Online Reporter
AFTER years of trade deficits financed through foreign loans and aid payments and in more modern times by Diaspora remittances, Zimbabwe has suddenly moved into the bright sunlight of trade surpluses as we start exporting more
October last year, with its trade surplus of US$28,7 million, might have been just a one-off, and there have been the odd one over the years. But in November the trade surplus rose to US$90,5 million, the second month in a row.
These surpluses mean that in those two months the exporters raised the foreign currency that financed all imports, with some very useful change left over that will eventually end up in the reserves, which needs to be a build up to a minimum of six months import cover from the little over the month where they now stand.
But even so, going from zero reserves, the typical position for many years, to a stash that is there and growing every month from royalty taxes on minerals and now the more conventional routes is a remarkable achievement.
While Zimbabwe had been running a trade deficit, on the current account there has been a surplus for some time, that is more foreign currency flows in than flows out.
Besides export earnings, the inflows include diaspora payments, the number two source of foreign currency after exports, plus what flows in from development partners and in effect some of investors, who usually bring in machinery and equipment, although these have a cash value.
Under the Second Republic this has worked, with the practicalities largely reliant on moving private sector petroleum fuel imports from using foreign currency supplied by exporters through the banks to using diaspora funds, and sometimes money from those hands passes through a dozen hands before ending up on a forecourt.
The rest of the imports are funded by banks from export earnings.
As we move into more consistent trade surpluses and the reserves are built up, we will have reached the conditions laid down to continue moving towards a single currency.
Other conditions, such as low inflation and a stable exchange rate, have also been met.
It should be noted that all factors are related to each other and other Government financial and economic policies now being backed by the Reserve Bank of Zimbabwe.
It all started with the initial Second Republic determination for Zimbabwe to live within its means, so almost everything the Government spends has to come from taxes. That in turn made proper budgeting and accounting and getting value for money critical.
The sound fiscal policies made it possible for the Reserve Bank to start putting in sound monetary policies, principally stopping the creation of money from thin air.
So deep was that malaise that it took the bank and Government some time to track down all sources of unsound money creation, a lot of it in the private sector and among individuals preferring to speculate rather than put their undoubted talents to productive use. But eventually all taps were found and shut off.
Certain global events have helped Zimbabwe. The gold price at present is very high, a direct result of the turmoil in tariffs and fiscal policy set by the United States, the world’s largest economy with some worried that monetary policy could also become a political football.
Many want to invest in the shelter of gold, or expand their golden shelter, and so driving up prices. Zimbabwe, by fixing its own local buying system was able to end unofficial exports of gold and direct gold sales to best advantage.
At the moment almost half the value of our exports are gold and volumes are expected to rise further next year.
The high percentage of values will not last, as other exports are being pushed and regardless of how gold prices might still rise, fast growth in a wide range of exports will amount to more. But meanwhile we can use gold to drive the economy.
Another factor coming into play to back the widening range of exports, at present basically minerals and agriculture although industry is expected to take a far greater role, is the fall in imports.
October and November had very similar value for exports, but in November the import bill crashed.
Some of this might have been a one-off adjustment as companies stopped panicking so much over exchange rates, but a good chunk would have been because of the welcome new industrial base helping to meet local demand.
That would be a slice off the exports, rather than the dead-end of building up a total import substitution industrial bases, which does not really work.
