Tonderai Kwidini
15 May 2008
Harare — With an electoral crisis, world-record inflation and a collapsing economy blighted by a brain drain and a generally restive population, Zimbabwe could prove to be southern Africa's "problem child" as the region seeks to link its economies in a new free trade area (FTA).
The Southern African Development Community (SADC) FTA came into effect on January 1 this year, meaning that most goods produced in the region can now enter member countries free of custom duties.
But despite the zeal shown by other countries as they embrace this opportunity, Zimbabwe will most likely want to take its time to put its battered economy back on track before it commits itself.
The question arising is how SADC will accommodate its political and economic "problem child" in the new regional trade set up.
The free trade area (FTA) has the potential to create a wider economic space where goods and services can move without being encumbered by tariff and non-tariff barriers. This will increase the markets for goods produced according to acceptable standards.
The FTA increases the common market to about 230 million people in the region, which in turn could lead to increased foreign direct investment (FDI). The FTA is also expected to help alleviate the chronic problem of poverty and unemployment in SADC member countries.
But the region's biggest challenge is how to bring Zimbabwe's tariff regime in line with the rest of the SADC region.
Zimbabwe's economy is in freefall with inflation soaring to 165,000 percent, according to the Zimbabwe Central Statistics Office (CSO). The country is in its eighth year of political and economic crisis.
The ZANU-PF government is currently pushing for the adoption of a more protectionist approach to trade. The government is now charging duties in foreign currency on imported items such as clothing and passenger vehicles. It has also taken to charging tax on the hard-to-find essential basic items that cross-border traders are bringing into the country.
Apart from the protectionist impulse, there are also questions on how Zimbabwe can bring itself to an equal level with other SADC countries, considering its economic crisis which includes chronic shortages in everything from foreign exchange to fuel to food stuffs.
The FTA is an important milestone for the region. It is the first step towards the establishment of a SADC-based customs union by 2010, a common market by 2015 and economic and monetary union by 2018.
How will SADC bring Zimbabwe's economic fundamentals in line with agreed regional targets two years from the launch of a customs union? The regional economic targets include single-digit inflation and single-digit budget deficits for all member states by the end of 2008, a proposition that can only be a tall order for Zimbabwe.
Zimbabwe's inflation rate continues to rise amid shrinking economic activity as President Robert Mugabe, who is blamed for the country's woes, clings to power and scares off potential investors.
Harare-based economic analyst John Robertson says this situation can fetter SADC's progress towards consolidating its FTA. "Zimbabwe will definitely fail to penetrate regional trade because it has no exports to talk about. Its manufacturing base has declined by more than 50 percent and has become a net importer of goods that it used to export.
"It can't even produce for its own local consumption because of political decisions," said Robertson. "If things continue in this way, I foresee Zimbabwe spoiling the broth for the rest of SADC -- unless these other countries start criticising its policies of destruction."
The SADC Secretariat was tasked last April by the 14-member regional grouping to come up with an economic rescue package for Zimbabwe. But so far it has remained mum on the contents of its plan while conditions continue to deteriorate in Zimbabwe.
The fragile manufacturing sector is currently estimated to be operating at less than a third of its capacity. The government must urgently boost the production capacity of local industry or risk de-industrialisation, analysts say.
"It will be very hard for Zimbabwe to fit into the SADC FTA puzzle because of its skewed economy. Therefore, other regional economies such as Botswana and South Africa are likely to benefit by exploiting weaker economies such as Zimbabwe," said Hopewell Gumbo, an economic and political analyst with a Harare-based trade organisation.
The launch of the SADC free trade zone could prove to be the nudge that has been lacking in the region's approach to Zimbabwe's economic and political crisis. Regional leaders could now be forced to take resolute action to resolve the crisis or risk being labelled the people who failed to improve regional economic prosperity.
Despite all these seemingly insurmountable problems in Zimbabwe, ZimTrade, the country's trade promotion body, remains confident that Zimbabwe has a big role to play in SADC.
"Zimbabwe will not be a stumbling block in the way of the FTA. In fact, it's going to play a pivotal role because it has been in the business of value adding its goods for a long time and therefore remains ahead of other regional countries, despite its economic challenges," says ZimTrade's chief executive officer, Herbert Chakanyuka.
"We have always been bench-making ourselves. Zimbabwean companies will simply seek to improve the quality of its products and boost its capacity utilisation and eventually be able to produce the required quantities for export."
Zimbabwe currently has five preferential bilateral trade agreements with SADC countries such as Botswana, Namibia, Malawi, South Africa and Mozambique.
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