Batanai Matsika 
As a research house, we have maintained a strong stance that government interventions are a major factor contributing to inefficiencies in the operation of markets. 
Generally, economic inefficiencies can be caused by various factors which include imperfect competition, common property resources (public goods), the presence of externalities in consumption and production, information asymmetry and government intervention in markets.
Economic inefficiency refers to an absence of efficiency. On the other hand, economic efficiency is when a very scarce resource in an economy is used and distributed among producers and consumers in a way that produces the most economic output and benefit to consumers.
Economic efficiency can involve efficient production decisions within firms and industries, efficient consumption decisions by individual consumers, and efficient distribution of consumer and producer goods across individual consumers and firms.
We highlight that economic efficiency can be broken down into allocative and production efficiency.
An allocation of resources is “pareto efficient” if it is not possible to make someone strictly better off without making someone else strictly worse off.
Government intervention or regulation can cause inefficiencies when it distorts the forces of supply and demand.
Further, inefficiencies can arise because of time lags, corruption and lethargy in execution. Interventions in the market may include imposing taxes, subsidies, quotas, price ceiling or floors and setting a minimum wage.
In this article, we illustrate how setting a minimum wage can cause inefficiencies as it can destabilise some of the conditions of perfect competitiveness.
As illustrated in the diagram above, without the government intervening with a minimum wage, the market will set an equilibrium wage at a given level of labour quantity, and this results in efficient allocation of resources as marginal private benefit by the labour demand equals marginal private costs (costs of leisure forgone) represented by the labour supply.
However, if the minimum wage is set above the perfectly competitive level, it will result in a dead weight loss as illustrated.
The minimum wage will therefore, lead to loss of employment thereby exerting a burden to society as well as on national coffers (unemployment benefits).
In addition, as more individuals are unemployed, they will incur additional costs in searching for employment.
This illustration is just one example of how government intervention in markets can lead to inefficiencies.
Our take has always been that governments make poor economic managers as they tend to be motivated by political pressures rather than sound economic and business sense.
Private companies have a profit incentive to cut costs and be more efficient than parastatals. This increases the overall efficiency and reduces the bureaucratic culture which is the main culprit in State-owned enterprises.
Overall, we maintain a negative tone on listed companies that are linked to politicians or the government.
As Morgan & Co Research, we consider soft issues such as corporate governance and the quality of management teams in our stock recommendations.
We like companies that have strong corporate governance standards.
In most cases, foreign strategic shareholders have strong influence in terms of upholding best practices.
This supports our BUY calls on counters such as Afdis (Distell), Delta (ABInbev), Old Mutual Zimbabwe (Old Mutual Limited), SeedCo and SeedCo International (Limagrain) and NMBZ (Arise).
● Matsika is head of research at Morgan & Co, and founder of piggybankadvisor.com. He can be reached on +263 78 358 4745 or batanai@morganzim.com / batanai@piggybankadvisor.com
