The Sunday News
Tinomuda Chakanyuka Sunday News Reporter
ZIMBABWE’s trade deficit has grown to $16 billion over the past five years, amid revelations that the country also continues to lose hundreds of millions worth of capital due to mineral leakages and illicit financial flows.Data in Sunday News’ possession shows that the country’s trade deficit widened to $3,3 billion in December last year from $2,97 billion recorded in November of the same year but declined by 21,2 percent from $4,19 billion registered in 2013.
According to figures from statistical agency, Zimstat, the country’s trade deficit has averaged about $4 billion annually for the past five years.
Over the period under review, the country has recorded an estimated total of $30 billion worth of imports against an estimated $14 billion worth of exports, to account for the $16 billion trade deficit suffered.
Zimbabwe’s top imports over the past five years include fuels, motor vehicles, iron and steel products while major exports have been tobacco, gold, ferro chrome, diamonds, cane sugar and cotton.
Analysts have blamed the huge trade deficit on lack of prioritisation by Government, urging authorities to take drastic measures to resuscitate local industry to ensure that the country does not continue incurring trade deficits.
Economic analyst Mr Kipson Gundani noted that capital needed to resuscitate infrastructure and recapitalise industry in the country was far less than what the country used to import finished products, most of which he said could be manufactured locally if industry was revived.
He said the country should learn from countries like China, who when they embarked on massive industrialisation programmes closed their borders to imports of finished products as a means of stimulating local production.
“It will be painful yes but necessary. As long as our borders are open to products that are coming from abroad then local industry will struggle to get on its feet and we will continue incurring trade deficits. Our biggest problem is that we are after immediate gratification hence we can’t take drastic measures that are necessary to improve our situation in the long run. We keep on importing consumptive goods which explains why industry can’t pick up.
“Countries that have industrialised took drastic but painful measures. They did away with immediate gratification, closed their borders to importation of finished products and exportation of raw materials. It takes political will to make things work and that is what we need here in Zimbabwe.”
Mr Gundani added that the cost of doing business in the country was another factor that was militating against growth of local industries pointing out that locally manufactured goods were thus more expensive than goods imported from South Africa.
“$30bn worth of goods means there is a ready market in Zimbabwe to support industry if it is revived. The point of intervention is to stimulate supply but there are a number of factors which may militate against this. The cost of capital is very high in Zimbabwe. We use offshore money which comes with high risk premium and interest inevitably becomes high.
“The cost of energy is also very high and I think there is a need to open up the energy sector to other players to increase competition. Hopefully tariffs will be reduced,” he said.
Buy-Zimbabwe chief executive officer Mr Munyaradzi Hwengwere said the breadth of the country’s economy had become narrow as a result of the country’s over-reliance on importation of finished products and exportation of unbeneficiated raw materials.
He said Government should make deliberate moves to prioritise entrepreneurial growth in the country as a way of promoting industrial growth.
“Our economy is a typical Third World economy. We import more than we export and we export raw materials than will fetch more money for those countries that will process the raw materials into finished products.
“I think everything goes down to prioritising entrepreneurial growth in Zimbabwe. Public procurement should support local production, not local dealers. That way we can stimulate growth in industry. When we talk about local production we don’t refer to toll manufacturers who buy cooking oil from South Africa and package it locally. We mean companies that are actually processing raw materials into finished goods locally. Such companies should be incentivised and supported,” he said.
The country’s ballooning trade deficits come against a background of indications that Zimbabwe might have lost hundreds of millions through illicit financial flows in the mining sector.
A research conducted by the Zimbabwe Environmental Law Association (ZELA) established that the country could have lost potential taxable revenue amounting to $135 million from diamond trade between 2009 and 2013.
ZELA arrived at the conclusion after a comparison of average production and average selling prices per carat of diamonds based on Kimberly Process Certification Scheme (KPCS)’s public annual statistics.
Another research conducted by Zimbabwe Economic Policy Analysis Research Unit (ZEPARU) has also estimated that from the period 2009 to 2013, Zimbabwe could also have lost about US$239 million due to export under-invoicing by players in the mining sector.
The research additionally noted that Zimbabwe’s mining sector was highly susceptible to transfer mis-pricing especially in the platinum mining sector attributing the development to the relationship between local platinum mining companies and those doing platinum downstream processing in South Africa.
Transfer mispricing, also known as transfer pricing, manipulation or fraudulent transfer pricing, refers to trade between related parties at prices meant to manipulate markets or to deceive tax authorities.
“The current fragmented nature of the mining tax regime in Zimbabwe means that “too many hands” are involved in the collection of mineral revenue. Consequently, the picture of overall mineral revenue contribution to government is blurred. Moreover, quasi fiscal operations by various government departments on mining fees can undermine mineral revenue flows to the fiscus,” reads part of the ZEPARU research.
ZELA project officer responsible for economic governance Mr Mukanganisi Sibanda said the problems of capital flight, illicit financial flows and mineral leakages were not peculiar to Zimbabwe but a common challenge across the continent and in some developed countries as giant mining firms were becoming aggressive and sophisticated in concealing their financial transactions from Governments.
Mr Sibanda suggested a raft of measures that Zimbabwe could employ to plug mineral leakages and loss of revenue therefrom.
“There is no single solution to this. You would need a combination of strategies to deal with mineral revenue leakages. As a country we lose out through transfer mispricing and export under-invoicing.
“For Zimbabwe and the rest of Africa, there is a need to stop the race to the bottom habit, whereby countries rush to offer incentives to investors in the mining sector but prejudicing economic growth. The continent needs to harmonise tax policies and do away with tax havens and the concept of multijurisdictions.
“Value addition and beneficiation is another critical measure that can be employed to increase the taxable revenue base. As long as we continue exporting raw unprocessed minerals we will remain susceptible to illicit flows of capital from the country. Government should also invest in research. Employ the best brains to investigate the impact of illicit financial flows,” he said.
The country has also lost a potential $4 billion after spurning a World Health Organisation invite in 2002 to manufacture of antiretrovirals and other drugs for both the local and regional markets.
Zimbabwe imports 80 percent of its HIV drugs from India, losing hundreds of millions in the process and further choking local drug manufacturers who are struggling to get on their feet.
Industry and Commerce Minister Cde Mike Bimha was not available for comment as he was said to be attending a funeral while his Mines and Mining Development counterpart Mr Walter Chidhakwa was “in an important meeting” when Sunday News called for a comment.
Finance and Economic Development Minister Patrick Chinamasa, meanwhile, blasted mining companies at a Chamber of Mines conference last week for withholding information on their revenues and payments which was making it difficult for the Government to come up with the right tax regime.
“Only the gold sector has provided their figures. All other sectors have not and we wonder why. Our partners have complained that the local mining industry is opaque.”
He said Government would now be forced to come up with legislation that compels all mining companies to provide such information.
