adminLinda Tsarwe
In the last budget presentation, the Minister of Finance and Economic Development, Patrick Chinamasa, highlighted that the country’s trade deficit stood at US$3,8 billion for the period January to October 2013. This represents 29 percent of Gross Domestic Product (GDP) and an increase from US$2,9 billion over the same period 2012.
Some global economists have expressed that a current account deficit which is higher than 4 percent of GDP is a cause of concern.
For Zimbabwe, just the trade deficit alone is far above the recommended levels and has been a drag to economic growth.
This year, GDP growth is projected at 6,1 percent from 3,4 percent last year.
Whether or not this is achievable is dependent on a number of fundamental corrections, which also include the reduction in the trade deficit.
However, to improve the position, problems in all key economic sectors need to be addressed.
Simply put, a trade deficit arises when the country’s imports exceed its exports. This means a country is paying out more to its trade partners than it is receiving.
In our case, 29 percent of GDP represents net outflows as a result of the country’s relatively gross level of imports.
On the other hand, exports have taken a knock during the last decade or so owing to low production levels.
During its hey days, Zimbabwe was a net exporter of agricultural produce such as tobacco and grain.
The commercial farming sector was booming and the country could afford to feed itself as well as the region.
Europe was a major market for the country’s beef exports.
In addition, the manufacturing sector was one of the major contributors to the export market.
Currently we only look back at that era with great nostalgia.
Heaps of challenges constrain our export industry.
The agricultural sector has been struggling due to a myriad of problems.
Over the past years, we have been constantly faced with grain shortages.
To avert hunger, the country has to import from countries such as Zambia, which was the reverse case some 15 years ago.
It is acknowledged that the structure of our agricultural sector changed over the years.
However, does the deterioration in the sector mean that the current structure of farming is not working?
That of course is another argument, but assuming the current structure can be worked with, then we ought to look at what we are doing wrong.
Lack of preparedness has been blamed as one of the major causes of poor harvest; inputs are availed late, fertiliser shortages and late preparation of land, just to name a few.
Furthermore, lack of infrastructure upgrade has hindered the continued development of commercial farming.
This is coupled by under-utilisation of land by some new farmers.
Condensed together, all these factors have crippled the agricultural sector and resulted in the country being a net importer, rather than exporters as was the case before.
Likewise, the manufacturing sector suffered a huge blow over the years.
Hyperinflation was instrumental in eroding value in the sector.
Machinery went un-serviced for years, and utilised over its useful life.
It was also difficult to access raw materials from outside the country’s borders due to lack of foreign currency.
After dollarisation, the sector was in dire need of recapitalisation.
However there have not been any significant inflows of capital and to date, most of these manufacturing companies are struggling.
Their operations are mired with inefficiencies, which is making it costly for them to do business.
Hence, they are failing to meet demand, and the deficit gap has to be filled in by imports.
The country is forced to import even the basic commodities to supply consumers, who cannot be catered for by the local industry.
The decline in capacity utilisation in the manufacturing sector from 44,9 percent in 2012 to 39 percent in 2013 is indicative of how such a flow of trade might remain as is for some time to come.
It is not only the agricultural and manufacturing sectors that have developed reliance on imports.
Our energy sector has drastically shifted in dynamics as production levels have been on the decline against an increasing demand.
Although we have the resources in the form of coal and water, we lack adequate energy-generating machinery to convert the resources into energy.
The ones that are currently in place are obsolete hence constantly breaking down.
Being such a vital production input, energy shortages and disruption has been one of the drawbacks to economic development.
Although importation is inevitable and necessary to cover the deficit gap, it has had repercussions of eroding our trade position.
A number of products and services feature on the imports’ list.
Government has been pushed to the fence as the dominant expenditures of that bill consist of necessities that need to be brought into the country.
Although there has been an influx of products such as second-hand vehicles, their dominance is less than the critical imported products combined.
It is therefore puzzling how the contradicting macro-economic problems can be resolved.
Ideally, all key sectors should be capitalised.
Following that, administration in agriculture should be improved so that the capital will yield the desired fruits.
The former farming model could be adopted, where different types of crops were allocated to regions, depending with climate suitability.
This can create some form of hedge against bad weather such as drought.
In addition, once capitalised, the manufacturing sector can increase its efficiency levels as well as production.
Local demand will then be catered for and surpluses for export purposes are possible.
Capital injection in the energy sector should also see more utilisation of energy-generating resources.
Other key sectors such as mining can benefit from capitalisation through mineral beneficiation equipment that adds value to raw minerals.
With declining metal prices on the world market, value addition will increase proceeds realisable out of mineral exports.
All this will, at best, phase out consumable imports while increasing prospects of export levels.
Imports will be reduced to mainly capital goods that have the eventual effect of improving our industrial productivity and reward through higher exports.
Gradually, the trade deficit will come down to acceptable levels.
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