government create economic growth that is matched by socio-economic development? Simply put, will Treasury translate Government’s economic policy paper, Zim Asset, into a reality? While the increasingly pious Tendai Biti predicts “economic Armageddon” for the nation, the more sanguine among us wonder whether there are international examples that Treasury officials could learn from as they deliberate on the nation’s economic direction for the coming fiscal year.

After all, in the words of Cicero, history is the witness that testifies to the passing of time; it illumines reality, vitalises memory, provides guidance in daily life and brings us tidings of antiquity.

Now let us look at Costa Rica. Zimbabwe and Costa Rica, a country in Central America bordered by Nicaragua to the north and Panama to the southeast, have interesting commonalities.

Firstly, Costa Rica and Zimbabwe both have national literacy rates of over 90 percent.

This is of critical importance because education raises people’s productivity and creativity and promotes entrepreneurship and technological advances.

Secondly, Costa Rica, like Zimbabwe, has experienced significant economic disorder in the past. For instance, in 1980, that country was mired in an economic crisis characterised by endemic inflation,
currency devaluation, soaring oil bills, sinking coffee, banana, and sugar prices (the country’s major exports at the time) and the disruptions to trade caused by the Nicaraguan war.

When hefty international loans became due, Costa Rica found itself burdened overnight with one of its region’s greatest per capita debts. As of 1986, Costa Rica owed international lenders US$4 billion.

Finally, Costa Rica’s ongoing discourse with respect to agrarian reform is arguably comparable with Zimbabwe’s.

What is interesting is that in 2013, Costa Rica ranks 47th in the world in terms of its Human Development Index; this is ahead of Brazil (63rd), China (85th), India (128th) and Zimbabwe (146th).

South Africa is ranked 121st, Zambia 167th, and Mozambique 169th.

Furthermore, Costa Rica has the highest standard of living in its region with an unemployment rate of less than 10 percent.

The question then arises: How did they achieve this in 30 years?

Research reveals that “Costa Rica has experienced steady economic expansion over the past 25 or so years. The post-1980s economic growth is the product of a strategy of outward-oriented, export-led growth; openness to foreign investment; and gradual trade liberalisation”. Nevertheless, an extraordinary aspect of the Costa Rican economy is that 30 percent of its Gross Domestic Product (GDP) comes from its informal sector. Remember that 30 percent of a GDP of USD$45 billion is a cool USD$13, 5 billion.

This brings me to the core of my argument. In its attempt to ensure the Government achieves its goals as laid out in Zim Asset, surely the Finance Minister’s team has acknowledged the need for austerity and foreign direct investment in Zimbabwe. Surely they have acknowledged the need to curb corruption which costs the country some US$400 million per annum.

But I wonder if they are seriously considering the informal sector. A close look at Zimbabwe’s informal market reveals that most of the goods sold on our streets are imports.

Furthermore, a single day at Beitbridge Border Post will show that most of the goods entering the country are smuggled. I say smuggled because most informal sector traders would rather bribe immigration officials to allow their contraband into Zimbabwe than pay the State its due in the form of import duty.

Does it not, therefore, make sense for Treasury to directly tax the informal sector?

One might ask how we can go about this.

Here are some suggestions:
Everyone in the country who is not formally employed but is economically productive should register with the Government. This group of people would include domestic workers, touts, hairdressers, barbers etc.

The Government should then compel everyone in the informal sector to purchase an operating permit from the Zimbabwe Revenue Authority (Zimra). This will liberate some of these businesspeople from the regular bribes they pay to various officials.

This permit should be renewed on a monthly basis and the money paid directly to Zimra.

A lesser fee should be levied on vendors who trade in local products, for instance, fruits and vegetables.

Illegal gold (and other mineral) panners should specifically purchase operating licences from the relevant department which they renew every month.

Of course, such measures should be applied alongside sound policy and good governance, and the revenue accrued should actually translate into tangible social services which improve the country’s human developmental ranking.

While I acknowledge that more methodical research needs to be conducted in order to reveal the true value of our informal sector, I am also of the opinion that as long as a developing economy like Costa Rica can extract so much revenue from its informal base and transform itself within 30 years, we can do the same.

The African Development Bank correctly opines that: “Organising the informal sector and recognising its role as a profitable activity may contribute to economic development. This can also improve the capacity of informal workers to meet their basic needs by increasing their incomes and strengthening their legal status. This could be achieved by raising government awareness, allowing better access to financing, and fostering the availability of information on the sector.”

Taurai Tawengwa is a researcher.