The Sunday News
Dr Bongani Ngwenya
Preamble:
THIS instalment is a continuation of last Sunday’s article, “Impact of inward looking policy on Zimbabwe is open for business initiative”. The latest official statistics from ZimStat indicate that Zimbabwe’s trade deficit has increased by 69 percent to $860,3 million from February to April as the country continues to struggle to correct the trade imbalance.
The latest information reveals that the country imported goods and services to the value of $1,7 billion compared to the exports of $964,5 million over the period February to April and these imports remained heavily skewed towards consumptive products such as maize, rice, bottled water, sugar, soap, mobile phone handsets, electronics, vehicle spares, vehicles and generators, just to mention a few.
While the exports in the period under review included beef, tobacco and other agricultural produce, as well as wines, minerals and scrap metal and the exports have increased by 46 percent over the same period to $329,6 million. The reports are saying the improved export performance during the period under consideration is largely attributed to a raft of measures, among many, for example the introduction of the five percent export incentive bonus scheme in 2016, meant to encourage companies to export, boosting domestic output and taming the trade imbalance.
Export of commodities, that is, agricultural produce and minerals continued to dominate the country’s trade over the period in review. The country’s exports to South Africa alone for example increased in the month of April to $149,4 million from $120,9 million in March. Since the adoption of the multi-currency regime and taming of the hyperinflation in 2009 concerted efforts are made by various stakeholders to try and drive the country’s economy towards an export-led economic growth.
Some of these efforts have seen the country reducing its trade deficit by 25 percent in 2017 to $1,5 billion, and effort is being made to further reduce the trade balance deficit to less than $ 1 billion this year.
It is unfortunate that Zimbabwe is among the developing countries that are still intensively relying on commodity exports such as agricultural produce and minerals due to the limited and narrow diversification of its economy and above all, due to the suppressed domestic production and output. The country also heavily relies on the importation of key raw materials for its industry, and this has continued to drain the scarce foreign currency in the economy.
Many experts and analysts have suggested the need for the country to adopt value chain approach and import substitution models and ensure value addition and beneficiation through production of high value end products. The argument is that despite all these efforts, imports continue outweighing exports.
Finance and Economic Development Minister Patrick Chinamasa in his presentation of the 2018 national budget conceded that despite the positive signs of improvement in exports, the overall balance of payments situation remained under pressure, with foreign exchange availability to support domestic production constrained.
The fallacy of correcting trade imbalances through import restriction
As I said in last Sunday’s instalment, import restriction is the argument for import substitution. In the case for Zimbabwe import substitution cannot be successful. Right from the recovery from hyperinflation in 2009, Zimbabwe’s trade or balance of payments situation has been running in deficit. By its nature, Zimbabwe’s economy is commodity driven and not manufacturing driven. As a result the country is dependent on commodities for export revenues and not industrially manufactured products. This does not mean that the country does not export any manufactured products, it does, but at an insignificant level.
The challenge and lack of sufficient industrial capacity utilisation to meet the domestic demand for consumptive goods has seen this perennial phenomenon of imports continuing to outweigh exports as I have indicated in the preamble above.
It is by default that the gap in the demand for consumptive goods in the domestic market is being filled by imports, and this pattern will continue as long as the industry capacity utilisation levels are not increasing good enough to offset the current and the potential future gap in the demand for consumptive goods in the domestic market.
It is for these reasons that any efforts to try and tame and correct the trade imbalances through import restrictions is a fallacy of fallacies. Why am I saying this? It is because so far the only tangible thing that has been done to the local industry is to try and protect it by way of imposing some import restrictions in the form of statutory instruments.
While such a move might have been beneficiary to a certain extent, it has only benefited a few targeted companies and not the industry per se. There is a need for concerted effort to close the gap in the demand for consumptive goods in the domestic market that is currently filled by importation of these consumptive goods.
The solution is not import restriction, but increased industrial capacity levels. It was good to learn that the Government is targeting importing $400 million to ease the current liquidity situation, there are increasing lines of credit facilities and the availability of the Afreximbank facility. My argument is that it is time that substantial amounts from these facilities be channelled towards raising the industry capacity utilisation in order to increase the domestic output for consumptive goods and by so doing, reducing the imports.
In fact if the importation of consumptive goods can almost be eliminated. In other words the country should only import those consumptive goods that it does not possess any comparative and competitive advantages to produce. In conclusion, the concern is that our industry is not getting enough financial support. Our industry does not need any protection, it needs capacitation in terms of lines of credit, capital injection, machinery and equipment etc.
Let us resuscitate our industry so that it is once again able to meet the domestic demand for consumptive goods. By so doing we will improve the trade imbalances and hence the economic performance of the country.
Dr Bongani Ngwenya, is based at the University of KwaZulu-Natal as a Post-doctoral Research Fellow. [email protected]
