Are Zimbabwe's 'liquidity challenges' real or a mental construct?

Oct 2, 2012

'Liquidity crunch' is probably the most fashionable expression in Zimbabwe at the moment. Certainly it is probably true that one hears many people talk about how hard it easy to get hold of (earn) money in the now U.S.dollar-denominated economy. But is the 'liquidity crunch' the problem, or is merely a symptom of deeper, larger problems?

Signs of the 'liquidity crunch' are all around. The number of individuals and corporations being sued for falling behind on their debt repayments are said to be at record highs. Many companies operate at suboptimal levels because (they think and say) they are 'under-capitalized' and the mean banks won't lend them money to buy new equipment or for working capital.

Not asked often enough in such situations, perhaps because it seems cruel to do so, is if the real problem isn't that these once successful companies really suffer from 'under-capitalization.' Perhaps the issue is that many once thriving enterprises are continuing to apply the business model of an older time to the radically different Zimbabwean (world? )economic environment of 2012.

In 2007 you might have been the leading Zimbabwean manufacturer of juice, shoes or whatever. Now your plant is mostly idle, and you blame it on 'under-capitalization because of the prevailing liquidity crunch.'

But even if you were 'capitalized,' would your products be able to compete against the juice coming from South Africa, or the shoes from India or China?

If part of the 'capitalization' you believe your stingy bank is denying you should go towards better marketing, could some of your old marketing methods now be replaced by innovative use of the internet and the opportunities that the proliferation of smart phones now opens up, for example? 

If all your top managers each enjoy the perk of a Mercedes Benz because 'that's what we have always done,' how are you going to compete against some scrappy, hungrier competitor who offers the same product or service but with a fraction of the overheads that you consider to be minimally acceptable?Is your problem one of under-capitalization, or of overheads that may have been affordable in the Zimbabwe of yesteryear, but not in that of 2012? Should you perhaps offer the managers Toyotas as perks rather than Mercs? Should you withdraw that perk altogether? Should you shrink the number of managers as well?

Even with additional 'capitalization,' can you produce your goods cheaply and well enough to market-compete against the new range of world competitors you didn't have to worry about five or ten years ago?

Should you remain in the juice or shoe business at all anymore? Perhaps the times and conditions have changed so much that even with additional 'capitalization, that is simply no longer a business you can be at the top of as you once were when the overall conditions were more in your favour?

Part of the real cause of what everyone calls the 'liquidity crisis' is that in the last few years there has been an economic earthquake in Zimbabwe that has changed everything, but the adjustment to new attitudes,  outlooks and coping mechanisms is taking much longer.

Zimbabwe's economic productivity is now a fraction of what it once was. Even when it creeps up again, it will not be based on all the old industries and economic sectors. The opportunities that exist today may be quite different from where many people are applying their efforts. The country's thinking is still to fully catch up with the levels of structural change the economy has undergone in recent years.

What your business (and perhaps the whole Zimbabwean economy) may need much more than 'capitalization' is instead a mental adjustment. When individuals, businesses and the economy stop trying to keep doing the same old things they used to do, and in the same old ways that once used to work, then perhaps it will be possible to see opportunities and problems in a new light. The 'liquidity crisis' that all talk about, but that few bother to examine the reasons for might then just fall away, as new ways of being productive and creating wealth are discovered and taken advantage of.

A big part of Zimbabwe's so-called 'liquidity crunch' is really a symptom of continuing to try to engage in business or economic activities which are simply no longer viable for the conditions of today, or trying to do them in ways that once worked, but that now need to be radically modified.

Change the thinking, reduce the liquidity crunch. 

The Zimbabwe Review   


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