The Reserve Bank of Zimbabwe this week announced that exports for the quarter ending June dipped 8.3 percent to US$860 million while imports headed north. According to latest figures released by the central bank, the country’s trade balance widened from a deficit of US$165.9 million registered in Q1 to a deficit of US$450.7 million in the second quarter.
According to the central bank, the country’s import bill was mainly composed of diesel, unleaded petrol, crude soya bean oil, medicines, Jet A1, electricity, road tractors among others. Notably diesel and petrol imports constituted nearly 30.4 percent against a backdrop of crippling power cuts that have forced both domestic and industrial consumers to rely on alternative sources of energy.
For a net importer like Zimbabwe, this is not a good picture. Government has already admitted that the economy will contract by up to 6.5 percent but we are of the view that it could shrink by 8.3 percent. The economy is now in hyperinflation and signs of macroeconomic stability appear remote. In fact government is now resorting to command economy pronouncements to regulate the markets and this has yielded desired results.
Retailers are now using forward pricing strategy where they look at replacement costs instead of current costs to maintain their stock levels and continue to trade, for now.
Gold production has been spiralling downwards as artisanal miners ditch state-owned Fidelity Refineries and Printers for side marketers offering hard currency. The central bank reduced forex retention for gold producers to 55 percent, a measure that gave birth to a flourishing parallel market.
The country’s gold deliveries dropped by 19 percent to 2.80 tonnes during the month of September from 3.47 tonnes during the same period last year, dashing any hope of meeting the annual target of 40 tonnes. As at September gold deliveries to Fidelity stood at 20.6 tonnes and the onset of the rainy season will slow down mining activity particularly for small scale producers who use rudimentary and risky methods to extract the precious metal.
Apart from the unfavourable pricing model, crippling power cuts, inefficient mining and processing technologies, smuggling and fuel shortages have affected bullion output.
The yellow metal last year overtook tobacco as the country’s single largest foreign exchange earner contributing 38 percent of forex earnings and more than 60 percent of the mining sector’s receipts.
The manufacturing sector on the other hand is operating below 50 percent capacity, implying that Zimbabwe is now relying on imports to meet domestic consumption.
Latest statistics from the country’s statistical agency indicate that Zimbabwe recorded a trade deficit of $605 million between February and July this year, down 62 percent compared to the same period last year.
According to the Zimbabwe Statistics Agency (ZimStat) between February and July, the country exported goods and services worth $2.4 billion against imports of $1.8 billion. During the same period last year, imports stood at $3.54 billion and exports at $1.58 billion.
What is worrisome though is that exports were down 8 percent during the period under review, a situation that has a huge impact on the country’s balance of payment. Growing exports and boosting domestic output is one of the cocktail of measures that spur growth of the domestic economy which is currently facing serious headwinds.
Attracting foreign direct investments should be another key priority. FDI follows improvements in the ease of doing business in the economy. It has been observed that Zimbabwe’s investment attractiveness has somewhat declined over the year, largely due to monetary instability.
On the part of government, this is sweet news given that this development indirectly favours demand for local products which do not require foreign currency. We have consistently said stimulating domestic production is one of the key pillars of stimulating economic growth but this is only sustainable in an environment where policy is consistent and fresh capital is attracted.
We also contend that the drop in imports is attributable to various factors which include foreign currency shortages, smuggling and the new currency framework. In February, the Reserve Bank of Zimbabwe effectively introduced the local currency when it announced it had scrapped the parity policy of the domestic currency with the United States dollar.
The floating of the local currency was driven by movements on the parallel market as well as foreign exchange shortages in the informal sector. The central bank, by floating the Zimbabwe dollar, admitted that it had failed to meet the demands of a priority list of importers. If anything, the list kept on growing since Zimbabwe is a net importer.
Rising inflation since the start of the year also resulted in many Zimbabweans travelling to neighbouring countries like South Africa, Botswana, Zambia and Mozambique to buy basic commodities. Goods worth millions of dollars could have been smuggled into the country due to the porous state of our ports of entry and corruption. Resultantly, import figures released by ZimStat may not be accurate.
The introduction of the mono-currency system in June also had an impact on the country’s import bill. This major policy shift has resulted in the scarcity of foreign currency as seen by fuel shortages and difficulties in paying arrears owed to regional power utilities.