THE huge trade deficit between Zimbabwe and South Africa — a point of focus during President Robert Mugabe’s state visit to that country this week — largely reflects local economic collapse and associated problems.
Zimbabwe has as a result now become a huge warehouse for South African goods as it no longer produces its own requirements, from basic food stuffs to agro-processed products. Supermarkets are now replete with South African goods, showing a poor operating environment, lack of competitiveness and company collapses.
Zimbabwe used to produce a lot of its own goods, but now it relies on South Africa which accounts for 43,1% of its imports. The country was once the most industrialised in sub-Saharan Africa, outside South Africa, before its economy started crumbling around 2000 following extended periods of leadership and policy failures.
Since then Zimbabwe’s economy has badly deteriorated after going through a meltdown during the hyperinflation era, despite a spell of modest bottoming out between 2009 and 2013. It is currently on a renewed tailspin. Zimbabwe recently hosted an Intergovernmental Committee of Experts meeting in Victoria Falls to discuss industrialisation. The country will also host another meeting on industrialisation in Harare month-end.
This comes amid company closures and job losses — massive de-industrialisation.
Mugabe was in South Africa, Zimbabwe’s largest trading partner, to discuss critical political and economic issues, partly as Sadc and African Union chairman. His visit thrust into the spotlight that Zimbabwe has now become a warehouse and distribution centre for South African imports due to its unrelenting economic problems.
For example, between 2005 and 2014, South Africa’s exports to Zimbabwe grew by 247% from R7,1 billion to R24,8 billion, with minimal contraction recorded during hyperinflation between 2006 and 2009. In the same period, Zimbabwean exports to South Africa fell by 54,7% to R2 billion from R4,4 billion reported in 2005.
South Africa’s exports to Zimbabwe mainly comprise machinery, electrical equipment, mechanical appliances, chemical products, base metals, mineral products and agro-processed products. In turn, Zimbabwe’s exports to South Africa include textiles, pearls, precious and semi-precious stones, base metals and mineral products.
The resultant trade deficit issue is a serious problem as it indicates a lack of markets for the Zimbabwe’s exports, reducing potential revenue inflows from its trading partner. It also means large amounts of liquidity are flowing out of the economy to pay for South African goods.
The issue also speaks to the current account deficit, a broader measure that includes the trade deficit, factor income and financial transfers, and balance of payments. Zimbabwe’s external sector position remains under considerable pressure, on the back of subdued export performance, coupled with huge imports. As a result, international reserves remain under one month import cover, while the current account deficit is 23,9% of its supposed US$14 billion GDP.
Basically, the trade deficit and other indicators show Zimbabwe’s economy has crumbled, hence it has now become a South African warehouse and distribution platform.