OFFICIAL trade figures showing Zimbabwe’s exports declined 15% last year compared to the prior year are the clearest evidence yet of a floundering economy characterised by continued decimation of industry and production.
Zimbabwe Independent Comment
Statistics from the Zimbabwe Statistical Agency show exports stood at US$2,7 billion last year from US$3 billion in 2014, while imports more than doubled this figure. For an economy whose main currency is an adopted United States dollar after demonetisation of the local currency liquidated by hyperinflation, this is a reflection of de-industrialisation, dwindling production and lack of competitiveness.
The bigger picture is Zimbabwe’s economic difficulties have deepened and the country cannot wait. It needs to act now. The El Niño-induced drought has hit the economy hard. Lower commodity prices and the appreciation of the US dollar have compounded the difficulties. Policy action is needed to reverse this trend, but there is no serious and competent leadership; only muddling through.
While last year’s formation of the largest free trade area on the continent was widely seen as an opportunity for Zimbabwe to increase its exports and earn money to improve its dire liquidity position in the market, company closures and falling production remain a problem.
Industry capacity utilisation, according to Confederation of Zimbabwe Industries figures, stood at 10% in 2009, leapt to 43,7% in 2010 before peaking to 57% in 2011. In 2012, a general economic slowdown set the pace for a renewed free-fall in industry with capacity utilisation going down to 44,2% before slipping further down to 39,6% and 36,5% in 2013 and 2014 respectively. Capacity utilisation sank to 34, 3% in 2015 and is certain to go further down this year.
Constraints to capacity utilisation have remained the same since the advent of the multi-currency system in 2009: low aggregate demand; lack of capital; antiquated machinery and machine breakdowns; and competition from imports. The debt-crippled government is also struggling to address infrastructure bottlenecks as high costs of production continue to make local industry and its products uncompetitive. Utility costs contribute to making Zimbabwean exports uncompetitive.
Zimbabwe’s ranking in the Global Competitiveness Index (GCI) compiled by the World Economic Forum last year declined one place to 125th out of 140 countries. In the 2015/16 report, Zimbabwe is ranked 15 from the bottom — the lowest since 2012/13 when it was 12 places from bottom. The most serious barriers to doing business in Zimbabwe over the past three years include access to finance, which remains far and away the main problem, followed by policy instability and restrictive labour regulations. With an at least 45% overvalued exchange rate, Zimbabwe is finding it very difficult to halt the current decline and ensure recovery, especially given the make-up of its export portfolio at a time of depressed commodity prices.
The belief growth will be re-ignited by foreign direct investment, diaspora inflows and offshore credit lines alone is naïve. It is clear from the GCI report that the country needs far-reaching structural and institutional reforms, coupled with much higher levels of investment, especially in infrastructure, to get out of the deep economic crisis.