Industry revival under threat from imports
February 3, 2013 in Business
ZIMBABWE imports more than it exports raising fears that the country is
accelerating its de-industrialisation, central bank governor Gideon Gono has
warned.
BY KUDZAI CHIMHANGWA
Gono’s warning comes at a time the country recorded a trade deficit of
US$3,6 billion last year as the economy recorded more imports than exports.
In a monetary policy statement presented last week, Gono said the recovery
of exports has remained weak reflecting limited foreign direct investment
(FDI) inflows as well as volatile international commodity prices for nickel,
platinum, copper and diamonds among others.
“Against this background, merchandise trade remained heavily inclined
towards imports of finished consumer goods and vehicles. Exports realised
over the period January to December 2012 amounted to US$3,88 billion, which
compares unfavourably with imports of US$7,5 billion,” said Gono.
He attributed the country’s increase in import dependence to the persistent
supply gaps occasioned by industrial under capacity utilisation.
Zimbabwe’s industrial capacity utilisation levels declined from 57% in 2011
to 44% in 2012,” he said. “It does not require rocket science to appreciate
the fact that where a country is relying more and more on importation on
finished products, particularly those that it can produce on its own, is on
a path of self-destruction and de-industrialisation.”
Gono said 65% of the imports were consumables.
“Unfortunately whereas one would have expected that there would be a
corresponding growth in duties and government inflow arising from taxation
from these imports, such a development is not in place,” he said.
He pointed out that the excessive reliance on imports, particularly of a
finished nature against subdued export performance has consequently resulted
in the incurrence of unsustainably high current account deficits.
Financing of the current account deficit has remained a challenge, as the
capital inflows have continued to remain inadequate to finance the
escalating current account deficit.
Gono said Zimbabwe was mainly reliant on non-concessional debt flows to
finance current account transactions, further worsening the country’s
external debt position.
The country is saddled with a US$10 billion debt, to the World Bank (US$1,2
billion), African Development Bank (US$500 million), International Monetary
Fund (US$200 million and US$3 billion to the Paris Club of Creditors among
other multilateral institutions.
The country’s overall balance of payments has also remained in deficit
estimated at US$498,1 million in 2012.
In his state of the economy report for December 2012, Finance minister
Tendai Biti said exports and imports during December 2012 stood at US$314,8
million and US$665,5 million respectively, bringing the total for the year
to US$3,88 billion and US$7,48 billion, respectively.
This scenario gave a trade deficit of about US$3,6 billion, reflecting
faster import growth during the period under review and to some extent
under-capturing of exports.
University of Zimbabwe Graduate School of Economics professor, Tony Hawkins
said the balance of payments deficit was the mirror-image of excessive
consumption spending.
He said the economy had become skewed, characterised by excess consumption
spending by the private sector and the state, negligible savings and an
unsustainable balance of payments position.
“Inadequate investment is the consequence of negligible domestic savings,
resulting in a burgeoning foreign debt. Since 2008, we’ve borrowed US$6
billion,” said Hawkins. “The infrastructure deficit, a function of
insufficient investment and pervasive political interference in parastatal
management links directly to the country’s external debt problem and poor
creditworthiness.”
Hawkins said consumption spending was rising as a percentage of gross
domestic product (GDP) to 123% in 2011 from 104% in 2009, while FDI
under-performed, forcing the country to both borrow excessively offshore and
under-invest.
“When viewed in this light, it is obvious that Zimbabwe’s economic problems
demand far-reaching, structural reforms that extend well beyond tinkering at
the edges of the issue by enhancing policy coordination and improved
implementation,” said Hawkins.