LATEST reports by the International Monetary Fund (IMF) projecting a significant drop in commodity prices on the world markets and the subsequent not-so-surprising warning by local economists that the decline will have an adverse effect on Zimbabwe’s economy are yet other stark reminders of the need for government to refocus its energies away from production of raw materials to investing in value-addition and beneficiation strategies and technologies.
It was noted at the IMF breakfast meeting in Harare last Thursday that the decline in commodity prices had already seen copper and gold prices fall by between 10-15%, while base metals had fallen even further by 30-35%.
And this, according to Ashok Chakravarti, senior advisor to the United States Aid Strategic Economic Research and Analysis, will have a negative impact on Zimbabwe’s economic recovery prospects.
“So, since Zimbabwe’s export structure is specifically going in that direction — depending on mineral exports and minerals-related products — this is going to affect us. I think this is going to have an impact on us because if commodities are going to decline, certainly that will affect the growth rate in Zimbabwe,” said Chakravarti, who is also a senior lecturer in the University of Zimbabwe’s economics department. “Our exports and imports are 100% of gross domestic product directed to South Africa. As pointed out by the IMF, growth rates in South Africa are going to decline and that will affect us.”
The late economist, Erich Bloch, constantly bemoaned the country’s failure to invest in value-addition and beneficiation of its agricultural and mineral resources stating that “it is irrefutable that Zimbabwe has the potential to produce considerable quantities of agricultural produce of an extraordinarily high quality, including cotton, tobacco and diverse foodstuffs, but most of that produce is disposed of in initial form, devoid of any value-addition”.
“In like manner, the various minerals with which Zimbabwe is endowed are, relatively speaking, only minimally mined and then are exported in their raw state instead of undergoing any manufacturing processes which could considerably enhance their value,” wrote Bloch in one of his articles.
Bloch’s observations followed similar calls by Welshman Ncube, then industry minister, who implored government to take value-addition seriously as the continued exportation of commodities with little or no value-addition was impacting negatively on the socio-economic development of the country.
Speaking at the 8th International Business Conference in April 2013 in Bulawayo, Ncube told delegates, who included Vice-President Joice Mujuru, that in 2012, Zimbabwe incurred a trade deficit of US$3,6 billion after importing goods worth US$7,4 billion while exporting only US$3,8 billion.
Ncube emphasised the need for value-addition in the cotton and textiles sector, leather as well as the mining sectors, especially diamond processing, saying “value-addition enables our commodities to fetch higher prices on the international market as well as creating employment for our people as enshrined in the Industrial Development Policy and the National Trade Policy”.
Interestingly, President Robert Mugabe is well aware of the benefits that would accrue to Zimbabwe and the Sadc region from beneficiation, hence the decision to hold this year’s Sadc 34th heads of state meeting in Victoria Falls under the theme “Strategy for Economic Transformation: Leveraging the Region’s Diverse Resources for Sustainable Economic and Social Development through Value-Addition and Beneficiation”.
But it is one thing for the country’s policy-makers to be aware of the benefits of value-addition and quite another to implement value-addition projects.
The failure to value-add is, however, not entirely the fault of governments of poor countries like Zimbabwe, as noted by the Southern African Research and Documentation Centre (Sardc) which observed that attempts at value-addition and beneficiation are often hampered by various factors, including a weak economic infrastructure base manifested by poor road, rail and air networks, as well as power shortages.
“The lack of access to appropriate modern technologies has limited industrial competitiveness and ability to engage in value-addition and beneficiation,” Sardc wrote on its website under the title Prospects for Industrial Development in Sadc, adding “the majority of the countries lack access to affordable capital for investment in industrial development”.
Other challenges to value-addition are lack of capital, knowledge, capacity, markets, demand levels and consumption, infrastructure and technology.
Given the need for high-level investments in modern technology as well as breaking into markets for the finished products, which are already dominated by more established countries, it is a tough task for countries like Zimbabwe to go beyond the mere export of raw commodities to value-addition and beneficiation.
Within Sadc, this competition comes from South Africa which is a far more sophisticated economy and is already engaging in the beneficiation of platinum — a mineral Zimbabwe is also mining and exporting, albeit in semi-processed form.
While the idea of value-addition is attractive in principle, economist and legislator Eddie Cross argues that there is very little Zimbabwe can do with respect to beneficiation in certain fields such as platinum production.
Cross says that with minerals, there is not much justification for value-addition as in the case of platinum as this will only add 8% to the price Zimbabwe is already receiving for its exports. He said that even the Russians are actually flying their platinum concentrate to South Africa and it is profitable for South Africa because they have gone a stage further and are manufacturing convertors for motor vehicles which justifies their investment in a refinery.
“South Africa is justified in having the refinery because they go on to use the platinum to manufacture convertors which they sell to countries that include China, Japan and the United States.
“Zimbabwe can only engage in value-addition if it is to go on and manufacture products from the platinum, but it would be very difficult to challenge South Africa’s monopoly,” said Cross.