HomeOpinionEffects of SA unrest on Zim economy

Effects of SA unrest on Zim economy

SOUTH Africa has been hit by bloody violence, destruction of property and looting which ripped several parts of the country last week. Violence erupted following former South African president Jacob Zuma’s incarceration over contempt of court charges.

Alice Chenjerai
ECONOMIST

Zuma has started serving a 15 month jail term. The wave of violence and looting swamped KwaZulu-Natal and Gauteng — the two provinces that account for over half South Africa’s Gross Domestic Product (GDP). South Africans as well as Zimbabweans counted the cost last Thursday of arson and looting that has destroyed hundreds of businesses and killed more than 200 people.

The riots come at a time when Zimbabwe’s economy is already struggling with the third Covid-19 wave which has forced business operating hours to be reduced under Level 4 lockdown.

The economic fortunes of Zimbabwe are tied to those of South Africa as it is our biggest trading partner and contributes a huge source of diaspora remittances. Durban is a trade transit point for Zimbabwe. The economy is largely dependent on the South African economy, with most of the food imports in local supermarkets being South African products.

According to the Confederation of Zimbabwe Industries (CZI), manufacturers source nearly 60% of their raw materials from South Africa as the country’s manufacturing sector is operating below capacity. Therefore, the unrest have a serious negative impact on Zimbabwe’s economy.

Disruption of routes and torching of trucks into Zimbabwe have affected the movement of goods between the two countries. Retailers in Zimbabwe say they are feeling the pinch of the social unrest in South Africa as they are yet to receive goods already paid for from the neighbouring country.

The ransacking of shops has left food and other essentials in short supply and the closure of many petrol stations has hit transport supply lines. This will have a negative impact on the Zimbabwean economy by way of triggering shortages of basic commodities and critical raw materials as South Africa tend to be Zimbabwe’s biggest supplier.

Scarcity of commodities will result in too much money chasing few goods resulting in price hikes and increased poverty. As prices will be increasing real household incomes will decline. According to the Zimbabwe National Chamber of Commerce (ZNCC) the country will lose up to US$25 million.

South Africa is also home to over two million Zimbabwean immigrant workers and economic refugees. Businesses were affected which led to job losses which will affect immigrant workers from Zimbabwe. The result will be a drop in diaspora remittances to Zimbabwe. Remittances are crucial for a country as they can reduce the depth and severity of poverty in developing countries.

They are also associated with increased household spending on health, education and small business. Indeed for many struggling families in the country remittances can be used for basic needs such as food, sanitation and clothing.

These economic activities have a direct effect on poverty reduction in low–income households living below or near the poverty datum line (PDL). However, the reduction in remittances will also reduce the culture of dependency in the country which has the tendency of lowering labour force participation, promoting conspicuous consumption and slowing economic growth.

The US$100 million monthly industry requirement of foreign currency required in the country will also tend to be affected by the reduction in remittances.

An increase in production costs will in turn hit the local production industries as a result of disruption in accessing cheap raw materials from South Africa. This is because the price of supplies has a direct effect on how much it costs the company to produce a product.

A higher cost of raw materials will lead to a higher cost of production and reduced profits. The cost of production and the desired profit equal the price a firm will set for product therefore an increase in production costs will also cause hikes in prices as producers are trying to cover costs. Increase in price will also mean the quantity demanded will go down reducing the profits of businesses.

High costs will also make exports more expensive hence reducing the country’s competitiveness on the world markets.

Port infrastructure quality, logistics performance and sea-borne trade of a country have a significant impact on the economy of a country. Some studies also show that every 10% increase in port throughput can generate a spillover effect on neighbouring regions of increasing Gross Domestic Product up to 18%.

However, in the context of South Africa a decrease in port through-put has a negative impact on Zimbabwe. This is because the social unrests have disrupted the port infrastructure quality and logistics performance in Durban which is a trade transit point for Zimbabwe.

The Zimbabwean economy is dependent on  South Africa for most of its production inputs, therefore, the recovery processes of the many economic agents in Zimbabwe that were affected by the social unrests in South Africa will to a greater extent depend on the recovery process of the South African economy.

Chenjerai is an economist by training. She is interested in policy analysis and in-depth knowledge and understanding of macroeconomics and development economics. She also has project planning experience and she writes in her personal capacity. She can be contacted on +263 775145046,Email:alicechenjerai0@gmai.com.

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