Export targeting not an end in itself – BMI
HARARE – Increasing exports alone will not be an end in itself in Zimbabwe as structural weaknesses within the country’s balance of payments position, a high degree of political risk and weak productivity will weigh down such prospects, an economic analysis paper published yesterday by BMI Research says.
Zimbabwe has been targeting to increase exports as a means to resolve the liquidity challenges that have resulted in cash shortages and firms failing to settle their international payments for key imports in time. Last year, the central bank introduced an export incentive of up to 5 percent on export receipts with a view to encourage exports. However, the country only managed to register exports worth $2.83 billion against the $3.36 billion target.
The research firm forecasted that Zimbabwe’s goods exports will grow by 3 percent this year, anchored by a rebound in tobacco, diamonds and other exporting industries resulting in more hard currency being accrued.
“That being said, such is the degree of Zimbabwe’s import-dependence that any increase in hard currency circulating the economy will soon be lost to goods and service brought in from abroad. This will slow the rapid pace at which the current account deficit has narrowed since 2013”, said the research firm. Zimbabwe has been implementing import control measures in a bid to reduce the volume of imports by substituting them with locally manufactured products. Total imports amounted to $5.21 billion last year.
BMI Research however noted that export revenues in 2017, while it will offer some relief to the crisis-hit Zimbabwean economy, will offer no escape from the necessary and painful reforms the country will undergo in the short term. It further opined that the country’s external position will continue to act as a drag on headline economic growth while it remains so dependent on imports but continues to rely on the US dollar as its currency. There has been recent debate on currency sustainability, with some sections of business calling for the country to adopt the weaker Rand as its main trading currency, to promote exports.
The research firm believes that the forecasted growth of exports over the next couple of years will not be strong enough, on the back of structural weaknesses in the economy, resulting in the continued lack of liquidity with which to meet the country’s demand for imports. “The detrimental impact this has on supply chains as importers continue to struggle with accessing the hard currency needed to carry out business activity will weigh on economic growth”, said the research firm. The country economy is projected to grow by 1.7 percent this year. The local industry has since last year been struggling to import raw materials due to erratic hard currency and banks’ delays in settling international financial payments.
BMI is also of the view that the bond notes introduced by the central bank are a means of slowly de-dollarising the economy and will likely continue over the coming months. “Should the government successfully follow through with the de-dollarisation process and establish a weaker exchange rate to the US dollar”, the research firm says, “then we would likely see some improvement in the country’s exporting sectors and balance of payments dynamics”. That will however mean de-pegging the Bond currency from the one-to-one tie to the greenback, and allow its strength to be determined by the market forces or fixed by the monetary authorities in line with its macroeconomic objectives.
BMI however noted that de-pegging bond notes will be “politically expensive as the impact of a weaker exchange rate feeds through into higher prices and decline in living standards that would echo the years building up to hyperinflation in the mid-2000s”. Zimbabwe experienced a massive hyperinflation era which saw inflation rising to 231 million percent in July 2008, with the country printing monetary denominations as high as $100 trillion.