Respect Gwenzi EXTERNAL factors driving the recent trends in trade
Zimbabwe set to achieve both record highs in exports and imports
Balance of payments to emerge positive
In June 2022, Zimbabwe imported merchandise worth US$751 million up 5% from US$716 million recorded in May 2022, latest Zimstat statistics show.
On a year-on-year (YoY) basis, merchandise imports mounted by 21% from US$622 million realised in June 2021.
In the same month (June 2022), merchandise exports came in at US$667 million up 30% from US$513 million achieved in May.
On a YoY basis, imports went up by 32% in June from US$361,1 million achieved in May 2021. Overall, June trade balance came in at -US$84 million which is a significant improvement from — US$203 million achieved in May, thanks to a record high export performance.
On a cumulative basis, exports for the year totalled US$3,3 billion, which compares to imports of US$4 billion, reflecting a — US$0,7 billion trade deficit.
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In isolation, the year to date export performance reflect the best performance in the history of Zimbabwe.
The surge in export earnings is largely reflective of the strengthening commodities prices such as gold, nickel, chrome and the platinum group of metals.
Likewise, firm international prices have motivated local producers to ramp up production, which for most minerals reflects record high levels.
For example gold produced over the first six months of the year totalled 16 tonnes, which is 59% up from the same period last year.
At this pace, gold production by full year will become an all-time high.
Year to date, gold has raked in US$1 billion in receipts, a figure which has historically been achieved in a full year’s time.
However, in 2021, full year receipts reached US$1,6 billion, driven by strong bullion prices.
Metals prices are being driven by strong demand in the aftermath of Covid-19.
Gold, an asset typically preferred for risk aversion has seen prices remain strong due to global uncertainties following the invasion of Ukraine by Russia.
Traditional export drivers, such as tobacco have seen contributions remaining stable, but some, such as chrome and PGMs have realised strong growths.
Government, which for a long time, has sought to stimulate exports, has been incentivising exporters by allowing full retention of export funds on incremental exports for those listed on the VFEX and a substantial portion of the increment for any other exporters.
These initiatives have stimulated production and export receipts. On the imports side, the cumulative year to date performance, projects the worst outturn by full year.
It is likely that imports value will swell to US$8 billion by December 2022, marking a record high.
The worse off outturn is a function of surging food prices globally given the Russia- Ukraine war.
The two players are major food suppliers globally and supply has been dampened since the invasion.
Further, fuel prices have skyrocketed as Russia a major global supplier drags in war, driving Zimbabwe’s import bill ballistic.
The country is a fuel importer and also relies on imports for soya bean, maize among other commodities.
From the chart above, data shows that the net trade gap enjoyed its most improved performance in 2019 and 2020 as imports largely came off, while exports enjoyed a steady growth.
However, in 2021 the net performance worsened, coming in at levels closer to dollarisation averages. Imports of rice, Covid-19 medicines and soya beans were some of the biggest movers in driving the net outturn upwards.
The current year’s outturn is likely to be worse off, driven by somersaulting prices for fuel and spiking food prices. These inflationary headwinds will drag global growth in the current year and push some economies into recession.
Zimbabwe’s inflationary outturn is fast spiralling into hyperinflation, a development which will curtail projected growth by almost half, according to our projections.
Overall what the trade data shows is that there has been a proportionate growth from both exports and imports. The growth in exports is partially driven by volumes and in part, price recovery.
Sustaining the current run rate for exports will be difficult going forward as global supply chains restabilise and revert to normalcy.
Likewise, gold prices may fail to maintain the current high levels if uncertainty comes off and the global economic recovery strengthens.
The strong performance in gold is also a function of stability within the local economy. Some policies have a potential of disrupting deliveries and these feed from or into the disparity between the official and the informal exchange rates.
The best chances of narrowing the trade deficit is by focussing on food production and this means attending to the overall value chain from field to the retail shelf.
Zimbabwe still has to address the issue of land ownership, which will answer questions, such as funding and skills onboarding.
Overall, a positive Balance of Payments is likely to be achieved in the current year anchored on surging remittances.
This will mean that Zimbabwe’s forex inflows will be higher than its outflows in a year and all things being equal, a more stable local currency is achievable.
The excess of government has been in financing projects using hot money in a very fragile environment.
- Gwenzi is a financial analyst and MD of Equity Axis, a financial media firm offering business intelligence, economic and equity research. — [email protected]
