Zimbabwe: The tale of an economy plagued by a chronic trade deficit
2013 February 12 22:19:52 | 2264 Views
- Ingabe ikuphatheleni i-MDC, njalo kusizani ukuyivotela? | 2013 May 13 17:03:55 | 3020 views
- Ikuphatheleni iMDC, kusiza ngani ukuyivotela? | 2013 May 08 19:28:47 | 2836 views
- MDC-T on course | 2013 March 27 14:05:12 | 6731 views
- People will vote for a party with sustainable economic programmes | 2013 March 04 02:36:52 | 7516 views
- Introducing: Election (2013) campaign articles | 2013 March 02 11:08:41 | 6094 views
- Why the Zimbabwean economy has been growing faster than Hong Kong | 2013 April 03 13:48:20
- Domboshava adversely affected by poor roads | 2013 April 01 21:37:45
- Local authorities to be surveyed | 2013 April 01 21:37:45
- Government wants informal sector to contribute in taxes | 2013 March 31 17:49:37
- Zim economy has potential to reach Singapore size by 2050 | 2013 March 22 11:39:42
- Prophet Uebert Angel upsets T.B Joshua's followers | 2013 February 24 10:20:20 | 41095 views
- Prophet T.B. Joshua's prophecies for 2013 | 2013 January 01 12:26:15 | 21383 views
- Obama's wife is a Zimbabwean! | 2013 April 01 12:51:57 | 20659 views
- 'If anyone was defending Nkomo, it was I. I was the last to leave Zapu,' says Mugabe | 2013 February 19 15:02:19 | 11270 views
- Mpofu and SK Moyo up for Presidency | 2013 January 17 16:37:36 | 11109 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.
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
Business reporter | 2013 May 22 | 3 Views
Own correspondent | 2013 May 22 | 218 Views
Staff reporter | 2013 May 22 | 1590 Views
Joshua Mhambi | 2013 May 22 | 1382 Views
Staff reporter | 2013 May 22 | 2661 Views
Staff reporter | 2013 May 22 | 1629 Views
Staff reporter | 2013 May 22 | 1626 Views
Staff reporter | 2013 May 22 | 3075 Views
Staff reporter | 2013 May 22 | 1015 Views
Staff reporter | 2013 May 22 | 2275 Views
Business reporter | 2013 May 22 | 2530 Views
Staff reporter | 2013 May 22 | 1680 Views
Staff reporter | 2013 May 22 | 4002 Views
Business reporter | 2013 May 22 | 1097 Views
Ben Chiganze | 2013 May 22 | 1733 Views
Staff reporter | 2013 May 22 | 1677 Views
Staff reporter | 2013 May 22 | 1104 Views
Staff reporter | 2013 May 22 | 2002 Views
Staff reporter | 2013 May 22 | 1090 Views
Prosper Ndlovu | 2013 May 22 | 1234 Views
Staff reporter | 2013 May 22 | 1516 Views
Court Reporter | 2013 May 22 | 2157 Views
Charles Laiton | 2013 May 22 | 1925 Views
Jairos Saunyama | 2013 May 22 | 1213 Views
Blessing Ivan Vava | 2013 May 21 | 1351 Views
Staff reporter | 2013 May 21 | 4024 Views
Moyo Roy | 2013 May 20 | 4938 Views
TMZ | 2013 May 20 | 2132 Views
Emmanuel Ndlovu | 2013 May 18 | 2152 Views
Arts reporter | 2013 May 17 | 2086 Views
Entertainment Correspondent | 2013 May 17 | 2868 Views
Moyo Roy | 2013 May 16 | 2282 Views
Vasco Shaya | 2013 May 16 | 4268 Views