The Herald (Harare)

31 January 2013

Zimbabwe: Diversify Export Basket - Call

ZIMBABWE'S minerals have remained the biggest contributor to the country's foreign currency earnings since dollarisation in 2009, but economists have expressed concern over the country's export basket that is dominated by raw commodities as opposed to manufactured or value added products.

Economists say there is need to come up with mechanisms to expand the country's export base to include other sectors of the economy such as tourism, agriculture, manufacturing and services which are underperforming.

Relying on resource exports could be catastrophic because minerals may suffer from vulnerabilities of prices and demand on the global market which in turn, negatively affect export receipts especially when there is a down turn of these fundamentals.

Last year, mineral exports accounted for over 64 percent of total exports and less than 10 percent of imports. Mineral exports exceeded US$2,5 billion in with gold, diamonds and platinum contributing much revenue, according to official statistics.

Total exports were US$3,6 billion, ZimStats reported last week.

Agriculture has been affected by adverse weather conditions and lack of funding.

However, selected crops such as tobacco and cotton have been performing fairly well.

For the manufacturing sector, lack of long-term finance and shortage of critical enablers such as electricity and water is seriously affecting the sector which can also be mirrored in low exports due to uncompetitiveness of local products.

"It is therefore prudent that all the stakeholders, that is Government, business and regulators, address the supply side constraints across all these sectors to create capacity to export," South Africa-based economist Mr Gift Mugano said.

"It is sad that the services sector which constitutes 60 percent of gross domestic product is not significantly contributing to foreign exchange earnings.

"Efforts and policies aimed at unlocking export value from the services sector (tourism, education, communication, health, banking and finance, etc) must be vigorously undertaken."

Last year, Government launched the industrial and trade policy, which, among other fundamentals, seeks to broaden the country's export base and recognise the need for value addition. But it has not yet made an impact in addressing these.

One of major instruments of these policies was to come up with a financial mechanism that would see the establishment of well capitalised industrial financial institutions which would then give long term finance for long- term projects.

"But if you think of it, it should not entirely rest on the shoulders of the Government, but business as well when it comes to addressing the playing field," said Mr Mugano.

Another economic analyst, Mr Witness Chinyama, however, noted that while Zimbabwe would want to diversify its export basket than largely rely on minerals, the situation on the ground was prohibitive.

"Other sectors such as manufacturing are facing recapitalisation challenges and therefore they are even failing to contribute meaningfully to the country's GDP. As a result it becomes difficult to contribute significantly to the export basket," said Mr Chinyama.

He said "it was not by choice" that the country's export basket was mainly dominated by minerals, but the sector is reasonably funded.

"We have so many foreign companies who have poured resources into mining and this has made the sector very viable and it is therefore no surprise that it is the major contributor to Zimbabwe's export basket," he added.

A Harare-based economist with a local research company said while there is need to expand the country's export basket, it was also imperative that Government develops policies to support the ongoing recovery of the mining sector.

The mineral sector now accounts for over 16 percent of GDP and 64 percent of exports.

"The sector remains critical to the nascent recovery in the Zimbabwean economy.

"According to the Chamber of Mines, Zimbabwe's mining sector needs to raise between US$5-10 billion over the next five years. Given domestic liquidity conditions, much of this capital needs to be raised abroad.

"It is critical for Government to develop policies that attract much needed foreign investment while ensuring local participation (indigenisation).

"Finding the right balance is imperative for the sustainable development of this country," said the economist who asked not to be named.

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