Online Reporter
AS Zimbabwe’s economy grows and the country moves towards upper middle income status, there also has to be a change in how we look at foreign currency and how we can earn what we need rather than try and cope with severe limitations that could hinder growth.
The ruling mantra for many decades has been to save foreign currency, and this saw industry being developed for import substitution, even if the savings on each item were small with a lot of raw materials and components being imported and often just final assembly or even just the packing done locally.
The Second Republic, while certainly wanting no waste, has tended to push harder for Zimbabwe to earn foreign currency as one of the major drivers of the economy, and to see a lot more value addition and local industry built on what our farmers and miners produce, with economic policies designed to help them produce a lot more.
This earning drive with its stress on adding value to exports is now producing results.
Rising exports in the first nine months of this year, added to the diaspora remittances and the other inflows from development assistance and investment, saw foreign currency receipts climb to US$12 million, 20 percent higher than the US$10 million in the first nine months.
While diaspora remittances and other inflows rose, these have less room for dramatic surges than rising export values.
The diaspora is limited by the number of Zimbabweans living outside the country, and the economies of the countries where they live.
While we can expect a little more each year, the percentage of foreign currency inflows being these remittances is likely to fall so long as we are pushing exports and trade.
Already we have seen that even with rising diaspora inflows, the percentage they form of total earnings has fallen from over 16 percent to just under 15 percent in one year.
This is a direct result of export earnings rising even faster as we learn how to process our raw materials before selling them, and how industrialists are at last seeing export markets as important.
The national budget last week provided the detailed instruments being used to push up the value of exports, with miners paying more taxes if they export ores or concentrates rather than the value-added products that external customers can simply accept at their factory gate to use with no further processing.
The export surge was not only driven by this increasing value and volumes, but also by rising prices for many minerals after a global slowdown reversed.
But we also need to recognise that as we add value, the fluctuations in price become a lot less severe as more and more of an export shipment is made up of Zimbabwean processing costs. We see this in the prices charged for petrol and diesel. While there can be quite dramatic swings in crude oil prices, much of what we pay for our fuel is made up of refining costs and transport, and these tend to be fixed price rather than following the swings at the well heads.
Similar costing models in our exports will tend to help proof use against the wilder swings in global markets. So the Government policy of pushing value addition for exports is not only important as we earn more from exports, but also makes those earnings far more predictable.
The extra inflows led by exports in the first nine months drove the current account surplus to US$961 million in the first nine months and this is likely to reach US$1,3 billion by year end.
The current account measures the inflows and outflows of foreign currency and when there are surpluses we see inflows greater than outflows.
The Second Republic saw from the beginning a positive current account surplus, with this growing each year, as the most effective way to end forex shortages and the resulting foreign currency manipulations, and instead move into a far more stable environment.
This has worked. Even when imports had to rise last year as the private sector millers imported most of their maize, the healthy current account meant that the millers could pay for imports.
This surplus makes foreign currency shortages a non-excuse for pushing economic growth, the limiting factor being the amount of money available to buy that currency rather than the amount of currency itself.
That is a whole new ball game.
Another very positive factor in export earnings is that merchandise exports reached US$7 billion up to September, again as a sign of the growing strength of the economy.
This push on exports is not just changing the basis of our growth from saving forex to earning forex, it is also creating a new industrial base that is far more secure and far more rooted in the real world than that created by trying to micromanage the economy through foreign currency allocations regardless of markets.
The new industrial base is producing goods that compete against imports on value and quality while using that same value and quality to secure export markets, as everyone wants to buy high-quality products at a reasonable price.
This stress of our industrialists on quality and price is what will win us new markets across Africa as the African Continental Free Trade Area comes ever more into force.
We will need to be competitive to win the orders, and making the right products from our own raw materials seems a good place to start to push export earnings ever higher and earn our way to being an upper-middle income economy and country.
Peter Tanyanyiwa