Breaking News

Zimbabwe: The tale of an economy plagued by a chronic trade deficit

by Perry Munzwembiri
12 February 2013 | 3252 Views

The basic fundamentals of economics dictate that one consumes what they produce. Zimbabwe however, has been an exception to this basic principle since the turn of the new millennium. Persistent Current Account deficits have left the country with a series of negative Balance of Payments positions. According to ZimStats, for the period January to December 2012, including Insurance and freight charges, Zimbabwe's total exports totalled US$3, 884 million against a backdrop of US$7, 484 million worth of imports. This has left the country with a chronic Balance of Payments position of US$3,600 million, which is unsustainable as the country effectively, is living beyond its means.

With capacity utilisation in local industries remaining subdued, on the back of liquidity constraints, obsolete machinery and poor supply of basic utilities like electricity and water, this trend is likely to continue unless drastic measures are taken. Non concessional debt flows and diaspora remittances have been financing Zimbabwe's ever increasing trade deficits, but questions arise as to their sustainability going forward. It would appear that the most logical step to redress this anomaly would be to promote Foreign Direct Investment and Portfolio Investment, both of which are examples of Non-debt creating flows. However this has not been possible as foreign investors have been reluctant to invest in the country due to the uncertain political climate as well as some inauspicious policies pursued by the country, which have dented investor sentiment.

Various analysts concur that whichever way the pendulum swings, with regard s to the outcome in the forthcoming elections; the economic environment will be expected to improve, as focus will be shifted to addressing the attendant economic problems that have perennially plagued the economy.  The argument, is that the government of the day will have to focus more on progressive economic policy development and implementation, as other issues that have dominated the political landscape in the past, like the Land redistribution exercise and more recently, the indigenisation policy, have all but been done with, albeit contentiously so. The resultant effect is that, with all resources being channelled towards constructive policy formulation, economic growth is likely to be stimulated, thus there is a cautiously optimistic outlook on the country's future prospects post the national elections.

To dig ourselves out of our present predicament, focus has to be placed on reducing the country's overreliance on imports of mainly finished goods, and boost the country's exports. Presently, the easiest way to do so is through the mining sector. It is estimated that the mining sector is set to grow by 17%, and contribute at least 67% of the economy's total exports in 2013, far surpassing the agricultural and mining sector's contribution to exports. Furthermore, with firming prices of the country's main mineral exports (Gold and Platinum) spurred on by signs of nascent recovery in the global economy, and as in the case of platinum, rising demand in the auto industry , dominated by China, the mining sector is thus crucial in rectifying the country's negative Balance of Payments position.

As the mining industry performance begins to gain traction, there is likely going to be positive spin-offs which will trickle down to the rest of the other sectors. Increased levels of liquidity will potentially reduce the cost of borrowing which will in turn contribute to an increase in local demand for Zimbabwe's manufacturing output. This however is not the most ideal way to tackle the problem of our economy's Current account deficit. Often, the volatility in commodity prices leads to severe shocks in an economy, and Zimbabwe can ill afford such shocks as it does not have sufficient buffers to withstand these economic shocks.  It is imperative therefore, for Zimbabwe's sustainable economic growth to be hinged upon vibrant performance by all of the country's sectors to ensure that external shocks do in one sector do not cripple the entire economy.




Lines of credit are essential to any economy as they augment funding deficits in an economy. Zimbabwe has however been starved of the much needed funding, thereby undermining any prospects for economic recovery. With conservative estimates pegging the national unemployment rate somewhere in the region of 80%, this implies that the informal sector has taken a more substantial role in the country's economic activity. Yet, this shortage of credit lines from multilateral institutions will stifle economic activity in this sector, and ultimately lead to a decline in economic welfare for the vast number of Zimbabweans without formal employment. An active informal sector can contribute immensely to an economy's export base as can be seen in Kenya, thus more attention should be directed at shoring up this sector, especially at a time when the mainstream industries are not operating at full capacity. Policies that attract and retain foreign lines of credit, as well as dispel the actual or perceived risk Zimbabwe has, must be pursued.

Though notable gains have been witnessed in the economy, following the adoption of the multicurrency system, Zimbabwe's perilous external position will reverse those gains if not addressed. It is simply not sustainable for us a nation to have an import bill which is disproportionately larger than our exports. With the elections fast approaching, the elected government should focus on reviving our manufacturing industry, currently in comatose. As our manufacturing industry mends, complimented by the agricultural and mining sectors, Zimbabwe will be in line to establish itself as one of the powerhouse economies in Sub-Saharan Africa.

economy


Disclaimer:
All articles and letters published on Bulawayo24 have been independently written by members of Bulawayo24's community. The views of users published on Bulawayo24 are therefore their own and do not necessarily represent the views of Bulawayo24. Bulawayo24 editors also reserve the right to edit or delete any and all comments received.

Source: Perry Munzwembiri

Could there be war if Grace Mugabe becomes President?

Yes
74.2%
No
9.13%
Who cares?
16.67%
624

Comments

Latest Classifieds (Click Here For More)

News Updates

Email:

Latest News

Mugabe wants to quit says Zambia's new president

by Staff Reporter | 31 October 2014 | 2504 Views

Pastor caught engaging bonking policeman's wife in a car - Married Met...

by Staff reporter | 31 October 2014 | 2514 Views

Reasons why Grace Mugabe attacked Joice Mujuru - Ongoing attempts to e...

by Staff reporter | 31 October 2014 | 2779 Views

Mujuru camp hits back - The Zanu-PF Secretary for Information and Publ...

by Staff reporter | 31 October 2014 | 2910 Views

Thomas Mapfumo not dead - The social media was abuzz on Friday with ...

by Staff Reporter | 31 October 2014 | 2202 Views

Jabulani Sibanda's bedroom coup jab at Mugabe haunts him - The founder...

by Staff reporter | 31 October 2014 | 1469 Views

Sibanda bedroom coup jab at Mugabe was more potent than Ali's left hoo...

by Wilbert Mukori | 31 October 2014 | 4115 Views

Rude awakening for judge aspirant - A former High Court Registrar and ...

by Staff reporter | 31 October 2014 | 2471 Views

Mugabe and friends need to know we will change history narrative - Th...

by Shingai Mugochi | 31 October 2014 | 2832 Views

Gideon Gono to takeover re-branded Zanu-PF?

by Nancy Mabaya | 31 October 2014 | 4261 Views

Inside Mugabe's sealed succession envelope: Fear, self assassinations ...

by Dinizulu Mbikokayise Macaphulana | 31 October 2014 | 3923 Views

When even the gullible can no longer be fooled - The west has once mor...

by Tafara Shumba | 31 October 2014 | 1000 Views

Tsvangirai's wife refuses to be called Dr Macheka - Morgan Tsvangirai'...

by Staff reporter | 31 October 2014 | 6922 Views

Image battered Tsvangirai faces the daunting task of reuniting the par...

by Prince Tongogara | 31 October 2014 | 1870 Views

MDC-T Congress - Live updates - Below are live updates of the Morgan ...

by Staff reporter | 31 October 2014 | 3890 Views

Senzo Meyiwa suspect arrested at Beitbridge border post - A suspect in...

by City Press | 31 October 2014 | 5301 Views

'Mugabe strong armed by the Chinese to support Mnangagwa': Report - T...

by Staff Reporter | 31 October 2014 | 6482 Views

Mujuru's lawyers speak out - Musunga and Associates law firm said it c...

by Staff reporter | 31 October 2014 | 5620 Views

Woman drags young sister to court for sleeping with her hubby

by Staff reporter | 31 October 2014 | 4312 Views

Man commits suicide after girlfriends clash at his place

by Court Reporter | 31 October 2014 | 3951 Views

Mujuru on the ropes as Mugabe says Grace has right to be in politics -...

by Staff reporter | 31 October 2014 | 2681 Views

Mujuru, Mnangagwa to be probed - President Robert Mugabe will soon set...

by Staff reporter | 31 October 2014 | 4348 Views

Thousands demand Mujuru's resignation - Scores of Zanu-PF supporters y...

by Staff reporter | 31 October 2014 | 2213 Views

Zanu PF divisions reach boiling point, Gwanetsa fired

by Staff Reporter | 31 October 2014 | 2898 Views

Entertainment

Our hands are clean, says DJ Munya

by Court reporter | 31 October 2014 | 2358 Views

Oliver Mtukudzi to get 'real' PhD - ICONIC musician Oliver Mtukudzi is...

by Staff reporte | 30 October 2014 | 3091 Views

Zimbabwe's JJ survives Big Brother Africa eviction... again - Zimbabw...

by Staff reporter | 27 October 2014 | 2210 Views

Carl Joshua Ncube to star in game show - Comedian Carl Joshua Ncube wi...

by Staff reporter | 23 October 2014 | 1637 Views

LadyBee Anondida - Official video

by Staff Reporter | 23 October 2014 | 4326 Views

Zim representative in the Big Brother Africa survives eviction - Zimba...

by Staff reporter | 20 October 2014 | 3576 Views
iBlog

Positions To Make Female Orgasm Easier During Intercourse

some women are fortunate enough to be able to climax easily, and in almost any sexual position. the majority of women though, sometimes find it difficult to orgasm especially when they are with a partner. sometimes this difficulty is just a result ... Read More
adoniadennis 12 May 2014 ago

Protect Your Greatest Small Business Asset: Time

if your work week is way more than 40 hours, your smartphone is glued to your hand, and your to-do list is multiple pages of overdue tasks—you know how valuable every minute of your time is.your smartphone and tablet make doing business from anyw... Read More
Sergey 05 September 2014 ago