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Are we back to 2008?  September 20, 2017

 FaraiMt

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Recent developments in the economy have brought back strong – and probably still fresh – memories

of the so-called “lost decade”, the period between 1999 and 2009. The biggest symptoms are the rapidly escalating parallel market rate, and the seemingly irrational surge in stock market prices.

Prices are also rising in supermarkets and stores, but disposable incomes are still at all-time lows, leading many to wonder just what is going on.

I will not go deep into the economics, and if you want a full explanation then come to our Business Strategy group meetings. But suffice to say that yes, all the signs point to a resurgence in inflation, or rather, hyper-inflation. True, some of the pieces are not yet in place (i.e. the market is not awash with money) but these will fall in place soon enough. I am not being pessimistic or unpatriotic here, but I am simply saying in layman’s language what all authorities, including the Reserve Bank governor himself, are saying in complicated economics lingo.

So if you want the short answer to the question: “Are we going back to 2008?”, then the answer is “Yes”.

The more important question that everyone should be, or is asking though, is “What do I do about it?”

To that question, there are many correct, not-so-

correct, and totally incorrect answers. The most incorrect answer is to hope that the problem will go away on its own. Other incorrect answers are hopes that there will be some sort of political uprising that will magically wipe the problem away. In other words, don’t leave it to others to solve what is – or will be – for you a personal (or rather business) problem.

Many of course will see the solution as being to revert to the “burning” of yester-year. And indeed parallel market traders are beginning to smile once again as their margins are now in dollars, instead of the cents that they were getting while clinging on to their trade despite it having gone past its sell-by date. While this may work for a while, the reality is this hyper-inflationary period is not likely to last for very long. As the adage goes: “Once bitten, twice shy”. No one in their right mind is going to continue burning hard currency for useless money for any length of time. Besides, rates are likely to quickly escalate to the limit just like they did in 2008, when the $500 trillion note found no takers, at any rate.

The correct answer is to diversify income streams, or diversify yourself altogether out of this economy, in other words emigrate! Many of course have

taken this option and resettled elsewhere. This makes perfect sense especially if you are an employee and are able to relocate with ease. This may not be the case with businesses though, as establishing a business and then getting a market is a time-consuming process. For others (such as myself), their sense of patriotism precludes them from leaving the country, so the only option is to diversify income streams.

Diversifying income streams can be done at the simplest level by simply exporting and earning foreign currency. Currently, exporters (except miners) enjoy full access to their export proceeds, and thus are not as affected by the economic developments as those who require imports, but are not exporting themselves. The good news for exporters is that as the local currency depreciates (oh yes, we do have a local currency), their cost base is going down, so they are becoming more competitive against their regional counterparts, literally by the day.

Better still than just exporting is actually establishing a foreign presence. This means that even if government eventually moves to retain most/all export proceeds (which they will inevitably

be forced to do), you still have a leg to stand on.

This strategy saved many large corporations the last time around.

Interestingly enough, while the current situation is a crisis, it actually presents a unique window of opportunity for Zimbabwe to leap-frog ahead of its neighbours in terms of export development.

Because of the increasing competitiveness of local products relative to other regional players, Zimbabwean businesses can actually use this time to expand, especially into the region, and even into other markets such as the EU. Of course, setting up shop outside the country comes at a cost, costs which most SMEs are unable to bear individually. Collectively, however, this becomes a very manageable process, and this is something that the SME Association of Zimbabwe is currently working on. By taking advantage of numbers and also leveraging the Association’s recognition both at local and regional levels (we are a participant in the COMESA Regional SMEs Association initiative), it is possible to move quickly to establish presences in several markets, even simultaneously.

This is something that ZIMTRADE have done

before, and are willing to assist us in doing. We will be hosting them on Thursday 28 September 2017 in the SMEAZ training room (6th Floor Batanai Gardens) to learn from their experience and expertise, as well as to advance the strategy for putting in place structures that enable members, including those who are not into exports or production, to access this scarce commodity, foreign currency.

2008 is indeed coming, but there is no need to be caught in a compromised position. As another saying goes, “Fool me once, shame on you. Fool me twice, shame on me!” Rather than allow the situation to be a millstone that falls on your head, it can be a footstool that leap-frogs your business to the next level. Let’s discuss below!

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FaraiMt

Accountant by training, Entrepreneur by experience and Christian by faith, Farai is passionate about SME development in particular, and national economic growth in general. He is currently involved in several Doing Business reform processes, is a member of the National Manpower Council, adjudicates several business awards and helps small and medium enterprises in Zimbabwe to grow their businesses. 

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