HomeBusiness DigestExports to rescue Zim economy? Not so fast!

Exports to rescue Zim economy? Not so fast!

After posting growth rates upwards of 7% in the three year period following the meltdown of 2008, Zimbabwe’s economic growth has fallen considerably in the past two years. Estimates are that the economy will grow by an average of 3% over the next five years.

Eldrede Kahiya

While 3% resembles a decent rate, this is miniscule given Zimbabwe’s need to regain its economic stature which was decimated at the turn of the century.

Even more disconcerting is the fact that, starting this year, Zimbabwe’s economic growth rate will begin to lag behind that of comparable Sub-Saharan countries, most of which are projected to grow at around 5% per annum in the coming years. Zimbabwe’s general economic decline over the past decade, together with the current economic slowdown, has not gone unnoticed internationally.

In some business circles, Zimbabwe is progressively being seen not as a legitimate emerging market, but as a downtrodden bottom-of-the-pyramid economy.

There is consensus among experts around the world that the path to economic growth runs through export development. In other words, a stagnant or slow economy can be rescued by exports. This is easy to digest given that exports factor into the generic equation for calculating GDP. Exports earn foreign currency, generate high paying jobs, improve the competitive edge of firms, and ultimately, increase opportunities for growth and profitability for firms. Moreover, economists have been demonstrating for decades that export success can lead to economic growth via a mechanism known as export-led growth hypothesis.

Zimbabwe has battled for years to push export revenue past the US$4 billion mark and the last official statistics on annual exports (2013) place Zimbabwe at US$3,5 billion. Although these figures are analogous to the export revenues for Mozambique and Tanzania, Zimbabwe’s exports are roughly half of Namibia’s and about one-third of Zambia’s. While the ratio of exports to GDP for Zimbabwe is a respectable 29,5%, this again is low in comparison to several Sub-Saharan counterparts such as Angola (55,8%), Botswana (55,1%), Congo Republic (76,5%), Ghana (42,2%), Swaziland (56,3%) and Zambia (41,9%).

There are six foremost issues that should be addressed if exports are to come to the rescue and buttress Zimbabwe’s faltering economic growth.
Incessant viability problems The ongoing closures of firms, particularly in the manufacturing sector have been an albatross for Zimbabwean exports. Most of these closures have resulted from the unreliable supply and high cost of factor inputs, liquidity crunch, and unpredictable domestic demand.
In his 2015 budget speech, Finance minister Patrick Chinamasa outlined the appalling statistics on company closures including the cessation of 4600 firms since 2011 leading to the redundancy of some 55 400 workers.

One casualty of this mayhem has been the export sector where a number of firms, which had exported in the past, have either stopped exporting as part of downsizing or have gone out of business entirely. According to listings in Zimtrade’s exporter directory, Zimbabwe could be down to its last 500 exporters of manufactured goods.

Expansion of the informal sector The majority of the 4600 firms, together with the 55400 employees, have resurfaced in some capacity, in the informal sector. Zimbabwe’s permanent transformation from a formal economy to a largely unregulated landscape, dotted by numerous small-scale firms, does not aid the export development imperative.

I have no issue with the informal enterprises taking root in Zimbabwe every day. Indeed, in the prevailing economic climate, subsistence level or necessity entrepreneurship should be expected to proliferate. The only setback is that such small “informal sector” firms have no capacity to export whatsoever. In most countries exports are generated by well-resourced and properly-organised formal sector firms with the aptitude, mindset and capabilities to engage in international expansion. The same cannot be said of the firms in the informal sector in Zimbabwe, the bulk of which have been set up just to make ends meet.

Crude “product mix” Traditionally, Zimbabwe has exported commodities and the relative proportion of value-added exports has tended to be low. This, in recent years, has been magnified by the demise of the manufacturing sector. The bulk of Zimbabwe’s exports continue to be generated by tobacco, minerals and other crude materials, and manufactured products account for only 10% of total exports. This over-reliance on commodity-based exports has its own pitfalls. Regarding price, Zimbabwe is at the mercy of world markets and, in some cases, speculators.

There is little opportunity for ‘value-add’ and sustained or higher revenue streams can only arise from higher volumes which, in some cases, equate to depletion of natural resources. It does not help that Zimbabwe’s currency of choice, the USD, has been strengthening over past 10 months, making Zimbabwe’s USD-denominated exports more expensive on the world market.

Failure to develop a strong foothold outside Sadc

Another historical Achilles for Zimbabwe, which persists to this day, has been the inability of exporters to expand their operations beyond the Sadc region.

There isn’t much to Zimbabwe’s international trade performance once you remove some of its biggest trading partners such as South Africa and Mozambique. Additionally, a quick gaze at Zimstat’s export revenue by country will show you that, even the “Look East” dogma by Zimbabwean policymakers, does not appear to be creating any additional export opportunities for firms. Sustained export success requires that Zimbabwean exporters be able to extend their international footprint to culturally and physically distant markets, targeting these markets not only with commodities, but also increased levels of value-added product.

Tarnished image and reputation of the country

Zimbabwe continues to have a second-rate reputation and international standing. To generate some anecdotal evidence I set-up a “google alert” for “Zimbabwean news” that delivers a list of “mentions” of Zimbabwe in the media around the world. I usually go for months before I read a story that casts Zimbabwe in a good light.The dearth of marketing stimuli projecting a favourable image of Zimbabwe is considered to be the ultimate nemesis for the tourism sector. The brand equity for Brand Zimbabwe is continuing to erode in value internationally. In this era of “country branding” if a nation is not of a respectable international status the challenge for exporters to market their goods further afield becomes arduous.

Nonexistence of a unified multi-stakeholder approach

Export development requires a deliberate and sustained effort from public and private stakeholders who share the common objective of ensuring that Zimbabwe realises its full potential. I have had some fruitful conversations with Zimtrade executives over the past three years and I commend the work they do. Unfortunately, Zimtrade has been left to fend for itself in furthering Zimbabwe’s export development. Like other trade promotion agencies, all Zimtrade can do is guide ‘export-ready’ firms by assisting with international market selection, market access and adaptation of the international market mix. In other words, Zimtrade only provides the cherry on top.

Although Zimbabwe can look to exports as a potential catalyst for economic growth, much needs to be done before this can come to fruition. Projections by various think-tanks suggest exports could be headed for a significant drop over the next few years. Now more than ever, there is an urgent need to resuscitate domestic industry, improve Zimbabwe’s reputation internationally, encourage firms to look beyond the Sadc region, and also to increase the value-added content of their exports.

The responsibility, which cannot be assigned to Zimtrade alone, has to fall on multiple stakeholders including policymakers, industry associations, and private firms. As vast parts of Sub-Saharan Africa start to record economic progress, Zimbabwe cannot afford to continue to operate in catch-up mode because, before too long, she could be left behind for good.

Dr Eldrede T Kahiya is a New Zealand- based academic whose research focuses on firm level export development and national level export promotion. He writes in his personal capacity and can be reached via email at Eldrede.Kahiya@lincoln.ac.nz

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