MANY scholars in Zimbabwe and in other countries have undertaken empirical studies on the viability and impact of lending by banks and other financial intermediaries as a means of spurring economic growth in Sub-Saharan Africa.
The aim of this contribution is not to duplicate what has already been said in the ongoing discourse, but to proffer new thoughts or a new dimension on the efficacy of credit to economic revival.
There are many studies that have amply demonstrated the merits and demerits of the credit economy.
One issue that needs to be pointed out is that as long as resources are scarce in the world there will always be a need for credit to be advanced by surplus units (depositors) in the economy via financial intermediation to deficit units (investors).
Investment by its nature is a futuristic economic activity engaged upon in the present to capacity build future production and consumption possibilities.
Without any meaningful investment in the present, an economy can only justifiably expect economic stagnation and eventually economic decline.
Credit is advanced to firms by financial intermediaries and other sources in the hope that it would stimulate collective (or aggregate) aggregate demand and production in the economy.
The reality is that in some economies more of credit gets relayed to dead-end consumption activities like buying final goods and services instead of being conveyed to the production of goods and services that improve capacity utilisation by firms.
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All economies that have experienced sustained growth have enjoyed the services of robust and deep financial systems.
Since the early 2000s a number of banks in Zimbabwe closed shop owing to a multiplicity of problems chief of which were inadequate capitalisation, corporate mal-governance and fictitious accounting techniques.
The trend of banks to be either closed or placed under curatorship around 2003 to 2004 undermined government efforts to spur economic growth and development.
A deep and robust financial system has enough checks and balances to guard against the harmful effects of systemic risk and the burden of non-performing loans that are occasioned by speculative activities, incestuous lending and a tough macroeconomic environment.
It is the hope of this essay that monetary authorities will remain extra vigilant to nip in the bud possible corporate malpractices that may undermine the financial sector and the Zimbabwean economy as a whole.
The fact that Zimbabwe is currently experiencing an unprecedented liquid or credit crunch is a song that does not need to be sung over and over again.
What needs to be underscored is that the credit crunch is not a self-existing economic problem; rather it derives its continuity and subsistence from a lack of clearly bankable and feasible private sector and macroeconomic policies or contradictions in the same.
When investors and would-be investors perceive apparent contradictory signals in the macroeconomic environment and policy framework they get scared and vote with their feet.
What Zimbabwe has experienced over the past two or so years is a flight of capital occasioned by fear, real or imagined related to the expected macroeconomic environment.
This therefore implies that the government that subsists in the polity of Zimbabwe has an unenviable task of mobilising funding from the international investment community which in the past has been bludgeoned by negative economic events such as the Asian financial currency crisis of 1997 and global financial crisis and recession of 2007 to 2012.
The building of investor confidence in an economy is something which takes time though such confidence can be lost overnight.
The government and other key stakeholders need to continue to work hand in glove to convince the international investing public that the Zimbabwean economy is a viable investment destination.
It would be unfair to expect such an unenviable task to be achieved overnight.
Nevertheless, some economic indicators such as economic growth, unemployment, inflation (or deflation) and liquidity are deteriorating so fast that time is of essence for chief economic actors (firms, the government, financial intermediaries and the international community) to put a collective show in solving macroeconomic problems currently besetting Zimbabwe.
It is only when Zimbabwe convinces both local and foreign investors that it is a more viable investment destination than for instance South Africa or Botswana, that there will be positive flows of investment funding to facilitate the resuscitation and capacity building of the economy.
Ian Ndlovu is an economist based at the National University of Science and Technology skilled in data analysis using SPSS, Gretl, Stata, Eviews and Microsoft Excel software packages. His research interests cover business, development, economic and e-commerce issues. He writes in his personal capacity.
