HomeOpinion & AnalysisZim economy: Trade deficit to persist

Zim economy: Trade deficit to persist

Starting off by giving insight to its general definition, a trade deficit is when a country’s import spending outweighs its export earnings. From this general definition, one can easily tell that this is one of the traits of our bed-ridden Zimbabwean economy.

BY TAKUDZWA CHISANGO

Before zooming in on the perils of this trade deficit to our economy, it is imperative for one to first give attention to the causes of this perennial deficit. It is without any doubt that the relentless economic melancholy prevailing in the country is the chief culprit to this ballooning deficit. It is this cause that has seen the country, mainly over the past decade, shifting from being a rural tuck shop to an uptown wholesaler of foreign finished products.

Over this long decade, inestimable industries have closed shop owing to a cocktail of economic headaches, for example, the high cost of borrowing, inaccessibility of lines of credit, a choking and strangling liquidity crunch, to mention a few. This has all injected doses of structural problems into the economy as the overall cost of doing business is high vis-a-vis our trading partners, thereby eroding price competitiveness.

This has also paved way for a major shift in consumer choices as the country’s appetite for foreign products has remained insatiable due to price uncompetitiveness of local produce in the face of these marginally low priced foreign products. It is diametrically clear that consumers are just applying basic economics in their buying decisions by purchasing what is both available and affordable on the shelves.

It is important not to lose sight of the fact that many people are being discharged into the streets and a few that are currently absorbed in the labour market are earning below the poverty datum line (PDL), so ipso facto consumers don’t have the purchasing power.

However, I will not belabour on how the propounded currency (US dollar) has hitherto impacted to the widening of this deficit. Many are aware that the rand, which is the currency of our biggest trading partner, has as of late been nose-diving on the exchange market, a situation which I can say has created more affinity to foreign products as the US dollar has continued to gain its dominance over the South African rand.

That said, the main source of this deficit is neither about the rationality of consumers nor the currency, but it mainly lies on the supply side. If any hopes of curtailing this deficit are to be in the offing, our industries must therefore rise from the dead so as to revamp capacity utilisation which is currently staggering at 39%, according to the Confederation of Zimbabwe Industries, but also giving ample attention to this factor and a host of others. This is where we are hitting a snag.

To revive industries, the country requires about $2 billion for recapitalisation and retooling but we must also be aware of the fact that our government is audibly singing financial blues, it has an outstanding debt which is clogging financial avenues as this debt has painted a gory picture of the country in the eyes of financiers, low foreign investment due to some obnoxious investment policies and many others. To be realistic, the resurrection of our country’s industries is just but a daydream at this juncture and also in the near future.

Government can, through the supply side, cushion industrial performance through discretionary fiscal instruments, for example subventions and tax incentives but these are all beyond its capacity as it is trying to generate as much revenue as it can in line with the IMF staff monitored programme. This can be epitomised by some unilateral decisions it has been making of late.

On the exports side, it is now becoming hackneying that the country is continuing to lose much revenue through the exportation of raw products, although this is not unique to us but pandemic to the whole continent. Export revenue has continued to diminish as prices of raw key commodities are continuously plummeting on the international market.

For our country to get handsome export earnings, it must heavily invest in value addition, but de facto value addition is not either instant as a passport photo or a stroll in the park, specifically in this economic quagmire.

Steadily perusing all these factors, this cumbersome deficit, in my view, has no quick fix to it and it is clear that it is going nowhere but will continue bedevilling our once robust economy.

  • Takudzwa Chisango is an independent economic analyst, founder and chief researcher for CT Capital — an economic research firm. He can be contacted on chisangotaku@yahoo.com or +263 771 297 898.

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