eBusiness Weekly
Business Weekly Last Word
Zimbabwe had a positive balance of trade in October this year, and that was due to a sustained rise in exports since the middle of the year with imports actually slightly above the 2019 monthly average.
The exports of US483,3 million were the second highest in the last 11 years, since the total and absolute collapse of the old Zimbabwe dollar, the highest being the US$577 million of November 2017 and that figure was largely a one-off, rather than a figure in a sustained growth trend. October’s export total was different, the culmination of four months of sustained growth since the nadir of June this year.
That figure of US$483,3 is also higher than the imports in any month of 2019; in other words it would give a positive balance of trade regardless of the month.
This significant change is a direct result of the economic reforms that have seen more than a decade of pretence stripped away from the exchange rates and have allowed market forces to now decide what should be imported and what imports were not really needed.
At the same time the fact that exports started climbing from June, the month they reached their lowest, can probably be assigned to the end of the multilateral system that month and the legal requirement to quote all goods and services being sold in Zimbabwe in Zimbabwe dollars.
Up to the switch many Zimbabwean companies wanted to earn foreign currency to buy required inputs, the interbank market being a bit sticky as exporters hoard their retained earnings. But for most the simplest solution appeared to be to get Zimbabweans to pay in US dollars, a policy reinforced by the general perception that the US dollar would return as the de facto local currency.
But what “everyone knew” was wrong.
Suddenly it was no longer possible to charge Zimbabweans in any foreign currency and its was paid crystal clear that Zimbabwe was returning to the global norm of having its own currency with foreign currency reserved for external trade. Many businesses still desired their own source of foreign currency, but now had to earn it by selling to foreigners, rather than expecting Zimbabweans to pay in US dollars. So they had to export.
There had always been the traditional exporters who were producing goods that had little or no demand in Zimbabwe. Most mining companies had to export or close; Zimbabweans smoke a tiny fraction of the tobacco crop. But they were now joined by others who needed to look outside if they wanted to keep building their revenues and earn their own foreign currency.
At the same time Zimbabwean companies and manufacturers have started dominating their home markets, but doing so without any special protection by restricted import licences or through punitive and protectionist import duties. In fact, the tendency has been to reduce or eliminate import duties, not add to them.
This is what classic economics would predict. If you make imports more expensive, and thus less competitive, you would expect local firms to start making the running. When Zimbabwean products on export markets become cheaper, and thus more competitive, you would expect more exports. And that is exactly what happened.
Until the market-orientated reforms were introduced, and foreign currency was being allocated by fiat and the US dollar was the de facto local currency industrialists and manufacturers were complaining that using the over-strong US dollar was overpricing them out of foreign markets and making them less competitive against imports in local markets.
Where local business has either come to dominate, or at least start being one the major sources of goods and services, it is because of price, largely. A Stroll around any major supermarket will quickly show where Zimbabwean business has reclaimed the shelves, where it is making a good effort and where large gaps exist that smart and innovative businesses should seriously examine to see if they can undercut the foreign supplier without compromising quality.
In some areas there has been a lot of success, but when you switch to something like washing powder or most toiletries, you find very little input from Zimbabwean business, although there were times when a lot more was being produced in these areas. In other sectors, such as electrical appliances, where Zimbabwean businesses that had built up a large market share in the protectionist days of UDI and early independence, imports still dominate. But the local factories are now at least represented on the shelves again and if they can learn to undercut imports they can return on full force.
Zimbabwean businesses have to realise that seeking Government intervention to keep out foreign competition is simply not a policy that attracts much support these days. Even consumers who “buy Zimbabwean” still want to see the imports there, not so much to buy but to keep the local suppliers honest and profiteering out.
In any case, as Zimbabwe signs up to eve more liberal free trade deals, the Government has less room to manoeuvre. The only duties really permitted are revenue raising duties, not protectionist duties.
But if Zimbabwean industrialists can compete effectively on quality and price in their own home markets, they are building a long-term customer base and one based on reality, not on Government orders. And that then gives them a real opportunity to look beyond Zimbabwe for customers, again because they can compete in other markets.
Zimbabwe’s foreign currency earnings per head of population are better than many African countries. But those that have more sophisticated, healthy and stable economies also have local manufacturing that can meet their market’s demands and so foreign currency spendings per head are a lot less than Zimbabwe’s. So they grow and develop.
That is the route Zimbabwe is now starting to follow, one where the successful use market forces to win and one where Governments see their primary economic job as making the markets work without manipulation or distortion, including the distortions introduced by inefficient licensing regimes.
