Trade deficit to widen to US$3 billion
http://www.theindependent.co.zw/
May 24, 2013 in Business
EARLY signs show that Zimbabwe’s trade deficit will widen to more than US$3
billion this year from US$2,6 billion in 2012, an economist has warned.
Staff Writer
UZ Economics lecturer Professor Tony Hawkins said this was because the
country was over-consuming and excess demand was spilling over as increased
imports.
“At the same time the economy has become a high cost producer because wages
are rising faster than productivity,” Hawkins said.
Zimbabwe’s trade deficit in the first quarter widened to US$845,51 million
and is expected to widen further as there is generally more importing
activity in the second-half of the year. According to import and export data
from Zimstat, exports in the period amounted to US$813,57 million and
imports totalled US$1,66 billion.
At the Institute of Directors Zimbabwe corporate governance seminar
recently, Hawkins said this year’s exports would be constrained by weak
global demand and soggy prices as well as the binding supply-side
constraint — electricity.
In the first quarter, exports were down 10% and hopes that imports would
continue to slow had been dashed by the first quarter numbers.
Hawkins said trade was one of the two main transmission channels through
which global developments influence economic performance in the country. The
second transmission is capital.
He said the country was missing out on FDI inflows as investors were being
put off by political instability and uncertainty. “This includes the
unknowns surrounding indigenisation and most recently, mineral sales and
mining taxation.”
The economics lecturer said there had been a surge in portfolio inflows,
which pushed the Industrials Index on the ZSE to a record high above the 200
point level.
To finance the trade gap Zimbabwe is unsustainably reliant on foreign
capital – “deeply ironic given the government’s indigenisation policy.”
In the last two years, capital inflows have averaged US$1,3 billion a year —
approximately US$1,75 billion when arrears are included. The bulk of this is
borrowed money — only US$350 million a year is offshore investment.
“And this by an already over-borrowed country (foreign debt is 116% of GDP,
over half of which is in arrears).”
Hawkins said the official figures suggest that almost US$1,7 billion of the
financing gap of US$3,6 billion for the last two years has been funded by
unrecorded inflows, which underlines the crucial role of the informal
sector. The balance was being funded primarily by the accumulation of fresh
arrears.
Hawkins said the huge figure for omissions in the balance of payments — some
US$830 million a year — could well mask an even larger volume of offshore
borrowing than that currently recorded.
Various policy recommendations have been put forward by analysts who argue
that the current trend on the current account needs to be urgently reversed.
In the short-term the country needs to put in place mechanisms to ensure
that it earns a fair value for its mineral and natural resource wealth.
Analysts say prominence should be given to the establishment of production
facilities that enable the country to weave its own cotton into finished
shirts, process its tobacco into cigarettes, polish its own diamonds and
beneficiate them into high value jewellery, and also refine its own
platinum, among other possibilities which can be explored to add value to
primary products.
Recently Industry and Commerce minister Welshman Ncube said government will
by mid-year launch the Leather Sector Strategy because the industry presents
investment opportunities that lie along value addition.