Kudzanai Sharara Taking Stock
Export figures released by the Reserve Bank of Zimbabwe in its 2018 Monetary Policy Statement presentation last week provide the country with every reason to celebrate but also bring to the fore food for thought.
Central bank governor Dr John Mangudya has, since the start of the country’s cash challenges, called for increased production with a bias towards exports. The governor is on record saying increasing production is the solution to resolving the country’s economic challenges of nearly two decades, and results have started to show.
In the MPS presentation, Dr Mangudya revealed that the country’s exports for the period January to November increased by 36,8 percent, to $3,4 billion from $2,5 billion realised in the same months of 2016.
The outcome speaks of the RBZ’s efforts to boost production and export earnings. Over the last couple of years, exporters have been getting incentives ranging between 2,5 and 5 percent and the latest growth in exports has been attributed to such incentives. The RBZ is determined to continue on that path with enhanced export incentives.
Said the RBZ: “Accordingly, the current export incentive scheme that is funded by bond notes shall be maintained to promote export competitiveness at the current thresholds. The scheme which was adjusted to 12,5 percent for tobacco growers starting this year shall be tweaked to 10 percent for horticulture, cotton, macadamia and gold producers.”
Further, the RBZ also increased support for tobacco and gold producers with millions of dollars now earmarked for the two export sectors. This dispensation shall also apply to deserving cotton merchants.
“In order to enhance foreign currency inflows from tobacco and gold production, the tobacco input finance facility has been increased from the $28 million disbursed in 2017 to $70 million, while the gold support facility has been increased to $150 million in 2017 from $74 million (disbursed to 255 entities) in 2016,” said Dr Mangudya.
The central bank governor said financing tobacco and gold and other exportable products and services such as horticulture, mining and tourism, using RTGS funds seated at banks, is beneficial for generating foreign exchange for the country.
However, the RBZ’s export figures also indicate areas of concern.
The figures reveal that despite the bright rays of sunlight that have dawned, brighter days are yet to come and more work still needs to be done.
Of the $3,4 billion export proceeds, 80 percent was attributed to exports of commodities such as gold, flue-cured tobacco, nickel (mattes, ores & concentrates) ferrochrome and diamonds. Most of these commodities are further exported to their final destination by South Africa, which means Zimbabwe is exporting most of these commodities in their raw form.
While there is nothing wrong in exporting commodities, there is risk that demand and prices for such might fall, resulting in reduced export earnings. This has happened before and there is every reason for the country to accelerate efforts to resuscitate and grow other industries.
The 2003−2011 commodity price boom drove up export revenues and, generally, economic growth rates for many resource-rich countries, but this trend has either slowed down or has been reversed since global commodity prices stabilised at a lower level. Nigeria bore the brunt of over-relying on oil revenues amid volatile global oil prices. The proceeds from Nigeria’s oil and gas industry comprised 38,77 percent of its nominal GDP and generated 76,26 percent of the country’s overall government revenues in the first quarter of 2013. However after the collapse of oil prices, Nigeria has been facing challenges with export earnings having been reduced significantly.
Nigeria’s experience brings to light the importance of investing in other sectors of the economy, particularly manufacturing and other value-adding industries.
According to a UNCTAD report, commodity-dependent developing countries, such as Zimbabwe, need to boost efforts to diversify their economies.
The report calls for policies that prioritise diversification, expanding the links between the commodity sector and the national economy, adopting countercyclical expenditure policies which build commodity revenue buffers during price upswings to use them during downswings, adding value to raw commodities, and investing in social protection, health and education.
This is a discussion that Zimbabwe must now have and formulate policies that will enhance export diversification. By reducing the weight of commodities in its export basket, Zimbabwe can contain the negative impacts of commodity price volatility on its economy and promote sustainable growth.
This can significantly reduce the vulnerability of the national economy to commodity price shocks, thus strengthening resilience.
Instead of focusing more on providing fiscal incentives to the primary sector, the RBZ should instead grant such incentives to new enterprises that can help diversify the country’s economic base away from the production and export of commodities.