Breaking News

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

by Perry Munzwembiri
12 February 2013 | 2481 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

Comments

News Updates via Email

Email:

News Updates via WhatsApp

Latest News

Chinyoka now a legal nuisance - A UK based Zimbabwean lawyer and gover...

by Tafara Shumba | 11 February 2016 | 582 Views

Government is prepared for the natural disaster - Watching Vice Presid...

by Rufaro Mufundirwa | 11 February 2016 | 683 Views

UK-based Zimbo quits job to 'sing for God' - A UK-based Zimbabwean pro...

by Xolisani Nyathi | 11 February 2016 | 1172 Views

Sex worker screams rape as married man fails to pay for services - A M...

by Melody Baya | 11 February 2016 | 1941 Views

Chief Sibasa's methods irritate parents - CHIEF Sibasa's popularity ra...

by Kamangeni Phiri | 11 February 2016 | 1157 Views

RBZ making all the right noises but… - The Reserve Bank of Zimbabwe ...

by Vince Musewe | 11 February 2016 | 553 Views

Tsvangirai invades Masvingo - MDC-T leader Morgan Tsvangirai is in M...

by Staff Reporter | 11 February 2016 | 1053 Views

Private school likely to increase fees - PRIVATE schools could be forc...

by Auxilia Katongomara | 11 February 2016 | 1938 Views

Church members nabbed for digs up grave in-search of 'riches'

by Walter Mswazie | 11 February 2016 | 1912 Views

Magaya summoned over 11 deaths

by Patrick Chitumba | 11 February 2016 | 2158 Views

Zanu-PF politburo bans social media abuse

by Tendai Mugabe and Felex Share | 11 February 2016 | 2420 Views

Mugabe breathes fire, blast Zanu-PF bigwigs

by Felex Share | 11 February 2016 | 3715 Views

'Did Mugabe assign Charamba to warn successionists?' - Mahoka - Zanu-P...

by Staff Reporter | 11 February 2016 | 2074 Views

Zimbabwe average dam levels at 51% - Upper Ncema is almost dry

by Staff Reporter | 11 February 2016 | 726 Views

Zimra warns clients to update their records

by Stephen Jakes | 11 February 2016 | 1100 Views

Mayor's attempt to defend Banda a desperate ploy

by Stephen Jakes | 11 February 2016 | 1072 Views

Residents unhappy over lack of development in Mandara - Mandara reside...

by Stephen Jakes | 11 February 2016 | 704 Views

NCA concerned over police on Tomana's arrest

by Stephen Jakes | 11 February 2016 | 1207 Views

Chinamasa hails introduction of tax management system

by Stephen Jakes | 11 February 2016 | 903 Views

Zim opposition stuck in self destruction

by Stephen Jakes | 11 February 2016 | 812 Views

Kuwandzana residents go for close to a month with uncollected garbage

by Stephen Jakes | 11 February 2016 | 538 Views

Harare Residents appeal for more boreholes as water crisis escalates

by Stephen Jakes | 11 February 2016 | 460 Views

Government must address Gukurahundi issues- MP - Chitungwiza North MP ...

by Stephen Jakes | 11 February 2016 | 894 Views

Sexy ghost strips in the middle of the road causing accidents - A sexy...

by Staff Reporter | 11 February 2016 | 3185 Views

PDP secretary general Gorden Moyo involved in accident

by Stephen Jakes | 11 February 2016 | 1559 Views

Uebert Angel buys wife Lamborghini for Valentines

by Staff Reporter | 10 February 2016 | 4149 Views

Dokora must watch his steps - Mthwakazi Nation is really concerned abo...

by Siyabonga Ndiweni | 10 February 2016 | 2468 Views

Zanu propaganda can not decampaign ZAPU-Andrew Nyathi well done - The ...

by Sikhumbuzo Moyo | 10 February 2016 | 1272 Views

'Welshman Ncube running MDC like a spaza shop'

by Staff reporter | 10 February 2016 | 1903 Views

Mnangagwa on the ropes - After a week in which the political pendulum ...

by Staff reporter | 10 February 2016 | 4851 Views

Entertainment

Cont Mhlanga retires as wife takes over

by Bongani Ndlovu | 11 February 2016 | 1279 Views

Trevor Dongo's marriage collapses after 7 months

by Staff Reporter | 09 February 2016 | 5984 Views

1ns and 2s with DJ-Sticha - Business Advice for Aspiring Musicians

by DJ-Sticha | 08 February 2016 | 1237 Views

Double-decker bus blown up in London for 'The Foreigner'

by Staff Reporter | 07 February 2016 | 4433 Views

Every 12 hours a new artist is born into Zim's heavily contested gospel music industry

by Maxwell Teedzai Entertainment in Harare | 07 February 2016 | 1877 Views

Dog eat dog @ #NAMA2016 - THE sturdy list of nominees for the 15th edi...

by Prince Mushawevato | 07 February 2016 | 1200 Views

Bulawayo Music Awards appeal for support - The Bulawayo Music Awards h...

by Stephen Jakes | 05 February 2016 | 1428 Views
iBlog

Greatsoftline For All Of Your Software Needs

coupon and promo codes: greatsoftline for all of your software needswhile some online sellers have promotional services that reduce the overall amount you spent, others do not .you need to be on the lookout for the best outlets in order to chase th... Read More
ITnews 25 February 2015 ago

Hp Omen 15-5116tx – The Next Generation Gaming Laptop

the hp omen 15-5116tx is being targeted at the performance hungry gamers. it comes in a single variant boasting an eye-catching attractive design. the notebook offers a slim, lightweight chassis and appears like a piece of art than an actual gaming... Read More
Sergey 11 June 2015 ago