ZIMBABWE’S net trade position reverted to negative in February 2020 after four straight months of positive performance. At -US$91 million, February’s net trade deficit was the worst in eight months. In recent months, Zimbabwe’s trade position has improved owing to a sharper slowdown in imports relative to exports.
The generally firming trade balance is as a result of default import suppression brought about by the Zimbabwean dollar (Zimdollar)’s depreciation since liberalisation. Purchasing power has drastically been eroded thus reducing the demand for imports. Likewise, the government has forgone a number of subsidies on select imports which has impacted affordability and demand. A shrinking national purse in real terms, given the Zimdollar’s depreciation, has also forced the government to tame back its own demand, thereby dragging overall imports.
On average, Zimbabwe has recorded an annual trade deficit level of -US$2 billion between 2009 and 2018. In 2019, the country achieved its most improved trade position since dollarisation at -US$0,5 billion. Generally, a more improved trade balance position shows an economy which is either growing exports at a faster rate to imports or an economy suppressing imports, holding exports stable. In the case of Zimbabwe, imports have sharply declined, not on substitution but demand suppression, while exports have largely been tepid on reduced mineral production.
In 2020, Equity Axis projects that the net trade position will come in at a worse level compared to 2019 but lower than 2018, driven by further depreciation in currency. Covid-19 will chop either the import and export ability of the country, but we see high value loss in exports. For a historical perspective, since 2000, Zimbabwe has reported successive annual trade deficits, to date. In 2017, Zimbabwe recorded the most improved trade position while 2011 was the worst year as the deficit level widened to -US$5 billion. The perennial deficit in trade shows an economy with less competitive exporting power relative to the region which is partially a result of operating with a firmer US dollar currency over the last 10 years. Likewise, local production has failed to pick up with capacity utilisation reported to have slowed down to below 35% as most equipment is now antiquated.
Consequently, production has generally been low while imports have grossly permeated the market. The status quo has been exacerbated by structurally high operating costs and obsolete production technology. Given recent hard currency shortages, industry has been forced to rethink business models with a view to shifting towards regional markets.
Most of the policy support measures introduced to date to support exports and curtail imports are however stop-gap and unsustainable, implying they cannot broadly address issues of competitiveness sustainably. Fundamental considerations such as optimal utility costs, fiscal consolidation, efficient production processes and fully liberalised exchange rates are key in addressing the local supply side concerns on a sustainable basis.
Gold exports have remained under pressure given side marketing and disruptions in the sector caused by power outages and economic instability on the retention system.
An abrupt de-dollarisation of the economy and extensive power cuts had an impact of driving net exports lower in the first half period of the year. The bias towards mineral exports is likely to prevail at least into the foreseeable future due to Zimbabwe’s economic structure and lack of diverse productive and competitive base. Undiversified economic structures significantly biased towards commodities are more vulnerable to cyclical vagaries and risks such as commodity cycles which may cause severe recession. The oil bout in recent years has slowed growth in most Arab countries, and closer home in Nigeria and Angola, the economies have receded in response to the weaker oil prices. Copper-reliant Zambia and the Democratic Republic of Congo have likewise showed signs of economic stress.
Although the government’s efforts to promote increased mineral exports are appreciated, value chains should be leveraged on, to spur economic growth and promote diversity. All of Zimbabwe’s top 10 exports products by value are commodities.
Gwenzi is a financial analyst and managing director of Equity Axis, a financial media firm offering business intelligence, economic and equity research. — firstname.lastname@example.org