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BY KUDZAI CHIMHANGWA
PROTECTIONIST measures recently introduced by government to shield Zimbabwe’s ailing industry will have negative repercussions on the economy, delegates at a business seminar heard last week.
Delegates said government must first address issues such as the uncertainty created by indigenisation, privatisation, public sector reform, and the restoration of the rule of law before protecting the local industry.
Although exports recovered since dollarisation in 2009, the trade gap increased substantially as imports continued to outweigh exports.
This compelled Finance minister Tendai Biti to impose a 25% surcharge on selected consumer imports at the beginning of this year.
This, according to Tony Hawkins from the University of Zimbabwe’s Graduate School of Business, will only stimulate industry at the margin as the fundamentals of a failed state are still in place.
“De-industrialisation is going to continue, the manufacturing sector will continue to grow more slower than the economy. In other words, the manufacturing share of GDP will go down this year,” Hawkins said at a seminar organised by the Confederation of Zimbabwe Industries (CZI).
Hawkins said the country’s ailing industrial sector would continue to suffer the effects of competitively priced imports, especially in the face of the recent World Bank (WB) projection of a global slowdown.
The bank recommended that developing countries should pre-finance budget deficits; prioritise spending on social safety nets and infrastructure, and stress-test domestic banks.
Hawkins said inflation would in 2012 be stoked by macro-economic pressures, as money supply continues to grow rapidly, probably coupled with a weaker United States dollar.
“The (25%) surcharge and a number of import duty increases will have knock on effects on prices,” he said adding that the inflation figure will be much higher than the 5% projected in the budget.
Hawkins told delegates the 35% increase in government expenditure will increase aggregate demand at least twice as fast as output rises.
“So that means we are going to get upward pressure on prices,” he said.
“Food prices will rise particularly given the reported agricultural planting challenges this year. Wage pressures will increase as the majority of families in Zimbabwe live below the poverty datum line.”
Government last year introduced duty on a few basic commodities with the objective of protecting local industry from import induced price competition.
Hawkins said 93% of Zimbabwe’s exports are commodities and the impact of the global slowdown in commodity prices arising mostly out of the Euro-zone will be the country’s biggest external threat.
Central bank governor Gideon Gono questioned the meaning of economic development in Zimbabwe arguing that the process needs to be inclusive.
He said, although declared export shipments last year stood at US$3,6 billion, one sector alone contributed a huge chunk of the exports.
“You would want to know that 67% of that came from one sector that is mining and of that 67%, 45% came from one or two companies. How reflective is that of growth?” Gono questioned.
He said the agricultural sector contributed 25% to the declared export shipments figure while manufacturing industry’s contribution was 6%.
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