ZIMBABWE’S heavy reliance on few commodities for balance of payment support is dangerous for the economy as the exports can easily succumb to international price slumps, analysts have warned.
BY FIDELITY MHLANGA
Zimbabwe relies mainly on tobacco, gold and platinum group metals as a major source of its foreign currency earnings.
Tobacco exports earned the country $772,6 million in 2014, went up to $855 million in 2015 before surging to $933,3 million in 2016 and is projected to reach $980 million in 2017.
Gold exports amounted to $753,3 million in 2015, rose to $913,4 million in 2016 and is envisioned to reach $905,3 million this year.
Platinum Group of Metals exports earnings were $678,2 million in 2015, grew to $781,5 million in 2016 and is expected to rise to $789,2 million this year.
Diamonds have been performing badly, bringing in $179,1 million in 2015, $98 million in 2016 and is projected to reach $105 million this year.
Economist Prosper Chitambara told Standardbusiness the current situation was not good for the economy as commodities were susceptible to international price fluctuations.
He said Zimbabwe needed to build a robust manufacturing sector and start to export manufactured products.
“This is not sustainable because it’s vulnerable to volatile price changes on the international market.
“Zimbabwe needs to diversify from commodities to the manufacturing sector. This calls for a major investment in the sector. The current situation is not sustainable at all and we can’t continue on that path,” said Chitambara, who is an economist at the Labour and Economic Development Research Institute of Zimbabwe.
The warning by analysts came as manufactured exports declined over the past three years to $424 million in 2016 from $1 billion in 2014. In 2015, manufactured exports raked in $523 million.
Exports of the economy’s agriculture products grew by 4, 8% to $1,1 billion in 2016 from $1 billion in 2015 dominated by tobacco; portraying the need to grow exports for other products which have been underperforming.
Sugar exports were $155,2 million in 2014, $108,9 million in 2015, $52,8 million in 2016 and are anticipated to grow to $122,6 million this year.
Earnings from horticulture were $10,2 million in 2014, $12,7 million in 2015 and $11,2 million in 2016.
The resource-driven Zimbabwean economy has raked in close to $11 billion in gold exports between 1980 and 2015, according to central bank figures.
Zimbabwe has the second largest gold reserves per square kilometre in the world, pegged at 13 million tonnes.
According to the World Gold Council 2017 outlook, gold demand in 2017 is expected to be driven by trends in the global economy, including heightened political and geopolitical risks, currency depreciation, rising inflation expectations, inflated stock market valuations, long-term Asian growth and opening of new markets.
Between 2001 and 2009, gold exports stood at $1,9 billion before peaking to $3,3 billion in the period between 2011 and 2015 mainly on account of increased production due to new investment in the multiple currency regime that brought stability in the economy.
Gold exports amounted to $2,3 billion between 1980 and 1990 before growing marginally to $2,5 billion between 1991 and 2000.
Another economist Clemence Machadu said Zimbabwe exported more than a thousand different products, and there were calls for local companies to increase production capacities and competitiveness of more products in order to tap into blue oceans abroad.
“What is worrying is that all these top four exports are actually commodities that have not been value-added. Commodity exports are an albatross to sustainable economic growth,” he said.
“You see, commodities are vulnerable to external shocks and they make us price takers and not setters.
“Imagine what will happen to our economy if gold and tobacco prices crash?
“Exporting raw materials means that we don’t realise optimum returns from our resources and that also explains why we have high unemployment as jobs are being exported through raw materials export.”
Machadu said it was critical to support the local manufacturing sector to enhance value addition and efficiency, while ensuring that more investment was mobilised to foster the establishment of more companies that add value to our resources by creating new products or increase the volumes of the ones already being made.
“This calls for robust industrial policies with concrete strategies aimed at positioning the manufacturing sector as an engine for growth,” he said.
“Surprisingly, Zimbabwe is now entering the eighth month without an industrial policy, which leaves the local manufacturing sector on auto-pilot and surviving on piecemeal measures that are not informed by concrete consultations.
“Government must, therefore, be bold in this respect and also put sunsets on commodities exports.”
Economist Persistence Gwanyanya said there was need for value addition and beneficiation of products to increase revenue from commodities.
“There is need to diversify the economy and reduce reliance on commodities,” he said.
“This could be achieved through reindustrialisation. Value addition and beneficiation would also be important to increase revenue from commodities and minimise the risk of low global commodity prices.”