HomeBusiness DigestTrade deficit to widen to US$3 billion

Trade deficit to widen to US$3 billion

EARLY signs show that Zimbabwe’s trade deficit will widen to more than US$3 billion this year from US$2,6 billion in 2012, an economist has warned.

Staff Writer

UZ Economics lecturer Professor Tony Hawkins said this was because the country was over-consuming and excess demand was spilling over as increased imports.

“At the same time the economy has become a high cost producer because wages are rising faster than productivity,” Hawkins said.

Zimbabwe’s trade deficit in the first quarter widened to US$845,51 million and is expected to widen further as there is generally more importing activity in the second-half of the year. According to import and export data from Zimstat, exports in the period amounted to US$813,57 million and imports totalled US$1,66 billion.

At the Institute of Directors Zimbabwe corporate governance seminar recently, Hawkins said this year’s exports would be constrained by weak global demand and soggy prices as well as the binding supply-side constraint — electricity.

In the first quarter, exports were down 10% and hopes that imports would continue to slow had been dashed by the first quarter numbers.
Hawkins said trade was one of the two main transmission channels through which global developments influence economic performance in the country. The second transmission is capital.

He said the country was missing out on FDI inflows as investors were being put off by political instability and uncertainty. “This includes the unknowns surrounding indigenisation and most recently, mineral sales and mining taxation.”

The economics lecturer said there had been a surge in portfolio inflows, which pushed the Industrials Index on the ZSE to a record high above the 200 point level.

To finance the trade gap Zimbabwe is unsustainably reliant on foreign capital – “deeply ironic given the government’s indigenisation policy.”

In the last two years, capital inflows have averaged US$1,3 billion a year — approximately US$1,75 billion when arrears are included. The bulk of this is borrowed money — only US$350 million a year is offshore investment.

“And this by an already over-borrowed country (foreign debt is 116% of GDP, over half of which is in arrears).”
Hawkins said the official figures suggest that almost US$1,7 billion of the financing gap of US$3,6 billion for the last two years has been funded by unrecorded inflows, which underlines the crucial role of the informal sector. The balance was being funded primarily by the accumulation of fresh arrears.

Hawkins said the huge figure for omissions in the balance of payments — some US$830 million a year — could well mask an even larger volume of offshore borrowing than that currently recorded.

Various policy recommendations have been put forward by analysts who argue that the current trend on the current account needs to be urgently reversed. In the short-term the country needs to put in place mechanisms to ensure that it earns a fair value for its mineral and natural resource wealth.

Analysts say prominence should be given to the establishment of production facilities that enable the country to weave its own cotton into finished shirts, process its tobacco into cigarettes, polish its own diamonds and beneficiate them into high value jewellery, and also refine its own platinum, among other possibilities which can be explored to add value to primary products.

Recently Industry and Commerce minister Welshman Ncube said government will by mid-year launch the Leather Sector Strategy because the industry presents investment opportunities that lie along value addition.

Recent Posts

Stories you will enjoy

Recommended reading


Comments are closed.