Part 1
1/23
Zimbabwe and AfCFTA
On this thread I will restrict the contents to understanding the economics of trade. Which is vastly different from the politics & law of trade.
What politicians think trade is has little relation with what trade is actually about.
1/23
Zimbabwe and AfCFTA
On this thread I will restrict the contents to understanding the economics of trade. Which is vastly different from the politics & law of trade.
What politicians think trade is has little relation with what trade is actually about.
2/23
For example politicians the world over will speak of trade deficit & surplus as bad or good thing. Directing policy for this intended good & away from the bad. Yet the economic truth is a deficit or surplus is a meaningless description of movement or goods & services
For example politicians the world over will speak of trade deficit & surplus as bad or good thing. Directing policy for this intended good & away from the bad. Yet the economic truth is a deficit or surplus is a meaningless description of movement or goods & services
3/23
The consumers & economies of the deficits OR surplus are better off with the trade than without.
Without the trade, consumers won’t receive cheaper prices & capital won’t receive higher interest. But politics is the art of weaponizing ideas to get votes.
The consumers & economies of the deficits OR surplus are better off with the trade than without.
Without the trade, consumers won’t receive cheaper prices & capital won’t receive higher interest. But politics is the art of weaponizing ideas to get votes.
4/23
Suddenly China is taking “our” jobs and South Africa is “dumping” it’s products on us. Policy & regulation then follows and the trading countries are worse off.
To understand trade deficit & surplus Edmund’s thread is the best I have seen in Zim.
Suddenly China is taking “our” jobs and South Africa is “dumping” it’s products on us. Policy & regulation then follows and the trading countries are worse off.
To understand trade deficit & surplus Edmund’s thread is the best I have seen in Zim.
https://twitter.com/EdmundKudzayi/status/1350094046237220865
5/23
While it is true that trade is composed of the movement of goods & services, the economic reality is a bit different. Goods & services are the manifestations of trade. What is moving essentially is CAPITAL.
While it is true that trade is composed of the movement of goods & services, the economic reality is a bit different. Goods & services are the manifestations of trade. What is moving essentially is CAPITAL.
6/23
Eg. Dairiboard & BAT both speak of failure to penetrate the Uganda market despite offering superior products.
It wasn’t failure of product or market. They just didn’t have enough capital to sustain a campaign for a new product in a different market.
Eg. Dairiboard & BAT both speak of failure to penetrate the Uganda market despite offering superior products.
It wasn’t failure of product or market. They just didn’t have enough capital to sustain a campaign for a new product in a different market.
7/23
Schumpeter calls this innovation or entrepreneurial venture.
To judge an innovation. It requires more than ten years of sustained activity & pouring of resources. Companies, very often, don’t have the capital to sustain a ten year campaign.
Schumpeter calls this innovation or entrepreneurial venture.
To judge an innovation. It requires more than ten years of sustained activity & pouring of resources. Companies, very often, don’t have the capital to sustain a ten year campaign.
8/23
Yet when you look at Japan, South Korea & lately China success in a highly competitive USA market is down to resources. It takes years to convince a market of a better product, fighting off competition, convincing shareholders/bankers to fund & government to support
Yet when you look at Japan, South Korea & lately China success in a highly competitive USA market is down to resources. It takes years to convince a market of a better product, fighting off competition, convincing shareholders/bankers to fund & government to support
9/23
Now to the crux of trade and finance.
To ensure a market for its products, China, Japan & S. Korea use their savings to buy USA bonds. This is seemingly odd since it’s the US that has more cash & very low interest rates. Why would the Asian giants send cash?
Now to the crux of trade and finance.
To ensure a market for its products, China, Japan & S. Korea use their savings to buy USA bonds. This is seemingly odd since it’s the US that has more cash & very low interest rates. Why would the Asian giants send cash?
10/23
The Asian cash increases the liquidity and CAPITAL of the US financial services.
The US credit market is entirely driven by consumerism. So the credit ends up with the household consumer.
Thus, the Asian cash stimulates US household consumption .
The Asian cash increases the liquidity and CAPITAL of the US financial services.
The US credit market is entirely driven by consumerism. So the credit ends up with the household consumer.
Thus, the Asian cash stimulates US household consumption .
11/23
Eg suppose the US credit market is $100. If the Asians supply $4 cash into that market, American banks use the $4cash to create more credit. Conservatively the US credit market grows to $120.
Whereas consumers only had $100 to spend, they now have $120
Eg suppose the US credit market is $100. If the Asians supply $4 cash into that market, American banks use the $4cash to create more credit. Conservatively the US credit market grows to $120.
Whereas consumers only had $100 to spend, they now have $120
12/23
We can look at it another way. Toyota can offer its products to the US consumer market on credit. 5-10years.
The US bank that does this deal only pays back Toyota in ten years. Toyota advances a “line of credit” to the USA banks.
Consumers suddenly has cheap financing.
We can look at it another way. Toyota can offer its products to the US consumer market on credit. 5-10years.
The US bank that does this deal only pays back Toyota in ten years. Toyota advances a “line of credit” to the USA banks.
Consumers suddenly has cheap financing.
13/23
Invariably in trade, it’s capital that is exported & goods follow as a manifestation.
That is how China has a trade surplus with the US but a capital a/c deficit. China gives credit to the US consumer for its products.
To be blunt, Chinese savings fund USA consumption.
Invariably in trade, it’s capital that is exported & goods follow as a manifestation.
That is how China has a trade surplus with the US but a capital a/c deficit. China gives credit to the US consumer for its products.
To be blunt, Chinese savings fund USA consumption.
14/23
The American citizen is better off & so is the Chinese. Since American demand funds Chinese industry & job creation.
On the flip side, US firms benefit from the Chinese credit & set up factories in China at a lower cost.
Both countries are better off.
The American citizen is better off & so is the Chinese. Since American demand funds Chinese industry & job creation.
On the flip side, US firms benefit from the Chinese credit & set up factories in China at a lower cost.
Both countries are better off.
15/23
To recap.
(i)Capital is exported first & then products follow.
(ii) It takes decades for a new market to accept new product
(iii) Trade has net benefits for trading countries. But has political disadvantages
To recap.
(i)Capital is exported first & then products follow.
(ii) It takes decades for a new market to accept new product
(iii) Trade has net benefits for trading countries. But has political disadvantages
16/23
It’s a good time to come to Africa & the African Continental Free Trade Area.(AfCFTA)
If trade is about exporting capital,it is clear who wins this game.
SA supports AfCFTA because:
(i) Creates a barrier to Chinese products
(ii) It’s deep capital markets is unparalleled
It’s a good time to come to Africa & the African Continental Free Trade Area.(AfCFTA)
If trade is about exporting capital,it is clear who wins this game.
SA supports AfCFTA because:
(i) Creates a barrier to Chinese products
(ii) It’s deep capital markets is unparalleled
17/23
But first let’s look at China & trade in Africa.
China has something common with Kenyan Citizens suspicions with African government’s corruption.
Whereas in western nations China simply buys USA or Euro bonds with systems doing the rest. The same cannot apply in Africa.
But first let’s look at China & trade in Africa.
China has something common with Kenyan Citizens suspicions with African government’s corruption.
Whereas in western nations China simply buys USA or Euro bonds with systems doing the rest. The same cannot apply in Africa.
18/23
Remember China is interested in the same thing in US & Africa. The consumer market. But capital goes first.
In Africa, China must play a direct secondary developmental role since African governments & politicians cannot be trusted.
Remember China is interested in the same thing in US & Africa. The consumer market. But capital goes first.
In Africa, China must play a direct secondary developmental role since African governments & politicians cannot be trusted.
19/23
There is ample evidence for this distrust in Africa. Eg Kenya & Mozambique where money raised ( billions) in international bond markets has simply disappeared 🤷🏻♀️.
In Zim Afreximbank $1.4bn left on tangible capital development besides funding subsidies.
There is ample evidence for this distrust in Africa. Eg Kenya & Mozambique where money raised ( billions) in international bond markets has simply disappeared 🤷🏻♀️.
In Zim Afreximbank $1.4bn left on tangible capital development besides funding subsidies.
20/23
So China funds Infrastructure directly in Africa to develop the market. This debt into Africa, similar to its debt into America is repaid by consuming more of Chinese products.
China has made significant investment into Africa, creating a market for its products
So China funds Infrastructure directly in Africa to develop the market. This debt into Africa, similar to its debt into America is repaid by consuming more of Chinese products.
China has made significant investment into Africa, creating a market for its products
21/23
Through AFCFTA, Africa will limit Chinese products in preference for African manufactured products.
It’s South Africa that will dominate the trade because of its capital and ability to attract offshore capital that the rest of Africa cannot.
Through AFCFTA, Africa will limit Chinese products in preference for African manufactured products.
It’s South Africa that will dominate the trade because of its capital and ability to attract offshore capital that the rest of Africa cannot.
22/23
This is the end of Part 1. The purpose is to understand the economic framework of trade.
With such an understanding we can confront the Zimbabwean context in African trade.
I hope it’s clear that the financing of trade is more important than the movement of goods
This is the end of Part 1. The purpose is to understand the economic framework of trade.
With such an understanding we can confront the Zimbabwean context in African trade.
I hope it’s clear that the financing of trade is more important than the movement of goods
23/23
The first banking empire built by the Medici family in Florence was essentially about funding Merchant ships across the oceans.
Remember Merchant of Venice? Which lays bare the risks of trade & finance.
Part 2, will zero in on Zim
END
The first banking empire built by the Medici family in Florence was essentially about funding Merchant ships across the oceans.
Remember Merchant of Venice? Which lays bare the risks of trade & finance.
Part 2, will zero in on Zim
END
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