IN November 2016, record tobacco sales saw exports rise to the highest level since January 2016, in turn reducing the trade gap to a marginal US$13,4 million.
Financial Matters with Shingai Moyo
November’s trade gap was the narrowest since April 2015 and this effectively means the country preserved or compensated most of its imports by increasing exports, helping stabilise the external trade position.
It is worth noting, however, that the November sharp decrease in deficit is seasonal as this has been the trend since 2013 due to improved tobacco sales. In the just ending season, tobacco exports shot up to 156,7 tonnes and are expected to remain a key export driver in the upcoming selling season.
Total exports, in turn, grew by 45% which is the fastest growth since January 2015. From August 2016, exports have been growing on a month-on-month basis driven by gold and tobacco sales. The cumulative trade deficit, however, remained wide at US$2,2 billion. Cumulative exports of US$2,18bn against cumulative imports of US$4,72bn helped shape the deficit. Generally, imports growth slowed in November coming in at 1% to US$474m. Despite the slowdown in import growth, November imports were the second highest since January 2016.
Exports for the month of November grew by a staggering 43% to US$248,6m driven by a surge in tobacco exports.
Tobacco was the top export commodity for the month. It is imperative to note that the exports of the golden leaf surpassed overall exports per month between February 2016 and August 2016. The outturn was the highest for the commodity since 2009. Over the 11 months the cumulative figure for tobacco fared below gold despite bullion coming in at half of tobacco’s value. Effectively gold remains the country’s top export commodity closely tailed by tobacco. Other top commodities exported in the month of November included nickel, chrome and diamonds. Imports continued to rise albeit at a slower rate. Total imports came in at US$474m which is a marginal 1% growth over the prior month. This may be a result of payment gridlocks due to import prioritisation and liquidity challenges. Energy imports maintained their historical dominance with diesel imports increasing by 12% on a month on month, petrol was stable while electricity imports grew by 11%. Maize maintained its appearance among the top imported products despite a decrease in the commodity’s share of total imports. Maize imports of US$24m represented a 11% decline over the previous month.
Overall, the trade deficit has likely closed the year at around US$2,3bn against a historical average of US$2,5bn since dollarisation. A growth in tobacco and gold exports in the second half of 2016 has helped narrow the gap. Effectively this implies a forex preservation on the net as the country retains a fraction of its earned forex via exports. Increased planting under irrigation and government’s focus on maize production will reduce food imports thereby improving the balance of payments position.
It is imperative for the country to speed up implementation of the import substitution initiatives especially of critical products such as energy. The country should move promptly to increase its power generating capacity at existing plants while also fully expediting alternative sources such as solar. It is also critical to have a relook at ethanol with a view to increasing its substitution. Maize imports may be possibly wiped off this year as the country expects improved harvests on the back of favourable rains and government’s heavy investment in the maize sector. On the export side, the RBZ and other banks deserve to be commended for their various support mechanisms which are helping in driving tobacco and gold production.
Weak but improving gold prices in 2017 may however impact the net proceeds. Other commodities such as nickel may receive a boost from the US pledge to spend on infrastructure and supply shocks in key producers Indonesia and the Philippines. This may result in slight improvement in realised foreign currency earnings. However, there is a need to substitute imports of consumptive goods through increased local production to reduce pressure on the scarce forex and help rebalance the external position.
Moyo is an economic consultant.