THE trade deficit, referring to the differential between the total value of a country’s imports and that of its exports, has exacerbated Zimbabwe’s international debts.
Column by Erich Bloch
In a recent review of the economy, Finance minister Tendai Biti stated that for the 11 months to November, 2012, the trade deficit amounted to US$3,58 billion, as against a deficit for the seven months to July, 2012 of marginally in excess of US$ one billion.
Thus, in the last four months of the review-period, imports exceeded exports by approximately US$2,5 billion, or an average monthly deficit in that four month period of approximately US$600 million.
This is an untenable situation, not only contributing substantially to the emaciated state of the economy, but short-circuiting economic recovery.
The ongoing accumulation of debt is also a barrier to the procurement of substantive foreign direct investment (FDI), and lines of credit, essential as stimulants for economic upturn and employment creation.
The minister’s economic review indicated the highest expenditure is made in the procurement of fuel, raw materials, intermediate goods for industry, and diverse consumer goods.
These and, to a lesser extent, other imports exceeded US$7 billion in the period of January 1 to November 15, 2012, against imports of US$5,5 billion in the corresponding period of 2011, representing increased imports of almost 37%.
In the same period, exports amounted to US$3,42 billion, against US$3,12 billion in the same period in 2011, an increase in exports of less than 10%. The review noted the mining sector exports represented 61,8% of total exports, with tobacco constituting 21,8%, other agricultural commodities 9,2%, manufacturing 6,7%, and horticultural products and hunting trophies comprising the remaining one-half percent. Of the mining exports, the major contributants were platinum and diamonds.
It is economically unsustainable to have imports markedly exceeding export revenues, and it is long overdue for Zimbabwe to increase exports.
Concurrently local industries must start producing currently imported goods, thereby diminishing our over-reliance on imports. Many measures and actions which to increase exports and decrease imports can be put in place. Such measures and actions include:
l Resurrecting agricultural production. At one time, agriculture was the solid foundation of the economy, not only producing most basic needs for the populace, but exporting in such magnitude that Zimbabwe was known as the region’s “breadbasket”.
Concurrently, it produced vast quantities of tobacco, cotton, and citrus, among others.
Now it produces only a quarter of the national maize needs, and an even lesser output of other products. Livestock is imported from Botswana, whereas at one time Zimbabwe was a major meat exporter. Much of the vegetables, fruit, and poultry we consume are now imported.
To enable farmers to access their funding requirements and regain substantive productivity, either title deeds must be restored over rural lands, or 99-year leases must be restructured to accord them collateral value status. Concurrently, in recognition of the intensity of global climate change, and inadequate and non-timeous rainfalls, government needs to be more proactive in the development of dams and irrigation systems.
l Notwithstanding that there has been considerable growth in Zimbabwe’s mining sector ensuring that the trade deficit is lowered, the potential for that sector to increase outputs is immense.
However, although Zimbabwe is benefitting from the rising volumes of mining and the consequential increases in the exports of minerals, the prospects of even greatergrowth of the mining sector are considerable. To turn such prospects into reality, much greater FDI than presently is forthcoming is needed. However, it will only be forthcoming when potential investors are confident of investment security.
Zimbabwe must demonstrate it will incontrovertibly honour its Bilateral Investment Promotion and Protection Agreements (Bippas).
It must realistically restructure indigenisation and economic empowerment laws, and not levy excessive, internationally incompatible taxes, royalties, levies and licence fees. It must also ensure consistently available, reliable infrastructural services; especially energy supplies.
l Government needs to ensure a speedy and comprehensive recovery of the manufacturing sector to ensure it once again provides products presently being imported and generate exports.
The considerable volumes of manufacturing sector production and exports in the 1980s, and for much of the 1990s, is irrefutable evidence industrial operations can contribute to the economy, and especially so where such operations are value-addition oriented to Zimbabwean primary products. However, restoring wellbeing to the manufacturing sector requires positive, comprehensive and urgent action by government.
First and foremost, almost all enterprises are in critical need of recapitalisation, having lost most of their operational capital resources during the hyperinflation era of 2008 and thereafter because of operational losses.
The concept of the Distressed Industries and Marginalised Areas Fund (Dimaf) was highly commendable, albeit tragically belated. But the reality is that Dimaf, as presently structured, cannot be the stimulant of major manufacturing sector recovery.
Funding for Dimaf is a paltry US$70 million, much of which not yet available, whereas a substantive industrial recovery needs in excess of US$1 billion. Government does not have such money but should source the needed funding from bodies such as the African Development Bank, African Export and Import Bank, Development Bank of Southern Africa, and Industrial Development Corporation of Southern Africa.
Concurrently, Dimaf must facilitate enhanced accessibility to its funding on terms which practically recognise the needs of the intending borrowers.
At the same time, government must urgently address the reintroduction of export incentives, and come up with realistic import duties in order to level the competitive playing field between locally-manufactured products and those emanating from countries excessively subsidising and incentivising their exports.
Simultaneously, import duties need to be realistically reduced on imported manufacturing inputs, and infrastructural service delivery must be substantially and rapidly enhanced.
These are but a few of the actions that government could, and should, vigorously pursue, in order to reduce Zimbabwe’s crippling trade deficit, whilst simultaneously contributing to economic recovery.