Published by the government of Zimbabwe
Donald T. Charumbira
20 July 2004
opinion
Harare — Foreign currency is an addictive drug that covertly holds developing nations in bondage, eternally coercing them to worship and revere their "dead presidents".
The scarcity of foreign currency in Zimbabwe avails the nation an opportunity to address the question of import substitution. Instead of addressing the forex shortage from the supply side, it is even more appropriate to look at the demand side and ask: What do we really need and use the foreign currency for?
The monetary authorities have been focusing on increasing the supply of foreign currency to meet the needs of importers. What has emerged, however, is a scenario in which demand for foreign currency increases insatiably, making it impossible to fulfil the needs of importers from merely increasing foreign currency supply.
For example, out of bids worth about US$30,1 million which were accepted for auction on July 1 this year, only US$9,5 million was allotted. If the importers are not provided with foreign currency from official markets, they then spur parallel market activity.
Thinking outside the paradigm, we need to ask ourselves why we need the foreign currency, before assuming that merely increasing the supply of foreign currency is the elixir. It is more important to be thoroughly aware of the demand side before addressing the supply side of foreign currency markets.
Conventional economics will say that the disparity between demand and supply of foreign currency should be addressed by increasing exports and, therefore, boosting foreign currency earnings.
But does this not stimulate even greater demand for foreign currency in the long run? If we rely too heavily on imports in order for us to produce for exports, there will always be greater demand than supply.
The most strategic way of addressing the foreign currency crunch, for the long term, is to reduce the demand for foreign currency by stimulating production of quality import substitutes that are competitively priced to undercut import prices. The market will, therefore, drive out the imports and opt for local products. Our focus should be to ensure that the local markets are adequately supplied before we supply the world.
Whilst it is not practical or desirable to eliminate the need for imports, a reduction in demand will augur well for local industries, employment creation and improving the balance of payments.
Total imports to Zimbabwe were US$1,886 million, according to 2000 estimates. Most of these imports were fuel, construction and agricultural machinery, transportation equipment, data processing equipment and software, industrial machinery, pharmaceuticals, fertilisers, and general manufactured products.
One of the major commodities imported to Zimbabwe is fuel. The demand for fuel is justified by its central necessity in all aspects of industry and commerce. The country imports about 1,2 billion litres of fuel annually, at a cost of more than U$480 million. This is more than 10 percent of Gross Domestic Product.
In February 1999, some investors announced the discovery of 500 billion cubic metres of sulphur-free methane gas in a 177-square kilometre basin near Lupane. An investment of U$62 million would be needed to develop this project, including the construction of a power station near the gasfields.
There is a very high potential to exploit the methane gas to make diesel and petrol, generate electricity and to produce fertilisers and paraffin. This would be a key and strategic national project that could spell the end of fuel woes. More importantly, this would be one of the more critical import substitutes to lead the march to self-reliance.
The initial investment required for the Lupane exploration, U$62m, is equivalent to less than two months of foreign currency spent on fuel imports. The potential returns, however, are attractively high. With methane gas presently selling for the equivalent of US$70 per cubic metre, the Lupane reserves could have a retail value of trillions of US dollars.
In terms of data processing equipment and software, Zimbabwe imports most of its computer and software needs. In fact, Microsoft Corporation earns more from Zimbabwe than all other southern African countries combined, excluding South Africa. On the hardware side, we are presently importing fully built, often branded, computers. An average desktop computer of this nature would cost in the region of US$800.
If we were to import the parts of the computers and assemble them locally, the cost of the parts would be less than US$200. With labour, overheads, and other value-added, a computer can be locally produced for less than US$250. This is less than a third of the price of the imported computer.
In terms of software, some developing countries have taken the lead in shifting from using expensive software such as Microsoft products. They have taken up Free and Open Source Software (FOSS), which is freely available from the Internet.
Operating systems such as Linux, and their data processing applications such as Open Office, are available free of charge. They function just as well, in some cases even better, than Microsoft products.
They offer greater security and are not as susceptible to viruses as Microsoft products. Therefore, at literally no cost, our software needs can be fulfilled without any stress on the foreign currency auction floors!
Another major imported item is agricultural equipment. Here we need to learn the Eastern techniques of buying samples from other countries, breaking them apart, studying them, and finally developing our own, cheaper replicas. Instead of importing hundreds of fully-built tractors, it is much better to buy a few, and then to establish an assembly plant and produce the tractors locally.
Other agro-processing equipment may also be duplicated locally, if not at the manufacturing level, certainly at the assembly level. The same applies for other forms of industrial and commercial equipment.
Whilst it may seem more expedient and less tedious to just import finished products from other countries, the toll on the nation's future will be increasingly high. In many cases, importation is being done in situations of emergency, but we should at all times cultivate a long-term vision for self-reliance, despite the urgency of the moment.
Import substitution is not a work of genius - it is the result of a determined and concerted national effort towards self-reliance. It is not sufficient to wait for the Government alone to take action: the private sector needs to take the initiative to produce import substitutes.
Foreign currency must, therefore, not be seen as manna that can feed our people or a cure-all. It is only Zimbabwe that cares to feed Zimbabweans - no foreign power or currency is a saviour. Import substitution and self-reliance are the keys to survival in a globalising world.
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