The Sunday News
Dr Bongani Ngwenya
Preamble
ZIMBABWE’s economy depends heavily on its mining and agriculture sectors commodity exports. Following a decade of contraction from 1998 to 2008, the economy recorded real growth of more than 10 percent per year from 2010 to 2013, due to the immediate stabilising effect of dollarisation or multi-currency regime before slowing down to about three percent in 2014 due to poor harvests, low diamond revenues, and decreased domestic and foreign direct investment.
Lack of prudent management of the supply side of the multi-currency regime, infrastructure and regulatory deficiencies, a poor investment climate, a large sovereign debt burden, and the extremely high Government wage bill impede the country’s economic performance.
Within the decade of contraction until early 2009, the Reserve Bank of Zimbabwe allegedly routinely printed money to fund the budget deficit, fueling hyperinflation in the process. Dollarisation or adoption of multi-currency regime in early 2009 — which officialised the use of currencies such as the Botswana pula, the South African rand, and the US dollar — ended hyperinflation and reduced inflation below 10 percent per year.
The economy has failed to grow as anticipated mainly because of the structural phenomenal problem of being commodity) export based (primary products), than being value added export based or driven (secondary products).
Failure to develop a strong foothold outside Sadc
Dollarisation or multi-currency regime comparatively placed Zimbabwe in a competitive advantage over its trading partners within the Sadc region. Zimbabwe could have taken advantage to develop a strong foothold outside Sadc.
However, another historical Achilles for Zimbabwe, which persists to this day, has been the inability of exports to expand beyond the Sadc region. There isn’t much to Zimbabwe’s international trade performance once we remove some of its biggest trading partners such as South Africa and Mozambique.
Sustained export success requires that Zimbabwean exporters be able to extend their international footprint to culturally and physically distant markets, targeting these markets not only with commodities, but also increased levels of value-added products. It is clear that heavy reliance on commodity exports has not been sustainable.
Zimstat’s trends are that exports decreased to $231,63 million in December from $411,53 million in November of 2014, while they have been averaging $926,88 million from 1993 until 2014, reaching an all-time high of $3 557,03 million in December of 2011 and a record low of $156,41 million in March of 2014.
The challenges of commodity dependent exports and international commodity prices.
Since low-income countries like Zimbabwe and other developing countries depend mostly on just a few commodities for the bulk share of their export earnings, commodity price fluctuations directly affect the incidence of poverty, as the vast majority of the poor depend on primary commodities for their livelihoods. The uncertainty generated from commodity price fluctuations or volatility hampers economic growth and is associated with increases in poverty.
Literature suggests that, the correlation between changes in commodity prices and economic growth is overwhelming.
For example, examining economic growth rates for developing economies against the annual rate of change of commodity prices for the period 1995–2009 finds an 87 percent correlation between the two variables.
It is generally acknowledged that a key reason for excessive price volatility of primary commodities is the inelastic nature of supply and demand of such commodities. In agriculture, for instance, production can be difficult to adjust, since planting and planning decisions must be made far in advance of physical purchases. Thus, situations of oversupply can last for a long time, while it can be difficult to boost production in the case of shortages.
Hence, it is important for these countries, Zimbabwe included, to reduce their dependence on primary commodities and adopt policies for economic diversification and value added export generation. In this context, policies and measures that focus on both price and revenue (income) stabilisation will be critical.
Leveraging Value Added exports through Enterprise-led innovation
Exportation of raw agricultural commodities and mining commodities has added to the negative impact on the socio-economy of the country; jobs are exported and potential revenues are lost to those nations that have embraced innovation and value addition as a priority in their manufacturing models.
Our agricultural and mining sectors — have a potential for autonomous growth and therefore the need to leverage on these sectors is key to reviving the Zimbabwean economy. A lot of value has been lost in these commodities sectors due to exportation of raw as well as semi-processed products.
Very little is happening in as far as value addition of our commodities despite the known potential and impact of value addition on job creation and economic growth.
The realisation of Value Added Exports hinges on the strategies to promote enterprise-led innovation. This entails concerted actions by Government, the corporate sector, and the financial sector. What can the Government do? This week’s economic focus suggests four basic initiatives: to pursue a balanced strategy, to create the right incentives, to build the capacity of the private sector, and to strengthen the ecosystem for the Venture Capital Industry.
The most leading Sadc Exporter-South Africa remains a net manufactured products (value added) exports earner, because of its less dependence on commodity exports.
China, in its quest for economic growth has embarked on Enterprise-led innovation within its domestic arena. This strategy has been key to the sustainability of the economic growth model that China has followed over the past decades.
A transformation of economic growth strategy towards one that is more solidly based on efficiency and knowledge is widely recognised as essential to Zimbabwe’s long-term prosperity as well. This transformation should be at the centre of the Zimbabwean Government’s “scientific development strategy.”
In conclusion, for Zimbabwe to move away from its structural commodities based and driven export economy to a Value Added products driven one requires enterprise-led innovation model. An 80 percent commodities based export earnings is highly risky. Already the projected agricultural performance of the economy in the 2016 National budget has been seriously handicapped by the poor rains this season and lack of adequate preparations for ploughing and planting. Commodities are susceptible and vulnerable to weather conditions and volatile commodity prices in the International market. Commodities exporting countries like Zimbabwe have no control over the commodity prices. An enterprise-led innovation economic reform to boost Value Addition on our commodities would go along way towards mitigating the challenges of commodity dependent exports and international commodity prices volatility, and enhance real economic revival and sustained growth.
Dr Bongani Ngwenya is a Bulawayo-based economist and senior lecturer at Solusi University’s Post Graduate School of Business, mailto:[email protected]/[email protected].
