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Saturday, 5 December 2009

THE HOUSING MARKETS AND HOW THEY CONTRIBUTED TO THE GLOBAL ECONOMIC CRISIS ?

"THE HOUSING MARKET IN THE US AND BRITAIN AND SUB-PRIME MORTGAGES INCLUDING THE ROLE OF SECURITASATION AND COLLATERALISED DEBT OBLIGATIONS "HOW THEY CONTRIBUTED TO THE GLOBAL ECONOMIC CRISIS? 

By Joshua Chigwangwa



The effects of the cold war have seen a new dimension in global politics and the unprecedented challenges in global co-operation and international trade leading to the historic collapse of global financial powerhouses and financial systems. The global economic crisis which began in 2007 has been linked to the rapid economic slump of major economies across the world. It suggests the crisis emanated from the Housing markets in the USA and rapidly spread to Great Britain and other parts of the World. The financial crisis of 2007-2009 has been called by leading economists the worst financial crisis since the one related to the Great Depression of the 1930s. The collapse of the global housing bubble, which peaked in the US in 2006, caused the values of securities tied to housing prices to plummet thereafter damaging financial institutions around the globe. Analysts argued and believed that the roots of the crisis could be traced directly to sub-prime lending by State entities, Fannie Mae and Freddie Mac, the US biggest underwriters of home loans among low and moderate income earners. Wikipedia also refers to Sub-prime lending as the credibility or quality of particular borrowers, who have weakened credit histories and are at greater risk of loan default than prime borrowers.


Bernanke (2009) argues that in the past 10 to 15 years, the United States and some other industrialised countries have been recipients of a great deal of foreign injections. He states that net inflows had peaked in 2006 to 1,5% of GDP, an amount equal to about US $825 billion, which resulted in a housing boom fuelled by a rapid expansion of poorly managed mortgage lending schemes. Lenders expected the house prices to continue to rise, thereby allowing borrowers to build up equity in their homes, simultaneously availing credit for refinancing easily. Regulators did not do enough to prevent poor lending, in part because loans were made by firms subject to little or no federal regulation. Banks and finance houses were lending mortgages at 5 to 10 times the annual incomes of people. They used aggressive terms and conditions without insisting on creditworthiness. Foreign investors who had invested in the real estate market in the US had to declare bankruptcy owing to massive losses. (Housing News, 2009)


Paul Krugman (2008) suggests, the housing bubble started when house prices started rising indiscriminately, as homebuyers took on mortgages they could not afford, fuelled by low interest rates and a departure from traditional banking practises which resulted in an upsurge in unsecured housing loans. Buyers were given loans requiring little or no down payment, and with no regard to creditworthiness, or ability to repay should the economy reset. He further argues that lenders came to believe that because of ever-rising home prices, borrowers in times of difficulty could either take out home equity loans to get more cash or just sell the home equity loan to pay off the mortgage. Robert J. Shiller (2008) also argues that the impact of the loose monetary policy was amplified by the large number of adjustable-rates mortgages issued after 2000, particularly to subprime borrowers. He suggests that these mortgages were more responsive than fixed-rate mortgages, to cuts induced by the US Federal Reserve, triggering a boom. Borrowers had high expectations of compensation from rapidly increasing house prices and were also thought to be able to permit them to refinance at even lower rates.  


Paul Krugman (2008) further argues that Lenders were involved in speculative lending, as they did not hold on to loan portfolios, these were on-lent or sold on to ignorant investors, as part of Securitization. Wikipedia defines Securitisation as financial innovations in which banks essentially sell mortgages to homebuyers and distribute risk to investors through mortgage backed securities (Wikipedia, 2009b). This meant that those issuing mortgages were no longer required to hold them to maturity, by off-loading these to potential investors, allowing the banks to replenish their funds and thus enabling them to issue more loans and generating transaction fees. It is argued that this may have fuelled the bubble as it accelerated substantially prior to years leading to the crisis. Securitisation was pioneered by Fannie Mae, a State-sponsored lending agency and was traditionally confined to prime mortgages. Krugman suggests that financial innovation that made securitisation of subprime mortgages possible was the collateralised debt obligation, or CDO. CDOs offered shares in the payment from a pool of AAA rated mortgages, but saturated with dubious and unsecured mortgages. This fuelled large scale financing of subprime lending from many institutional investors, such as pension funds and local authorities, resulting in the overvaluation of housing by more than 50% prior to the crunch. In reality, this meant that properties purchased during the bubble, ended up with negative equity, triggering massive involuntary defaulting by borrowers and the collapse of the shadow banking system. 


Paul Mason (2009) suggests that this burst caused a sudden rush of speculative capital into commodities and hedge funds.ie the shadow banking system. The subsequent bursting of the commodities bubble resulted in the acute starvation in villages across the developing countries and political disorientation. Robert J. Shiller (2008) also argues that the rating agencies that pass judgement on securitized mortgages persisted in giving AAA ratings to mortgage securities that ultimately were vulnerable because they too believed that there would be no bursting of the bubble. Shiller attributes the crisis to the failure of regulators to rein in aggressive lending. He also argues that since the Depository Institutions Deregulatory and Monetary Control Act of 1980 effectively ended state usury laws, thus making it possible for Lenders to reap super profits with subprime lending by charging exorbitant interest rates to offset the costs of the inevitable defaults and foreclosures.  


Thomas (2007) suggests that the UK was adversely affected and among major economies hit hardest, following market corrections in the US housing crisis and its impact on the global economy. A substantial number of UK companies had invested substantially in the US housing market and off-shore in Icelandic banks. The increase in mortgage defaults at the subprime end of the US market meant institutions that bought up large packages of these debts were forced to close or bail-out exposed funds. The Times-Online (2008), reports that the endemic fraud in the UK housing market also proliferated. This rampant practice led the Financial Services Authority to ban at least two mortgage brokers for submitting false applications to lenders. This followed over 200 complaints of mortgage fraud allegations by Lenders to the Financial Services Authority.  


Green S. (2008) the HSBC Group Chairman issued a statement that the UK economy was experiencing the worst economic downturn in well over half a century. He argues that it marked the first crisis era of globalised securitisation and also marked the first just-in-time global economy as the impact of the financial crisis fed rapidly straight into the performance of the real economy. He attributes the cause of the crisis to the global financial imbalances that rose from the accelerating global shift towards emerging markets which had created a macro-economic triangle consisting of major consumer markets. Green argues that huge global savings were invested in US dollars, which kept rates low and cheap. This cheap money fuelled consumer boom and rising house prices, characterised by increased borrowing by banks and consumers, fuelling asset price bubbles in housing markets. The complexity of financial instruments had peaked beyond the capacity of experienced bankers leading to sloppy risk assessments. Finally, Green also suggests that it was the result of excessive and unchecked gearing, which resulted in over-gearing and hence dependence on wholesale funding. The eventual collapse resulted in banks crowded with assets they could neither sell nor fund, forcing huge losses on housing markets.  


Fulcher (2009) argued that the bankruptcy of rock solid US financial Institutions such as Bear Stearns, Merrill Lynch and Lehman Brothers, Mortgage Finance corporations like Fannie Mae and Freddie Mac and Global Insurance giants such as AIG, signalled the collapse of the global finance systems. The crisis spread rapidly causing global financial panic. Banks became reluctant to lend to each other, sending liquidity shock waves through the whole economy. This hoarding of capital caused the financial system to freeze. In the UK, private sector financed capital projects came to a halt, causing despondency and spiralling unemployment. The Government was forced to rescue most of the projects as they are linked to the successful hosting of the 2012 London Olympics. The extent of the impact of this crisis on the global economies meant that unprecedented and extraordinary responses were involuntarily required to find lasting solutions to the challenges. The US government was forced to bail out insurance giant AIG following the collapse of Lehman Brothers. The UK experienced the shock waves following the collapse of Northern Rock, forcing the bail out from Treasury to avert the collapse of the financial system. According to Sam Flemming (Daily mail 2009), the Bank of England pumped £200bn of fresh cash into financial markets and pegged rates at just 0,5% to prop up the economy. (The scale of this crisis unearthed serious flaws in the management and control of financial sectors in economies around the globe. The financial monitoring mechanisms failed to flush out the problem at its infancy stages, rendering them irrelevant and in need of major overhaul. The risk management and assessment mechanisms, including stress tests which needed reforming to address the challenges emanating from adverse outcome. Adair Turner (Mail Online, 2009) Chairman of the UK Financial Services Authority suggested that banks that are too big to fail may need stricter capital requirements than smaller rivals and was also broadly in favour of the EU proposals to tighten financial supervision across the continent. 


The overview of the global financial crisis has led Analysts, Experts and governments introspecting on the broad concept of global capitalism, as a leading philosophy in driving International trade as well as global financial reforms. Fulcher (2009) suggests that the capitalist world economy’s failures have led some to suggest that the capitalist system may be in danger of collapsing. He however, argues that the history of capitalism is littered with episodes of financial crises and economic depressions. He suggests that the complex global environment will always characterise capitalism and will continue to do so. He also suggests that global reforms require an engagement with capitalism because of its global dominance. China’s entry to the capitalist world economy, with its huge reserves of cheap labour and substitutes, has transformed global financial trade and emboldened the dominance of capitalism. Mason (2009) suggests that the challenges of finding a better model always confront us during periods of recession and financial crises.  


Policy makers need to draw important lessons from this crisis and take bold measures to reform the global financial systems, adopt effective intelligence models and monitoring mechanisms. The need to reign in laws and sound operational global co-operation to ensure compliance is as vital as dealing with a crisis ounce it has kicked off. The ripple effects of a global financial crisis affect across nations and require global interaction and solutions for it to be effective. The initiatives taken by the G20 Nations to find lasting solutions to the crisis are commendable. (Guardian Online News 2009) US President Barrack Obama, in his speech on financial regulation, recommended a raft of measures aimed at address the challenges of the global financial crisis. He announced the setting up of the Consumer Protection Agency to act as a consumer scrutiny and strengthening of financial monitoring mechanisms. (G-20.org On-line News 2009) The G-20 communiqué further details the G-20 Framework designed to manage the transition from crisis response to stronger, more sustainable and balanced growth for global financial systems with close co-operation with the IMF, World Bank and key agencies such as the Financial Services Board. The G-20 also viewed as critical, the need to have co-operation from both developing and developed countries in adopting common approaches to tackling the crisis as well as positively reviewing capacity building mechanisms to support the efforts of developing countries. 

Bibliography

Brummer A. (2009) The Crunch. How greed and incompetence sparked the credit crisis: London, Random House Business Books.

Fulcher, J. (2009) Capitalism: A Very Short Introduction: Oxford: University Press.Krugman, P. (2008) The Return of depression Economics and the crisis of 2008: London: Penguin Books.

Shiller, R.J. (2008) The Subprime Solution. How Today’s Global Financial Crisis Happened, and What to Do about it: Oxford, UK: Princeton University Press.

Mason, P. (2009) Meltdown: The end of the age of greed. London: Verso. 

External links and further reading 

Ben S. Bernanke (2009) Chairman’s speech at the Morehouse College, Atlanta, Georgia.14 April. Available at: http://www.federalreserve.gov/newsevents/speech/bernanke20090414a.htm. Accessed on 14/11/2009.

Financial Times (2007) Equity income hit by fallout from US housing crisis. Available at: http://www.ft.com/cms/s/2/c7baea48-57e2-11dc-8c65-0000779fd2ac.html Accessed on 21/11/2009.

Housing News Live (2009) Housing News [Online] Housing Market Crush in US. Available at: http://www.housingnewslive.com/housing-market crush-in-us.php. Accessed on 2009/11/12.

HSBC Annual Review (2008) Group Chairman’s Statement. Available at: http://www.2008.annualreview.hsbc.com/chairman_statement/index.html Accessed on 21/11/2009.

The Times Online (2008) UK housing market close to collapse. Available at: http://business.timesonline.co.uk/tol/business/industry_sectors/construction_and_property/article3406268.ece Accessed on 21/11/2009

IMAGE: Predicting the Global economic crisis forecastingnet.com

Wikipedia, the free encyclopaedia (2009a) Financial crisis of 2007-2009. Available at: http://en.wikipedia.org/wiki/Financial_crisis_of_2007_&_2009. Accessed on 2009-11-14

Wikipedia, the free encyclopaedia (2009b) Financial crisis of 2007-2009. Available at: http://en.wikipedia.org/wiki/Financial_crisis_of_2007_&_2009. Accessed on 2009/11/14.

Wikipedia, the free encyclopaedia (2009c) Financial crisis of 2007-2009. Available at: http://en.wikipedia.org/wiki/Financial_crisis_of_2007_&_2009. Accessed on 2009/11/14. h

http://www.dailymail.co.uk/money/article-1194171/FSA-head-Adair-Turner-says-biggest-banks-face-tougher-regulation.html Accessed on 23/11/2009

http://www.guardian.co.uk/business/2009/sep/14/obama-speech-regulation-wall-street Accessed on 23/11/2009

http://www.g20.org/Documents/2009_communique_standrews.pdf Accessed on 24/11/2009.

Saturday, 12 September 2009

FUNDAMENTALS OF CONSTITUTION-MAKING IN ZIMBABWE

The Fundamentals of Constitution-Making: A Case for Zimbabwe

Published on: 27th July, 2009


By Josh Chigwangwa

A written constitution is something separate from and antecedent to government, something to be consciously framed as an act of deliberate choice and creation, which raises a question as to who has the right and the power to frame and approve it – the people or the government.
Obviously, if a constitution is the source from which government derives its existence and power, the government cannot logically make it; government cannot create itself. The constitution cannot be the act of a government which is to be constituted by the constitution;something as yet to be constituted (and therefore as yet non-existent) cannot act.This becomes the focus source of friction in the process.


The focus of debate is to investigate the root causes of this instability in constitution making processes. The question of legitimacy of the constitution is concerned with how to make a constitution command the loyalty and confidence of the people. In order for a constitution to command the loyalty and confidence of the people, the constitution must be understood and acceptable to the people.


To achieve this understanding and acceptance a constitution needs to be put through a process of popularisation with a view to generating public interest in it and an attitude that everybody has a stake in it. The aim of the constitution-making process is therefore the achievement of a constitution that is legitimate,that guarantees rights and freedoms perceived to be fundamental, and that provides a structure for the effective conduct of the nation’s business for the achievement of its economic development and for the welfare of its citizens. The height of challenges obviously are on how the issues of the rule of law, the property rights and freedoms of expession are formulated.


Appreciated, the constitution is no ordinarylaw to be modified or replaced by ordinary legislative processes. It must be perceived as a higher law, authorising and governing ordinary law, and commanding adherence to constitutional precepts. While ordinarylaw may be adopted and altered by legislative majorities of whatever size, the adoption of a constitution and its amendment require much more widespread participation by the citizenry, and the achievement of a broad-based consensus. The history of constitution-making in Zimbabwe has witnessed self-evident tension between the need to reach a broad-based consensus on the process of constitution-making on one hand advocated by the National Constitutional Aseembly (NCA), and the need to ensure that the authority of the government is not undermined on the other hand.
For all intents and purposes, ‘people-driven’ means involving all key stakeholders in determining the content of the draft constitution.

Experience has demonstrated that there is mutual mistrust that has underpinned the constitution-making process between the citizens and the government on the one hand and between the NCA and the State on the other hand. This resulted in the rejection in the 2000 referendum and subsequent episodes of stalemates being witnessed with the current process.
The process needs to be created under conditions which provides for checks and balances in terms of the composition and independence of the Constitution – Making Assembly on the one hand, and a particpatory process on the drafting of the Working Document. It is critical that as far as possible that this Assembly be well resourced and be manned by a full -time Secretariat,contracted or seconded forthis specific task and directly reporting to this Assembly for the duratiion of the process.

For all intents and purposes, or tend to agree with argumenst from other commentaries that 'people driven' means involving all key stakeholders in determining the content of the draft. The just ended dramatic All stakeholders conference adopted 16 thematic areas as a basis of defining the broad layout of the envisaged constitution. The process will assume greater relevance if the thematic sub-committes transverse the length and breadth of Zimbabwe, including reaching out to Zimbabweans in the Diaspora, gathering their wishes and aspirations without political interference and intimidation. This will make the process acceptable to the majority of the populace, rendering the Referendum a formality.

It is also important to take a leaf from constitutional experiences of other countries as part of a learning experience. The South African Constitution is widely regarded as one such document we may benefit from noting that it has unique situations almost similar to our background and history. I have discussed experiences from the Nepal's constitution-making road map which we may akso draw lessons from, particularly in the areas of terms of office for the parliamentarians and the presidium.

In conclusion, it is vital for the final document to jealously guard the rights and freedoms of its citizens, to deal with issues of corruption which have eroded the social fabric, to stregthen the independence of the judiciary, create a rationalised bureacracy and Executive which is optimum for the needs of our country and to address the issues of economic confidence and poverty alleviation among other key issues.

WHAT IS DEVELOPMENT AID ?

I think what is required in the first instance is to define Development Aid and identify its proponents and sources. Aid is a broad area as a strategy in tackling sustainability in both developed (DCs’) and developing countries.(LDC’s)


For DCs, it may be a strategy to create an enabling enviroment to meet projected shortalls in the sustainabilty needs and mitigation measures for containment of epidedemics. Hence Aid is tied to conditions and obligations to implement and monitor project implementation. For example, the development of the lower Zambezi Valley was linked to seisimic studies that seemed to suggest that they may be oil and Uranium deposits in the Valley. This has been uninhabited over 1000s of years with known existence of elephants, buffalo herd ,tigers and giraffes among other natural habitats. Although it was linked to creation for land for resettlement, this is flood plain which may not have sustainability to effects of global warming.


A substantial amount of development aid is committed to provision of technical expertise and equipment, hence the notion that it is tied. This is always a precondition because it also becomes a vehicle to provide employment , research and a stimulus package for the DCs. This is ultimately linked to the GDP and becomes the fundamental underlying principles of Development Aid. Hence, Thomas Mapumo’s song with lines such as “Something for something and Nothing for nothing,” quickly resonates with the people.


For LDCs, the scope for initiating development to satisfy local needs is clear, but is constantly frustrated due to lack of technical expertise, equipment and of course resources.There has been a lot done to develop capacity and the effect brain drain has derailled continuity and unstable governance issues have been retrogrogrressive.This has contributed to high dependence on DCs hence the anathema high debt and declining ability to service debt aid.

CONSTITUTION MAKING: A CASE FOR ZIMBABWE


Written by Josh Chigwangwa

Wednesday, 05 August 2009


A written constitution is something separate from and antecedent to government, something to be consciously framed as an act of deliberate choice and creation, which raises a question as to who has the right and the power to frame and approve it – the people or the government.
Obviously, if a constitution is the source from which government derives its existence and power, the government cannot logically make it; government cannot create itself. The constitution cannot be the act of a government which is to be constituted by the constitution;something as yet to be constituted (and therefore as yet non-existent) cannot act. This becomes the focus source of friction in the process. Author: Josh Chigwangwa
The focus of debate is to investigate the root causes of this instability in constitution making processes. The question of legitimacy of the constitution is concerned with how to make a constitution command the loyalty and confidence of the people. In order for a constitution to command the loyalty and confidence of the people, the constitution must be understood and acceptable to the people.

To achieve this understanding and acceptance a constitution needs to be put through a process of popularisation with a view to generating public interest in it and an attitude that everybody has a stake in it. The aim of the constitution-making process is therefore the achievement of a constitution that is legitimate, that guarantees rights and freedoms perceived to be fundamental, and that provides a structure for the effective conduct of the nation’s business for the achievement of its economic development and for the welfare of its citizens. The height of challenges obviously are on how the issues of the rule of law, the property rights and freedoms of expression are formulated.

Appreciated, the constitution is no ordinary law to be modified or replaced by ordinary legislative processes. It must be perceived as a higher law, authorising and governing ordinary law, and commanding adherence to constitutional precepts. While ordinary law may be adopted and altered by legislative majorities of whatever size, the adoption of a constitution and its amendment require much more widespread participation by the citizenry, and the achievement of a broad-based consensus.

Zimbabwe is currently governed under the Constitution agreed at the Lancaster House talks in 1979 in London. This Constitution has been amended 19 times since its inception. An attempt to overhaul the Constitution in 1999 failed after the draft was rejected in the 2000 Referendum. The history of constitution-making in Zimbabwe has witnessed self-evident tension between the need to reach a broad-based consensus on the process of constitution-making on one hand advocated by the NCA, and the need to ensure that the authority of the government is not undermined on the other.

Experience has demonstrated that there is mutual mistrust that has underpinned the constitution-making process between the citizens and the government on the one hand and between the NCA and the State on the other hand. This was evident in the rejection in the 2000 referendum and subsequent episodes of stalemates being witnessed with current process.
The process needs to be created under conditions which provides for checks and balances in terms of the composition of the Constitution - Making Assembly on the one hand and the process of the creation of the provisions of the Working Document under the facilitation and direction of the Parliamentary Constitution Making Commission.

The current Constitution Making process is being implemented as part of a raft conflict resolution provisos presided over and underwritten by SADCC under the Tripartite Global Political Agreement (GPA) between the main political parties in Zimbabwe in the 2008 Elections. Article 6 of the GPA provides for the redrafting of the constitution by the Zimbabwean people. However, the notably, the agreement does not specifically limit the participation in the process to Zimbabweans residing in the country. There has to be a mechanism to involve Zimbabweans abroad to make an input in the draft to provide for wider informed consultation to this historic document.

The GPA makes specific reference to the Kariba Draft to be the basis for coming up with the Working Draft, which seems to be drawing criticism from Civil Society groups.
If Zimbabwe is to evolve democratic principles, the concerns of Civil Society should be allowed to prevail as this is part of what brings awareness to the general public for the need to take a keen interest in this process from the preparatory stages, rather than be involved at the Referendum stage. In my view, the Constitution making Committee needs to comprise a balance of representatives from Civil Society, Traditional Groups, Main political parties, Ethnic Minority groups, Representatives drawn from the Diaspora and Academic Experts. Parliament's Secretariat can provide expertise in drafting the technical layout and content management.
This should allow the draft to be debated in Parliament by elected Representatives to bring about much desired scrutiny and checks. The Kariba Draft in terms of its layout and content, captures most of the fundamental issues in principle. What is key to ensure the final document provides for

* the equitable separation of powers to the Executive Arm,
* provides for the Independence of the Judiciary
* Parliamentary control for the effective operation of Government and powers to deal with rampant corruption in a transparent manner;
* Right-sizing of the Machinery of Government to that which will allow it to operate efficiently and optimally.
* provide for the rights and freedoms of its citizens to enjoy an unfettered and harmonious life style
* protect the country's natural resources from exploitation;
* provide for measures to deal with toxic debts and the protection of property rights.
* Guarantee freedom of the Press to highlight excesses in the utilisation of public resources and flaws in the implementation of the provisions of the Constitution. Josh Chigwangwa, UK

jmchigwangwa@hotmail.com
OXFAM'S ZAMBIAN EXPERIENCES AND CHALLENGES


Thursday, August 20, 2009 at 12:24am

The Executive Secretary of Zimbawbwe Community Groups UK, Josh Chigwangwa, last night attended an invitational feeback workshop hosted by Mary Malpas at Oxfam's Online Hub factory in Welwyn Garden City. Mary Malpas Oxfam Trading’s Communications Coordinator made a presentation about her recent trip to Zambia and what Oxfam is doing to overcome poverty and suffering. The workshop was also attended by supporters of various local organisations, providing an opportunity to network, meet like-minded supporters of Oxfam's work at the WGC online hub. Mary touched on the plight of many children who have orphaned as a result of the scourge of HIV and Aids, the Oxfam's challenges with a populace dominated by christian values, presentations of the devastation caused by floods particularly along the Zambezi and Luangwa flood plains.


The writer resonated with most of the presentations having worked for 3 years in the Zamabezi Valley assisting rural communities with water and sanitation projects, reclamation of gullies and the communal areas management of indigenous resources (CAMPFIRE) which helped control poaching activities and raised funds for community developments.She illustrated pictures of outlying areas were 240 children shared a single Teacher providing services on a voluntary basis and the insecurity of food supplies due to heavy rains and flooding. The classroom is a makeshift thatch comprising sand filled floors with logs tilted as benches. The majority being boys attending school whilst girls have to fend for the familiy at home.There is need to augment and support the efforts of Oxfam to alleviate poverty in remote parts of Africa due to marginalised support from Local Authorities.


Welwyn Garden City Online Hub is manned by volunteers who facilitate the sale of clothing on line to raise funds for this charity, visit www.oxfam.org.uk for more details. Individuals and Community groups are being urged to visit the Hub and register interest to offer services to support the work of Oxfam and shop online as well to mobilise resources for the charity.


You can read a bit about Oxfam's work in Zambia here: http://www.oxfam.org.uk/resources/countries/zambia.html

A LEARNING EXPERIENCE FOR ZIMBABWE COMMUNITY GROUPS IN THE UK

A LEARNING EXPERIENCE FOR ZIMBABWE COMMUNITY GROUPS IN THE UK

Tuesday, September 8, 2009 at 12:23pm


How to cut it: setting up a hairdressing business in Romania Yusuf

Hamad,Businessman,Bucharest, Romania.Yusuf Hamad considers himself to be a Romanian. He first came to Bucharest, Romania 17 years ago from Turkey. In 1992 he created his first company: ACOMA Beauty, a hairdressing salon. He finally obtained his Romanian citizenship after five years of living in Romania and after taking a “quite difficult exam”, he says almost laughing. He first created his hairdressing salon in a studio flat with just one member of staff. He continually trained his employee in order to keep pace with the increasing modern demands of the styling market. Yusuf says that in 1992 there weren’t so many laws and of course so many taxes – in Romania almost all the national institutions were created in that time or were reorganizing themselves. “There was a very big difference from what is happening now, when we have so many taxes, ones that I can understand, but some others that I really don’t see the rational explanation for”. Yusuf continued his business with only one employee for 3 years and after that he made the decision to hire one more person and because of the customers’ increasingly demands, hired one further person. Yusuf saw that in order to further develop his successful hairdresser’s business, he would need a bank loan to buy equipment, specific furniture and to move to another headquarters. He took two loans, one for a new headquarters and another one for equipment and furniture. “At that time the interest was quite good, but now because of the economic crisis it is very difficult for an entrepreneur to get credit from the bank, as the interest has gone up too high and is unaffordable for the majority of the SMEs [Small and Medium Enterprises]”. With the funds he’d borrowed from the bank, Yusuf bought a very nice apartment, arranged it and employed 15 people. He currently has two hairdressing salons: one in an apartment with 15 people that work on shifts and another salon in a studio with two staff members. He still keeps in touch with his family from Turkey and visits them every year with “my beautiful Romanian wife and my two wonderful children”, says Yousuf smiling.Yusuf Hamad considers himself a very lucky person, as when he first came to Romania, he didn’t know what he was going to do, but with the help of some friends he managed to create his first company. Now he is one of the thousands of successful immigrant entrepreneurs from Romania and he is very satisfied with his professional and personal life feeling like a “Turkish-Romanian” in Romania. Compiled by Emilia Stanescu, Institute for Small and Medium Sized Enterprises, Romania --------------------------------------------------------------------------------


Spotlight on... New migrants & entrepreneurship in Europe All successful business start-ups require energy, innovation and hard work. But for migrant entrepreneurs, many other factors also affect their ability to get enterprises off the ground. The shifting political and financial context, including the expansion of the European Union (EU), the emergence of new migration patterns and the international economic downturn, demand a fresh look at the challenges facing new migrant enterprises. Over the past century, businesses set up by migrant communities have made an increasingly substantial contribution to many national economies across Europe. States with significant ethnic minority populations, such as the UK, Germany and Sweden, record a high level of entrepreneurial activity within these communities and a resulting contribution to national profit. In the UK ethnic minorities are estimated to be 60% more likely to start their own business than the rest of the population (with those of Bangladeshi and Pakistani origin leading the way), and such businesses contribute approximately £15 billion to the British economy every year. Migrant-led businesses can range from community-based initiatives with minimal start-up costs and low economies of scale, to international corporations with high turnover and staff. Many play a significant role in sharpening countries’ competitive edge, shaping industries and creating jobs. New research from the UK-based Work Foundation identifies immigrant entrepreneurs as critical in the development of the international ‘knowledge economy’, sharing expertise, skills and ideas across borders. Many businesses founded by migrants tap into international markets, supporting technological and intellectual developments as a result. The context for migrant-led entrepreneurialism in Europe has changed significantly in recent years as a result of changing geo-political circumstances and diverse migration flows. Following the expansion of the European Union in 2004 and 2007 to a further twelve member states, inter-EU movement and the potential for business development across borders has been boosted. Many Eastern European countries such as Romania and Poland have now become significant ‘sending countries’ for people now able to exercise their right to self-employment across the EU. Numbers of refugees and economic migrants moving from countries within Africa and the Middle East to the European Union have also substantially increased since the early 1990s. The increasing diversity of migrant communities living in Europe means that the business development patterns and support needs of these communities are highly differentiated. In particular, although recent migration flows have already made a significant contribution to national economies, there is still a broad absence of dedicated research into the needs of new migrant communities in starting up businesses.Immigrants are often referred to as natural and ‘self-selecting’ entrepreneurs, demonstrated by their ability to take risks by moving abroad. On the positive side, starting up a business can increase people’s confidence, sense of belonging and self-esteem in a new country. Some migrants choose to start their own enterprise as an alternative to getting past the perceived or actual obstacles to employment in the mainstream job market. But the success of new migrants in the European business world is by no means a given, as substantial barriers can stand in the way of getting an enterprise off the ground. Low levels of knowledge about the local culture and language, for example, can limit migrants’ ability to navigate the business environment and particularly in getting through the ‘red tape’ associated with start-ups. Low self-esteem can also be inhibitive, particularly for refugees likely to have experienced trauma, or those migrants facing the insecurity of short-term immigration status. Being a new arrival can also make it more difficult to secure loans from banks and other lenders. For some minority communities, securing mainstream funding can also be affected by cultural and religious beliefs, for example the banking issues for many Muslims arising from the Islamic prohibition on lending money for interest. Wider migrant communities can be instrumental in shaping new businesses, the sector they are in, and their chances of success. Where community entrepreneurship is already thriving, financial or institutional support may available to boost new initiatives. But immigrant-led businesses can suffer by being overly reliant on existing social networks for financial support and labour. There is a risk that start-ups which are embedded within local communities can become aimed towards a narrow market with little mainstream appeal, and/or dominated by local politics.New immigration policies can also impact on new migrants’ ability and willingness to take the risk of starting up a business – an issue which has been better-researched across the Atlantic. Recent findings from the Venture Capital Association found that more than two-thirds of immigrant entrepreneurs surveyed in the USA felt that immigration policies, making long-term settlement there more difficult, had held them back in starting up their own business. People are unlikely to embark upon the investment needed to build a new enterprise unless they are confident of their future ability to stay in that country. Moves by many European governments to restrict the possibilities for long-term settlement of migrants are likely to increase the barriers for new would-be entrepreneurs.Targeted business support and advice for new arrivals to European countries can play a crucial role in building confidence and skills, and is even more valuable within unstable economic times. In the UK, enterprise consortia such as the Minority Ethnic Enterprise Centre of Excellence (MEECOE) report that there is a particular lack of targeted information and support for business start-ups aimed at diverse migrant communities, despite the government establishment in 2000 of an ‘Ethnic Minority Task Force’. In Ireland, where the ‘Celtic boom’ of the 1990s drew an unprecedented inflow of economic migrants, a number of targeted micro-financing initiatives and training packages for recent migrants have been developed over the past five years.Strategic efforts to target support towards the diverse interests and needs of burgeoning migrant entrepreneurs in Europe will require a much more substantial evidence-base than currently exists. Building and sustaining collaborative relationships between migrant communities, business enterprise support agencies, private companies and local governments will be critical in order to build a better picture of business activity among these communities, and to develop flexible and targeted strategies to meet their needs.EU-IMMINENTproject update... EU-IMMINENT project team, April 2009, Dublin Interested in online resources for business start-ups? The EU-IMMINENT (‘Immigrants into Entrepreneurship’) project is now underway in developing an online training resource for immigrants wishing to start up a business in one of five European Union countries: UK, Ireland, Germany, Poland and Romania. The project was launched in October 2008 and will run for a total of two years, during which the team will devise and compile an online training programme and exercises for potential entrepreneurs. Drawing on materials developed previously by previous EU-funded programmes (EMERGE and Entre-Pass), this project aims to address the particular needs of migrants in getting a new business off the ground. It will directly complement face-to-face classroom training packages, providing additional support in compiling business plans, networking strategies and other skills.The project partnership draws together organisations from the voluntary sector, social economy agencies and national enterprise institutions from the five EU project countries. Launched in October 2008, the project partners have collectively completed a pilot needs analysis among migrant communities in the participating countries through focus groups and questionnaires. Data has been collected from a total of 120 participants through needs analysis questionnaires in the partner countries, giving an indication of areas where particular support may be needed by migrant communities. Needs varied depending on participating countries, but overall the main areas where a need for targeted support was indicated include accessing business finance, preparation of effective business plans, sales and marketing techniques for new businesses and business networking.

Wednesday, 10 June 2009

REENGINEERING SERVICE DELIVERY ACROSS GOVT.

RE-ENGINEERING PUBLIC SERVICE DELIVERY IN ZIMBABWE

Sunday, June 7, 2009 at 9:20am

I hailed the launch of the site zimtreasury.org by Honourable Minister of Finance, Tendai Biti and efforts to engage with the public through information sharing and dessemination. The information that has already been availed is invaluable in that it is already informing people world-wide about how the public purse portfolio is structured to manage the economy and the various policy documents and economic instruments available. The relevance of this site is about its ability to interface with the public in an objective and transparent manner. I note that to date no item has been posted on the forums despite the coverage it has received. This liberalisation of information demystifties and improves accounatibility to the public and in the long run confidence in the government machinery. This initiative needs to be tasked to the ministry responsible for ICT to create a ONE STOP GOV PORTAL which should comprise All Ministiries and Departments. This will bankroll a paperless public sector as documents can be processed online in line with modern trends. This serves on the prnting and stationery budget which comprises a substantial amount of govt expenditure, storage space.


This is about re-engineering the provision of public services for effective service delivery that not only creates savings in the public purse, but directly benefits the person on the street. One will not need to travel from Lupane to say Bulawayo or Harare for a generic servcie that could be easily accessed on-line. The biggest hurdle is the cost of implementing such an exercise, but strategic projectection indicates that there are long term benefits and this revulutionarises provision of public services. The current public sector is modelled on a bureacracy that relies heavily on use of paper that goes as well with how documents such as the Treasury Instructions and the Audit and Exchequer acts are modelled, which may need to form part of the changes which should be included in the Public Finance Management and Audit Office Bills. The review of these Bills is welcome, and should be open to public scrutiny as to their relevance. As long as Audited ministry accounts are debated after say 5 years, the significance and relevance of the bills will be obscured and management of public funds will not reform either.


It is critical therefore that a huge investment in ICT is made, to make sure that it is taught as a subject at Chapoto Primary School, Nguboyenja as well as at David Livingstone Primary School. In the public sector, it has to be cascaded to all levels and grades and not be confined to selected front-line services. The benefits of such an initiative are huge and saves the govt. in the long run through restructuring of the public service, streamlining the size of the civil service, saving the enviroment by reducing use of paper, saving the public from unneccessary travels, improving service delivery and monitoring the implementation of programmes and projects. The removal of Visa restrictions for visitors to South Africa is one example of effective decision making that not only benefited the man on the street, but safeguarded the public from exploitation and rooted out corrupt practises that had firmly established itself as a thriving business.Re-engineering the way government does its business in the Public Sector should be one of the key priorities of the Inclusive Goverment and such a Project will certainly attract massive support from All Zimbabweans and the Donor Community. It has to be well thought out and should go beyond the realms of the focus of the GPA. Obviously any changes bring about anxiety in the present day incumbents in the Public Sector, due to limitations in the use of computers and compter technology. A capacity building programme has to be incorporated to strengthenen project implementation.


The provision of Computers to the Ministry of Women's Affairs is one such initiative but can be a futile exrcise if this is done in isolation or independent of the overall thrust of ICT development.
Written about a week ago ·

Barbara Nyagomo likes this.

Suleiman Dhliwayo at 12:51pm June 8

very valid points there Josh. I think the introduction of this system is a step in the right direction for public service in Zim. To ensure the sysytem works there is a lot that needs to be done, these include improvements in the tele-coms systems, rural electrification, etc. As good as this may be the Zim government will have to direct a huge chunk of its budgets towrds infrastructural development, which wll in the long run impact on economic development and growth