23 February 2014

Zimbabwe: Imports Hurt Local Production

THE prevailing increase in import dependency has been caused largely by widening capacity utilisation gaps pushed by company closures, analysts have said.

Capacity utilisation in the manufacturing sector declined to 39,6% last year from 44,9% recorded in 2012, weighed down by obsolete equipment and an absence of long term capital to fund operations.

The increase in imports comes at a time when the country's trade deficit widened to US$4,2 billion in 2013, representing a 17% increase from the US$3,6 billion deficit realised in 2012.

A trade deficit is an economic measure of a negative balance of trade in which a country's imports exceed its exports, representing an outflow of domestic currency to foreign markets.

The gap widened on the back of declining exports which fell 10% to US$3,51 billion in 2013 from US$3,88 billion in 2012. Imports increased by 3% to US$7,7 billion from US$7,48 billion.

In a recent report, AfrAsia Bank said Zimbabwe has been struggling to increase exports because of the preference by local manufacturers to import finished products as opposed to production, which is more costly.

"The lack of price competitiveness of locally-produced goods was worsened by the depreciation of the rand which fell 24% against the USD," AfrAsia said.

Zimbabwe mainly exports low margin primary products in the form of minerals and agricultural products.

Zimbabwe imported goods worth US$3, 66 billion from South Africa, making 47% of total imports last year. Exports to South Africa totalled US$2,6 billion.

Imports from China amounted to US$438,8 million, while exports of US$30,9 million were made.

Imports in 2013 were largely made up of fuels, cars and selected agricultural or processed agricultural products.

"No improvement in the trade deficit is anticipated in the short to medium term as industry continues to be under-capitalised and the rand remains weak," the report reads.

Zimbabwe National Chamber of Commerce vice-president, David Norupiri said the more the country continues to import, the more the deficit would worsen.

"The best way to pull ourselves out of this increasing deficit is to promote local production. We need to create our own demand and reduce the deficit. This is not only an issue of the trade deficit, it's all about creating local employment and stimulating local demand," said Norupiri.

Local companies are barely exporting owing to lack of competitiveness on the international market in terms of pricing and this is mainly a result of high production costs and an absence of modern technology in industry.

Experts say the relatively high trade deficit points to a continued liquidity crunch in the economy unless other sources of liquidity such as diaspora remittances, Foreign Direct Investment and Portfolio investments shore up.

SKEWED POLICIES IMPEDE INVESTMENT -- ROBERTSON

Economist, John Robertson said the current trade problems were a result of self-inflicted problems through government policies that hampered investment.

"The value of the land used to support lending to the agricultural sector, the effects of the land reform programme that took away inputs needed by the manufacturing and other sectors, is only a part of the broader problems facing the economy today," he said.

Robertson said disturbing the agricultural sector led to a decline in exports as there was no room for large-scale farming.

"We have vigorously discouraged investment through indigenisation policies and lack of respect for property rights," he said, adding that mineral production was far much less than what was produced in the 90s.

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