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The African Development Bank says Zimbabwe should boost exports by taking advantage of the interim Economic Partnership Agreement with the European Union in order to reduce the trade deficit. Zimbabwe’s trade deficit has been forecast to worsen to over $3 billion by the end of this year after the balance of trade in April widened to $1,6 billion as the country’s reliance on imported goods and services increased.
In a Monthly Economic Review Statement, the AfDB said local companies could take advantage of the interim EPA to enjoy duty and quota free export into the EU for all products and boost exports.
The EPA with the EU was signed by four Southern African countries (Madagascar, Mauritius, Seychelles and Zimbabwe) in August 2009 and came into force in May 2012.
“The need to take advantage of the EPA stems from three main factors. First, the EPA gives Zimbabwean firms an opportunity to explore the large EU market, which constitutes about 7 percent of the world population and generates about 25 percent of the world’s gross domestic product,” AfDB said.
In 2012, statistics revealed that about 21 percent of the country’s imports, constituting about $1,6 billion, came from the EU countries while exports into the EU were only about 3 percent of the total exports, equivalent to about $113 million.
This, according to AfDB, shows that there is a very high trade imbalance in the EU’s favour, which can be reduced through increased exports.
The bank said the fact that only four countries had signed the EPA gave the country an advantage, specifically over South Africa, which dominates the regional market.
“This advantage is particularly helpful since Zimbabwean firms are still struggling to remain competitive in the global market. On a level playing field, Zimbabwe’s chances of successfully securing export contracts would be slim, given South Africa’s regional market dominance,” the bank added.
AfDB noted that exports into the EU could also include value added and finished products, which would still attract no duty and this could be an opportunity to enhance value addition, especially in the clothing and textile industry, in which the country historically had some comparative advantage.
“For this to be realized, however, there are a lot of challenges with which Zimbabwean firms have to be able to deal. First, EU standard specification might be different from those to which Zimbabwe currently adheres, which might call for investment into new specifications,” AfDB said.
“These standards could also amount to significant barriers to trade with the EU, which would have to be overcome. This implies that Zimbabwean firms should also invest in competitive production.”
The EU is currently negotiating similar arrangements with countries including Malaysia, Thailand, Indonesia, the Philippines and India, countries that have competitive advantages over Zimbabwean firms in several product lines.
“ Thus, if the opportunity is to be seized, this has to be done urgently — before competition becomes unbearably stiff.”
Online Reporter