HomeBusiness DigestBad policies a setback for govt on forex

Bad policies a setback for govt on forex

Eric Chiriga

GOVERNMENT’S insistence that exporters must add value to their commodities to earn more foreign currency will not work because the country’s primary industry – agriculture – has been crippled by

bad policies.

The government insists that the panacea to the foreign currency crisis is value addition to the country’s exports instead of exporting raw materials.

However, economic analysts argue that the supply side in the agricultural sector has gone down drastically. They say there is a need to improve primary production and address the structural rigidities within the economy.

They say there is little to add value to as production volumes are continuously declining. The agriculture sector, which used to constitute more than 50% of the country’s exports before the chaotic land reform, has declined sharply since 2000.

Horticulture, dairy and tobacco industries were severely affected by the land invasions resulting in the country importing basic products like milk.

Economist John Robertson said there was need to create a conducive investment environment in the sector. He said government was not willing to put its money at risk.

“The value addition concept is a noble one for the enhancement of the country’s exports and foreign currency earnings but there are structural rigidities that need to be addressed,” he said.

“There are domestic structural rigidities. Our cost structure is skewed,” the economist said. He said there was no foreign direct investment which would bring processing plants for value additions.

Billions of foreign investment are required for plant and machinery for the value addition process, while existing industries are closing down due to viability problems.

The business sector has called on the government to improve its relations with the international community to lure foreign investment and boost creditworthiness.

At National Economic Consultative Forum and Zimbabwe National Chamber of Commerce meetings held recently, the government maintained that value addition was the panacea to the country’s foreign currency woes.

Exporters are operating at between 30-40% of capacity amid escalating overheads. They are also failing to access foreign currency on the RBZ auction system to import raw materials.

The country is reeling under serious foreign currency shortages and this has been exacerbated by the recent increase in fuel prices.

The foreign currency auction can only supply about US$44 million per month, which is then gobbled by fuel imports which require about US$60 million per month. Business leaders have also blamed the government’s inconsistent policies as the causes of the economic downturn.

They say government policies are frequently changed and randomly implemented.

The leaders have also condemned the price controls that were introduced by the government saying that they are causing serious viability problems.

Fertiliser manufacturer Sable Chemicals made a loss of $9 billion due to the price controls.

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